In this blog post we will look to explore the ins and outs of what an agent of record (AOR) is, and give you more understanding about how you can effectively leverage an agent of record as part of your contingent workforce strategy.
What is an Agent of Record?
According to Staffing Industry Analysts, an agent of record is “A term used to describe a service whereby the provider acts as a third-party intermediary between a staffing firm or client and one or more independent contractors, administering the back-office functions related to engaging independent contractors, including payroll and government reporting requirements.”
If you’re wondering exactly what an independent contractor is, an independent contractor is someone who works on a contract basis. They are self-employed, either as individuals or as companies and they pay their own taxes, in contrast to an employee that is on payroll.
However, determining whether a worker is an employee or an independent contractor (IC) can complex. According to HMRC’s definition of employment status, an independent contractor works for a client organisation under a contract for services, whereas an employee works under a contract of service. In addition to the contract, it is the actual working arrangements that will determine whether the worker is an IC or an employee.
If the client specifically tells a contractor how to perform a task, what task to perform, when to perform it and where the task should be performed – known as ‘how, what, when and where’ tests – then the workers is probably controlled by the client and therefore an employee.
While a hiring organisation can drive value by utilizing independent contractors, significant compliance risks are involved. Unlike the tax laws and other regulations governing wage-earning workers, those governing ICs are different and potentially far more complex. Further, there are serious penalties associated with improper IC classification. As the utilization of ICs is a more recently developed trend in the history of workforce management, the laws and regulations governing their use are less well-established and more prone to change than those applied to payroll wage earners. This is why it is important for organisations to seek expert help in sourcing ICs and administrating the appropriate tax and benefits structures involved.
What an AOR Does
An AOR can assume responsibility in the following areas:
- Background checks
- IC classification
- Initial and ongoing compliance
- Documentation and audit defence file maintenance
- Contract administration
- Invoicing, expenses, billing, and payments
- Benefits administration
- Risk mitigation and indemnification
The ongoing value of an AOR is that these services maintain the relationship with the ICs they place within a hiring organisation, as opposed to leaving the client to address the process. The AOR controls the dynamic, which can help ensure the client does not inadvertently change the nature of the relationship or take other actions that could cause the arrangement with an IC non-compliant.
In short, the AOR provides an additional layer of protection for the client to utilise contractors, secure in the knowledge that IC experts are ensuring compliance on an ongoing basis.
The Value of an AOR for Independent Contractors
AORs can also provide value by educating independent contractors and helping them understand their IC status requirements. This can ensure ICs feel more comfortable and effective in their work with active management in effect to ensure mutual protection for both the contractor and the client. By providing guidance and expertise to the IC community, an AOR can protect the contractors’ classification as a business and may help ensure they are not misclassified as employees. Providing compliance and oversight to the client, the AOR can also help ensure the client is protected from creeping changes to the engagement that might jeopardize the veracity of their IC classification. Working with an AOR is advantageous for hiring organisations as well as the communities of independent contractor resources they develop for clients.
When to Hire an AOR
You Have Multiple Locations
Staffing agencies with multi-location hiring strategies can benefit significantly from the expertise of an AOR. When your organisation hires in different countries, the risks of misclassification increase. This is because compliance varies per location, and different countries use different IC definitions.
You are Looking to Scale
Another reason organisations should invest in AOR services is when they are seeking to scale. As an organisation begins to scale, an AOR can significantly improve efficiency and provide a cost-effective solution to a complex and time-consuming business task. It can eliminate the risk of non-revenue-generating activities pulling from the bottom line.
Our global agent of record services support your clients and their independent contractors from start to finish. Contact us today to learn more.