Engineering Staffing Firm or Directly Hire Independent Contractors – What Should Your Approach Be?


August 16, 2016


George Santos

If you have decided that utilizing contract engineers is a strategic part of your talent acquisition strategy, a question still remains – how should you manage the selection and contracting of your workers?

First, it is critical to understand the difference between an independent contractor (1099 worker) and an employee (W-2 worker). The IRS has created a 20-factor analysis to help employers determine whether a worker can be classified as an independent contractor or if they need to be classified as a W-2 employee.

In large part, the analysis boils down to determining:
  • Behavioral Control

This factor relates how much control the hiring organization has over how the work gets done. Requiring a worker to follow specific corporate policies and operating procedures makes it more likely the worker will need to be classified as an employee.

  • Financial Control

Does the worker work for other clients? If so, it is more likely that the worker can be classified as a 1099 independent contractor. Other important factors include whether or not the worker is responsible for his/her own expenses and if they provide many of the tools needed to perform the job. The most responsibility the worker has for supplying tools needed to perform the job, the more likely the worker can be classified as an independent contractor.

  • Relationship of the Parties

How often and for how long work is performed is also a factor for determining if a worker can be classified as independent. Regular, ongoing work makes it more likely that the worker will need to be classified as an employee. The presence of a contract outlining the relationship and scope of work is a factor supporting that a worker is an independent worker.

If you decide that hiring contracted independent workers is the direction you want to go, you will need to be careful to correctly establish these relationships. Numerous companies, including Microsoft, have recently faced litigation, hefty fines and the requirement to pay huge back taxes for improperly classifying workers as contractors, while treating them (in the eyes of the IRS) as employees.

In addition, if you decide to hire your own contract workers you will need to do your own sourcing, interviewing, background checking and make sure the contractor is appropriately insured for the work he/she will be conducting.

While an interim, contracted workforce is a critical part of many companies’ talent acquisition and management strategies, there is a great deal to manage to assure compliance with the IRS as well as labor laws. In addition, the tasks of sourcing, interviewing, contracting and retaining these workers is a large responsibility that is difficult for many organizations to handle.

The Best of Both Worlds

How can you enjoy the flexibility contract workers provide without the potential liabilities and time required to find and manage these workers? Engineering staffing firms, like 180 Engineering, source, interview and perform background checks for prospective engineering talent.

Workers are employed by the staffing firm as W-2 employees so that any potential confusions is eliminated. The staffing firm handles administration including payroll taxes, benefits, workman’s comp insurance and all other administrative aspects of employee management. The staffing firm is also responsible for compliance with regulations such as the Family and Medical Leave Act (FMLA), Patient Protection and Affordable Care Act (PPACA) and local, state and federal labor laws.

Interim workers placed by a staffing firm are required to work under the terms of the agreement you established with the staff firm allowing you to maintain control of the arrangement, while greatly reducing the direct administration required from your company.

The other critical benefit that an engineering staffing firm offers is, given their database of candidates and skilled recruiters who know the industry, the ability to quickly source and vet workers to meet your specific requirements.

A contracted interim workforce is a talent acquisition and management strategy being employed by many organizations requiring flexible and/or specialized engineering talent. While some companies are directly hiring and maintaining a stable of independent contractors (1099 workers) themselves, this approach is too risky and too onerous for many companies.

Engineering staffing companies truly do provide the best of both worlds – all of the flexibly, tremendously reduced administrative responsibilities and greatly reduced risk.