This article was updated on September 11, 2018.
Temporary workers and independent contractors can be invaluable when it comes to managing the ebb and flow of your business cycle. However, it's important to note that these workers come with their own unique set of risks. Before you hire temporary employees, you should make sure that your business has a plan in place to manage these risks.
Be Aware of Classification Guidelines
When you hire temporary workers, you need to decide whether they are coming aboard as employees or contractors. If you hire temporary or seasonal employees, you must generally provide them with certain benefits, such as workers' compensation, unemployment benefits, Social Security and Medicare, according to the U.S. Small Business Administration. These regulations do not apply to bona fide independent contractors, so hiring someone as a contractor can be seen as more cost-effective in many ways as long as they meet the relevant criteria to satisfy certain federal and state tests.
As a result, many business owners may be tempted to classify their workers as contractors when they are really temporary employees. However, it's important to note that many federal and state agencies, such as the IRS and Department of Labor, have strict rules on the types of workers who can be classified as independent contractors, and any employer who is found to have misclassified these workers can be subjected to various fines and penalties.
The IRS lays out a series of questions to help you determine whether someone is an employee or a contractor. The classification has a lot to do with how much control you have over the workers in question. Ask yourself: Do they set their own hours? Are they working with other clients besides your company? Do they control how the work is performed? It's important to note, however, that the IRS test is just one type of test, and each agency may have their own test for determining whether someone is an employee or a contractor. If you're still unsure of how to classify a specific employee, you should reach out to a legal or compliance professional.
Ensure Workplace Safety
When it comes to handling potential safety hazards, your temporary workers should be given the exact same protection as your regular employees. As a best practice, you should make sure that your contractors receive workplace safety training before they come aboard.
Also, it's important to note that true independent contractors will not be covered under your workers' compensation insurance. You may be responsible for any injuries they incur on your property, or in connection with the performance of their services. As such, you may want to check to see if a contractor has their own workers' compensation insurance before you agree to work together.
Protect Company Secrets
As a general rule, you should have a plan in place to protect your company secrets, but this can be particularly important if you hire temporary employees or contractors. After all, these workers may end up working with one of your competitors in the future. If the laws in your jurisdiction allow, one option is to have your temporary workers sign a noncompete agreement. This document prevents them from working with direct competitors, generally for a limited period of time, and within certain regions, after they leave your company. While this may sound like a good solution, the laws regarding noncompete agreements and their applicable terms vary amongst different states and some courts may find they are not enforceable.
Another option is to have your temporary workers sign a nondisclosure agreement. This agreement can be used to prohibit employees, including former employees, from revealing company secrets to a competitor. If you plan to draft any agreements to help protect your confidential information, consider consulting experienced employment counsel to help.
Temporary workers can be a valuable addition to your workforce as long as you take the time to do it right. When in doubt, consult with your tax and legal professionals for circumstances pertaining to your business.