3 Things Pharma CEOs Should Know About Classifying Independent Contractors

(DGIwire) – Pharmaceutical companies have more than FDA regulations to think about. When it comes to hiring practices, it is vital for pharmaceutical companies to be cognizant of employment regulations. As noted recently in Life Science Leader, misclassification of independent contractors (ICs) can have a substantial negative impact on a business. Here are three key IC considerations pharma execs should ensure are addressed by compliance efforts:

  • The relationship is key. What truly counts is not just an IC’s business setup but how the company engages the IC and if the engagement creates an employer-employee relationship, writes Rebecca Cenni, founder and CEO of Atrium Staffing, which is focused on providing contingent workforce solutions for mid-size and Fortune 500 companies in nearly every industry. In general, the more control the company exerts, the less likely contracted workers may qualify as an IC. “A genuine IC should require little supervision, should not be financially dependent on a single client, and should have the autonomy to determine how and when work is performed,” Cenni notes in the Life Science Leader When planning the project, if a company anticipates treating an IC like its full-time employees by offering substantial training or regular oversight, it might be more appropriate to hire them as a W-2 employee.
  • Determine what’s at the core. Twenty-four U.S. states—as part of their three-pronged “ABC” test for IC compliance—include a key component known as the Core to Business (C2B) law. Essentially, the law mandates that services performed by an IC cannot be core to a company’s business or one of its core competencies. In the state of Massachusetts, for example, and just recently in California, the C2B law states, in part, that “for an individual to be classified other than a [W-2] employee,” a service must be “performed outside the usual course of the business of the employer.” As a result of this restriction, pharma companies in these states cannot hire ICs to perform projects related to drug research and development. In contrast, engaging contractors to provide expertise on business support functions, such as finance or IT, falls outside the category of “core activities” and is not subject to such restrictions.
  • Ask an expert to ensure compliance. A company’s need for IC expertise may grow as it ramps up its workforce, Cenni writes. Its HR or legal departments should ensure it is engaging ICs in compliance with federal and state regulations; they can leverage their employment-related expertise or use an external company to help evaluate potential ICs. Whether the task is handled internally or externally, having an established process to determine the proper employee classification is key to avoiding costly fines. Atrium can serve as a valuable partner in this regard. In addition to its expertise in this area, its activities also include regional Temporary and Direct Hire Staffing, national Payrolling Services, national Independent Contractor Engagement, Managed Service Provider, and Intern Program Design. The company has extensive experience matching the right candidates for a range of positions within a variety of industries.

“There’s a tremendous amount of potential to work with talented individuals while making sure you’re mitigating any risk of misclassification,” Cenni adds. “Being mindful of employment regulations is a necessity for any company utilizing ICs.”