If you work with gig economy independent contractors, then you probably need to know about these due diligence tips to stay compliant and ahead of identity fraud.
Independent Contractors & Gig Economy
Businesses have always been keen on hiring independent contractors.
And why not?
Independent contractors come with so many cost-effective quirks, the most important one being the no-strings-attached business arrangement.
Independent contractors are no longer the same “contract workers” that there were a few years ago.
The gig economy landscape has changed quite a lot, and the industry is home to a variety of talent and resources.
For starters, the gig economy consists:
- Gig workers
- Independent contractors
- Self-employed professionals
- Temp staff
And there is no single “typical” independent contractor to choose from. The gig economy is welcoming younger talent to its resource widget.
But this is not just in the U.S.
Across the world, the gig economy landscape is changing rapidly with almost 90% of the working population in countries like Australia, India, Italy, and the U.K. being comfortable joining the gig economy in some form.
So, it’s safe to say that the demand for cheaper and quicker resources has led the workforce to approach alternative opportunities to create an additional income stream.
While it’s established that the gig economy is vast on its own and businesses depend on its smart workforce, it’s also useful to pay attention to the gray areas of the gig economy.
Noncompliance is a common problem.
Hidden Income & Unpaid Taxes: A Common Problem Of The Gig Economy
The IRS is noticing that individuals are hiding the income earned through non-traditional employment means. This is to avoid taxes. As a result, the IRS has introduced certain changes to 1099 reporting, which will tax the income earned through gig work.
But Wait, There’s More
The lowered income threshold will inevitably affect the way small businesses and self-employed professionals will function in the gig economy. But that’s the least of the concerns for gig workers.
Gig workers have to comply with the KYC and AML regulations in order to survive. This means gig workers will need to provide the necessary legal information, such as the TIN, legal name, and business address, to the payer to receive payments.
And if the gig workers don’t comply with the KYC regulation, the business can withhold a part of the payment as backup withholding.
While this may not seem like a big issue, the disadvantages are too massive to ignore.
Much of the gig economy is exploited and taken undue advantage of due to its economically-priced services and compliance irregularities.
So, there’s every reason to pay attention to the noncompliance narrative within the gig economy and address the key problems (which is a whole different subject on its own).
Let’s take a look at how due diligence can help gig workers overcome payment delays or withholding, and how it can help payer businesses onboard verified and authenticated vendor profiles.
Identity Fraud: An Overview
Identity fraud in the gig economy is becoming increasingly common. Consumers who search for reliable gig workers through apps and websites are scammed. Sensitive and private information of the consumer business is stolen.
The dark web enablers use fake identities, bots, and fake deep technologies to lure in consumers.
While consumer businesses can always find reliable talent, they might also come across imposters who pretend to be gig workers and steal sensitive information about your business and put it up for sale on the dark web.
Countering Identity Fraud Through Due Diligence
And gig workers must be open to revealing their identities (legally) so that they’re in the green zone.
And consumer businesses are more likely to prefer freelancers and gig workers who are verified and authenticated. Likewise, gig companies must also consider incorporating identity checks to validate from whom they are accepting payments.
The gig economy can collectively avert major identity fraud crises and other disruptive forces with a simple KYC framework that ensures that both the parties of a gig transaction are aware of with whom they’re associating.
Due Diligence For Vendor Onboarding: KYC, AML, ATF, And The Lot
Know Your Customer/Client and Know Your Business procedures are identity verification processes that enable you to verify the identities of a person with the source records.
For example, TIN Matching requires you to verify the legal name and Taxpayer Identification Number (TIN), or Employer Identification Number (EIN), or Social Security Number of the vendor.
Similarly, Anti-Terrorism Financing (ATF) checks must be conducted to prevent onboarding individuals, entities, and groups associated with terrorist organizations. The gig economy is too vulnerable, and it’s important to ensure that the payer and the payee are being sure of their business associations.
Money Laundering plays a role in the gig economy for gig workers who get paid in cash. However, fraudsters have evolved with time, and now they’re using the very technologies that regular people use to launder huge funds from a remote corner of the world.
Identity verification and due diligence can help prevent such instances and help the gig economy from being complicit in financial crime.
Useful Reads From Tax1099 Blog:
- Why Instant Payments Are Critical For Retaining Gig Economy Workers?￼
- Preparing For 2023: Form 1099-K Reporting For Online Marketplaces & Apps
- Crypto Exchanges: Simplify Your Tax Compliance And Due Diligence Processes With Tax1099
- The Importance Of TIN Matching For Crypto Exchanges
- What Is Form 1099-K? What Has Changed In 2022?
- Form 1099-K Notices & Penalties For 2022
- Form 1099-K Threshold 2022 – The New Rules Beginning 2022
- Form 1099-K Requirements 2022 – Know The New Tax Reporting Requirements For Businesses
- $600 Rule For 2022 – New 1099 Reporting Requirements For Payment Apps
- A Guide To Understand Payment Facilitators: Who Are PayFacs?