Since 2014, global businesses have been hiring more project-based contractors, freelance creators, non-full time employees (FTE’s), and on-call temp workers. This shift in employment practice is known as the ‘gig economy’ -- and it’s only growing. According to the Statista Research Department, “In 2020, there were 59 million people doing freelance work in the United States. This is an increase from 2014, when there were about 53 million people freelancing.”
As the structure of the workforce changes, many companies either are already using contractors or transitioning to take advantage of the benefits. These are some of the industries more commonly using contractors and consultants:
Depending on the industry, non-full time employees (non-FTE’s) may become the norm over hiring a full-time employee (FTE). Does that mean a company should run a background check or skip the process?
Companies have a strong allure to switch over to using non-FTE workers. Entrepreneur coach Mike Volkin suggests, “In the gig economy, instead of having access to talent in your geographic area, companies can now access highly specialized talent anywhere in the world.” This means that knowing the reliability and safety of global workers is even more important. A company needs to be certain it knows who it’s hiring, but gig work varies widely. Sometimes an interview may be enough to answer questions about qualifications and identity. The choice to run a background check should depend on both the industry and role of the non-FTE.
For instance, a significant distinction should be made between those who are in low-wage contract work out of necessity--such as someone relying entirely on wages as an Uber driver or seasonal call team worker--versus those who are consulting at Fortune 500 companies for large sums of money over time. A very short-term, low-risk industry may not need a background check, whereas a high-risk, high-tier, and long-term consulting position in an industry like financial services may need a more advanced background check.
In other cases, regardless of whether they are gig economy workers or not, all new hires should undergo a background check. For example, individuals who work with vulnerable populations, such as childcare or healthcare workers, should meet similar standards for background checks. Standardized safe hiring measures protect a company where mistakes can cause liabilities and unwanted expenses, whether or not the employees are full-time employees or gig workers. High-risk industries where theft is prevalent like retail should similarly consider using background checks for all new hires. For these kinds of hires, the background check does not need to be comprehensive, just accurate.
Though a key aspect of most traditional hiring processes, FCRA regulations do not always apply consistently in the context of non-FTE hiring. This is an important distinction that can inform the creation of hiring policies and assessment of liability risks.
According to the Society of Human Resource Management, “Recent court decisions have held that it does not [apply], but the U.S. Federal Trade Commission (FTC) has not budged on its stance that employees and nontraditional workers alike are protected under the FCRA. Because there's no clear answer, experts recommend a hybrid compliance model to avoid misclassification liability.”
Background check specialists suggest that consent and accuracy should always be a part of the process, even for gig workers, but not every aspect of traditional FTE compliance need apply. For instance, while documented language for forms should adhere to similar traditional legal standards, it can reflect the contract position as opposed to using the term “employee.”
A hybrid model that incorporates pieces of an FTE background check is advisable. For example, the process for a contractor should disclose that a background check will be conducted and ask for authorization to do so. At a minimum, the background check should also adhere to the FCRA's employment-purpose pre-adverse and adverse action requirements, and all anti-discrimination mandates should still be followed. Most best hiring practices for specific industries can also still apply the same way they always would.
Since gig workers are legally ambiguous hires, companies will protect themselves by complying with as many FCRA standards for background checks as possible in a hybrid approach, regardless of the type of hire they are making. A standard company policy can also offer protection, and these types of policies should differentiate practices for employees and non-FTEs. Consistently following those different policies depending on hire type can help a company maintain a safer work environment and reduce the likelihood of liability.
The gig economy is only projected to grow in the years ahead, so companies of all sizes should be prepared to understand the nuances of their own industry, patchwork legal frameworks, and the gaps where they should have a company policy to protect themselves. These are the best ways to avoid confusion and legal issues; companies can gain the benefits of contract hiring while avoid discrimination or negligence claims.
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