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Business Management

Gene Zaino (North America) - Going Solo: How to Succeed in the Project Economy

Agility is the key to survival in today's fast-moving business climate. In order to respond quickly to economic changes, companies are relying on a leaner workforce and integrating consultants and contractors to work on bits of work called "projects." This paradigm shift - which we call the new "Project Economy" has become the defacto business model for many companies. In fact, according to the Bureau of Labor Statistics, 68% of hiring in the last year was contract-based. The project economy and the ease and convenience of getting work done anytime, anywhere leave little doubt that we have entered a period of a "new normal" with long-lasting changes in how business gets done.

This new and emerging Project Economy model, though beneficial on many fronts, is not without risks and challenges for both companies and workers.

Buying work in bits and pieces keeps business agile but it also dilutes the traditional social contract an employer has with its employee workforce. This has important implications in a society that assumes employers are the primary vehicle to collect and remit the taxes of its workforce as well as provide other welfare benefits. As a result, one of the biggest risks for companies engaging valuable independent consulting talent, is being accused (rightly or wrongly) of worker misclassification by the IRS or State revenue agencies.

When a company engages a person to work as an independent (even as a sole proprietor, LLC, or corporation), and a federal or state agency then applies a set of somewhat murky worker classification rules, it is quite common that the company is accused of worker misclassification. As a result, by law they are charged with penalties, additional taxes and other liabilities. Not often, but on occasion, an individual consultant also can be greatly inconvenienced and face a personal audit.

For a professional transition to an independent consultant, it's important to face the reality that they are not only responsible for getting the work done, but also must cover all necessary employer responsibilities. This includes making a client comfortable with engaging independent services without fear of a misclassification risk.

As an independent contractor, you must still act as a good employer, even if the only person you are employing is yourself. Even as a business of one, you must maintain worker's compensation insurance, obtain medical and retirement benefits - and of course pay yourself as a W-2 employee -remitting both the employers and employees share of federal, state and local payroll taxes and withholdings. You must also show your clients that you have all the standard business insurances to operate as a compliant firm including General Liability and Errors & Omissions insurance. Finally, it is essential to build a strong but efficient infrastructure for all the other back-office functions such as invoicing, collections, contracting and regulatory compliance.

Working with large corporations will generally introduce additional challenges such as the need to accept extended payment terms similar to larger vendor counterparts, high-limit liability insurance, tedious financial criteria, background checks, and other compliance requirements. All of this may make it difficult for ICs to work with large corporate clients - the very companies that can benefit most from their skills and services.

Fear not: It's still a good decision for many to go solo. The power to freely offer services, at a beneficial and attractive cost, is in a professional's hands, if they follow the right preparatory steps to find resources and business models to help them succeed.

Luckily, a new set of tools and service providers make it easier for IC's and companies to work with one another. An Independent Contractor Engagement Specialist (or ICES) provides an operating model that aims to give companies and ICs what they need to succeed in the Project Economy. The model enables companies and workers to collaborate efficiently and mitigate risks. An ICES serves as a company's engagement platform to enable its ICs to easily engage with them according to a set of programs and processes geared to reduce complexities, risk and time.

Some ICES structures also become an ongoing portable operating platform for the IC, with a financial and legal infrastructure that gives them the same credibility and legitimacy as working for a big consulting firm. It empowers the IC to plug into a corporate infrastructure while still enjoying all the benefits of remaining independent.

An ICES benefits both companies and ICs by ensuring that contract and regulatory requirements are met. Some ICES' also takes care of managing a worker's business expenses, retirement plans (such as a self-matching 401(k)). Thereby eliminating paperwork, and providing billing and collections services. This allows the IC to focus on core competencies, rather than tedious but important administrative details.

As the Project Economy becomes the "new normal" we can all benefit from processes that make it easier for companies and independent professionals to work together without undue complexity or risk. The rise of Independent Consulting is a key to future productivity and growth.

By Gene Zaino, CEO of MBO Partners

 

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