A new survey by ICon Professional Services, a provider of contingent workforce management solutions, finds a significant gap between the actual financial risk posed by companies that misclassify their independent contractor workforce and how companies perceive that risk.

According to the survey, 68 percent of more than 50 executives surveyed said they're confident they would pass a worker misclassification audit. In reality, only 55 percent actually reported passing such an audit.

The survey further found that 57 percent of senior executives said they have “great confidence” in accurately estimating the number of independent contractors engaged at any time. Another 24 percent expressed “some confidence.” These findings indicate an increase in the likelihood of an audit uncovering working misclassification, the report stated.

The survey also found that 77 percent of respondents believe their total financial risk exposure for failing a worker misclassification audit is below $100,000. The reality is that, for 100 independent contractors paid on average $100K annually, a company’s financial risk could exceed $4.5 million.

Patricia Griffin, chief executive officer of ICon Professional Services, said she is “surprised by the extent to which senior executives have such a blind spot to their total risk exposure and don’t realize the significant costs associated with misclassification.”

The results are especially significant, given that independent contractors play an increasingly important role in the labor market, with 84 percent of respondents saying they would maintain or increase their investment in independent contractors in 2015. Furthermore, 50 percent of respondents utilize up to 20 independent contractors per year, while 30 percent engage up to 100 per year.  Fifteen percent utilize more than 500 contractors per year. 

Many of these engagements are long-term. The plurality of respondents (37 percent) retains their relationships with contractors for up to a year, while 28 percent maintain these relationships for up to three years.

Respondents cited several reasons for using independent contractors, but gaining talent for special skills, cited by 69 percent of respondents, far outweighed any other reason. Other reasons cited include quick access to talent (48 percent); cost efficiency (27 percent); and risk mitigation (6 percent).

All told, the use of independent contractors provides a lot of benefits for companies, as long as the risk for mis-classification is properly understood and addressed.

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