Independent Contractors Drive New Jersey's Economic Recovery

Monday, February 28, 2011 - 00:00

Editor: What are your thoughts on the importance of independent contractors (ICs) within the business community?

Kirschner: They are of tremendous importance to all businesses, particularly small and medium-sized businesses (SMBs). ICs provide expertise in areas that may not be the focus of the business itself, fulfilling IT, software, payroll, HR, legal, accounting and other functions so that SMBs can concentrate on their core businesses.

Editor: Please discuss the standards used to identify who qualifies as an IC.

Kirschner: State and federal officials have examined the complexities of ensuring that individuals are properly classified as ICs, rather than as employees. Actually, it should be a common-sense test to determine how much independence - that is, freedom from control by the business served - the contractor has to determine when, where and how she works. Obviously, this is an arms-length transaction, with ICs supplementing, not substituting for, the work of employees.

Editor: How does regulation impede SMBs in their traditional role as an economic driver, particularly during a recession?

Kirschner: SMBs create 50 to 65 percent of jobs and play a major role in employment nationwide, particularly during a recovery, because they are nimble and can act quickly on hiring impulses. It is critical to allow them to hire according to their needs; however, regulations seem geared toward making this difficult. SMBs can't maintain dedicated staff to navigate the myriad rules and neither can they afford to seek counsel for every question. They use common sense and often seek help from government agencies - a hit-or-miss proposition. In SMBs, the roles of CEO, CFO, HR and compliance officers often are managed by one person without the knowledge available to large companies from specialized risk managers or HR directors. Thus, SMB owners lose sleep over concerns about compliance and associated penalties.

Editor: So, the practice of hiring to serve specific business needs really ties into the whole idea of ICs.

Kirschner: Yes, that is very important. ICs offer critical flexibility, for example, in serving seasonal or fluctuating business needs. We have seen increased activity with ICs since the recession - people with great skills who are unemployed but have a lot to offer companies on an ad hoc basis. So, they are lending their expertise and going back to work. While there is no continuing relationship, ICs boost the economy by creating contract work, providing cost-effective services to SMBs and launching viable companies.

Editor: Is it fair to say that ICs not only help SMBs drive economic recovery but also are drivers of recovery?

Kirschner: Absolutely. ICs create companies and often hire their own employees. Most importantly, they meet actual business needs. We wouldn't be talking about this if people didn't see the value in it, and the recession has only been accelerating the growth of ICs. While it's unfortunate that this grew out of harsh economic necessity, many ICs are pleasantly surprised to discover that they can make a good living by providing their own skilled services. This dynamic is at the heart of economic recovery.

Editor: Can you please comment on Governor Christie's Red Tape Commission?

Kirschner: NJBIA was heavily involved in the Red Tape Commission (RTC) because our members spoke up about regulatory obstacles to economic growth. Everyone accepts valid regulations that serve the public good; however, regulation for regulation's sake merely burdens SMBs while providing little or no public protection. The RTC has adopted a common-sense approach to balance the costs of regulation to business against actual public benefit, requiring a compelling need for state regulations to exceed federal regulations on the same subject.

New Jersey has directed state agencies to make the system more transparent. For example, businesses are very frustrated when they hear diametrically opposing advice from two different agencies; it creates an impossible compliance situation. Recognizing that business wants to comply and simply lacks clear information, the RTC has directed government to provide a consistent message about business requirements. This way, the rules are clear and violations can be legitimately administered.

Editor: What are some challenges that SMBs and ICs face in this environment?

Kirschner: A number of regulatory agencies follow unpublished internal guidelines. While those guidelines should not have the force of law, through the Administrative Procedure Act, they are enforced as law. That is completely unfair and counterproductive. In fact, there is legislation going through that will compel agencies to complete the rulemaking process for guidelines they wish to enforce. Otherwise, they have to publish the rules as guidelines and not treat them as law. In short, if government wants people to comply, then it needs to be clear about the rules.We applaud the efforts of the RTC to create a more fair and just system.

Please email Steven Wilson, assistant vice president for communications, at swilson@njbia.org with questions about this interview.