The Real-Life Liabilities of Using Independent Contractors
In response to my recent "Are You OK With Paying a Vendor for Their Staff's Nap Time?" post, a reader e-mailed me and asked what my thoughts were on the use of "independent contractors." That term is actually a misnomer, but, in the context of what the reader meant and what my customers generally interpret the term to mean, "independent contractors" means and includes individual consultants, sole proprietorships, etc.
Not surprisingly, I do have an opinion, and that's to avoid using independent contractors whenever possible.
In addition to having a purchasing policy, I also have what I call a "Purchasing Instructions Manual." The manual is customer-oriented, and it's intended to be used by customers when they're trying to figure out how to purchase something in my company and how to engage my Vendor Management Office (VMO). Here's what my Purchasing Instructions Manual says about the use of independent contractors:
Not surprisingly, I do have an opinion, and that's to avoid using independent contractors whenever possible.
In addition to having a purchasing policy, I also have what I call a "Purchasing Instructions Manual." The manual is customer-oriented, and it's intended to be used by customers when they're trying to figure out how to purchase something in my company and how to engage my Vendor Management Office (VMO). Here's what my Purchasing Instructions Manual says about the use of independent contractors:
“Independent contractors” generally mean those contractors that represent themselves or are sole proprietors of companies that have no employees other than the proprietor. While there are many good and justifiable reasons to use independent contractors, there are also some substantial disadvantages:
- Independent contractors typically do not have “organizational infrastructure” such as an information security program or non-harassment policy that protects Company against third-party liabilities.
- Contractual warranties, representations, and indemnifications (e.g., infringement, bodily injury, property damage) have limited or no value when using independent contractors because such contractors are essentially judgment proof due to under-capitalization or limited assets.
- Independent contractors increase the number of vendor relationships and contracts (and contractual provisions, such as confidentiality, to monitor) for Company, thereby increasing internal costs.
- Independent contractors present a significant co-employment risk and could be classified as “common law employees,” resulting in additional expense to Company.
- Informal dispute resolution is more difficult with independent contractors, and is easier to achieve with contracting agencies due to ongoing and future business opportunities.
- Independent contractors are limited to their skills and resources whereas contracting agencies offer a broader pool of resources and resource search capabilities.
Company can be placed in a lower risk position by hiring the independent contractor through a contracting agency for a small “handling” fee. The VMO can assist a Requestor in finding an appropriate contracting agency.
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