Mitigating Contract Employee Risk in the United States
Part of the challenge with the skills gap is the overall change in employee and employer mentality when it comes to working on a contract basis. Currently, companies are hiring more contractors and fewer permanent hires due to rapidly changing technologies, the exploration of new fields, a shift in employee mindset and governmental regulation. Each of these factors mean employers must closely examine employee status – 1099 independent contractor, permanent hire, etc. – and make the appropriate classification of personnel in order to mitigate compliance risk.
As technologies change and operations become more efficient, it takes less time and fewer people to complete a task. Therefore, employers often seek to hire on a contract or short-term basis, as to properly staff jobs and minimize downtime on the jobsite.
Additionally, the shale boom in the U.S. has led to a boom in field exploration and production. Contractors are especially useful in these short term (6-12 month) engagements and can then move on to assess the next potential drill site. By maximizing their productivity and minimizing the time on each jobsite, employers achieve maximum productivity while employees enjoy a new professional opportunity quite often.
This is an important factor in the shift in employee mindset. Employees in the oil and gas industry are well aware of the skills gap and know exactly how important their skills and expertise are – and they know employers are willing to pay a premium for them. By “hopping” from job to job every 6-12 months, employees can demand a higher hourly rate or salary, which increases their overall happiness in the industry. Because the industry caters to these short-term opportunities, employees benefit not just from a bump in salary but also a diverse experience base that makes them even more marketable.
Each of these situations play a role in the increase in contract employees in the oil and gas industry, and the biggest concern for employers is the risk associated with contract employee classification and insurance. The U.S. government’s recent crack down on employee classification, which resulted from the Patient Protection and Affordable Care Act (PPACA) and the Internal Revenue Service’s (IRS) recent claim to be more vigilant against companies that don’t meet contract employee classification requirements, means the risk for audit and financial penalty for oil and gas companies in the U.S. is larger than ever.
Companies that are unsure whether they are misclassifying employees and at risk of an IRS audit should determine and understand the differences between an employee and an independent contractor by examining the relationship between the worker and the business. Generally, an individual can be classified as an independent contractor if the employer has the right to control or direct only the result of the work and not what will be done and how it will be done.
To avoid misclassifying employees, companies can enlist the resources of a staffing firm to ease uncertainty regarding contract employees. Faststream helps address these concerns by assuming the compliance risk associated with temporary, temp-to-hire and interim employees. By directly employing contract workers, Faststream assumes all risk for tax liability, insurance (health and liability) and benefits.
In addition to compliance risk, there is also a liability and insurance coverage risk for employers; with contractors, workman’s compensation and liability insurance policies often prohibit companies from including their contractors in existing policies.
Choosing a contractor employed by Faststream gives companies the ability to hire contractors without worry. Faststream’s insurance policies cover every possible scenario and are backed by the world’s best insurance providers. Companies also don’t have to worry about the classification risk of contract employees, especially as the PPACA health laws are now being more strictly enforced.
Conversely, Faststream also saves money for contract employees who under most circumstances must provide their own insurance; given the dangerous work performed offshore and in the field, it’s often 1) hard to secure coverage at all, 2) often not the correct or sufficient coverage, or 3) not provided by a reputable insurance company.
Whether you are an employer looking to fill temporary positions with contract employees or a contractor seeking employment, Faststream can mitigate your risk. For more information contact Eric Peters, Managing Director - Americas at Eric.Peters@faststream.com.