There is no denying that the gig economy is a significant contributor to the U.S. economy. With many individuals finding value in creating a secondary income stream by providing contract-based freelance services, there is an upsurge in trends.
For many businesses, hiring independent contractors is convenient because they come with a no-strings-attached payment approach, which benefits businesses and the independent contractor.
Factors like risk-free hiring process, predetermined timelines, lowered costs, and cheap manpower contributes to the growth of the gig economy.
However, it is also important to understand that the gig economy comes with its share of non-compliant practices.
Understanding the Gig Economy: What’s Going On?
Many businesses that engage with independent contractors are not reporting or rather misreporting the contractual payments made to their vendors. Similarly, many vendors fail to provide accurate tax information to the hiring business to avoid tax burdens.
Now, 36% of the U.S. workforce is a part of the gig economy that is grappling with unreported taxes. This is leading to unreported incomes and eventual tax gaps.
This is why the IRS is accelerating its regulatory compliance operations and encouraging businesses and self-employed individuals to choose voluntary compliance and tax transparency.
But that’s not all.
The Cost of Noncompliance
Hiding your profits, evading taxes, and not establishing safety protocols for your workers may ensue lawsuits and ugly battles with the federal forces.
But even something as simple as tax information discrepancy can invite more trouble and hefty penalties for your business than you may think.
The Root of Noncompliance
Apart from wrongful tax information, the gig economy is also grappling with several murkier noncompliance issues.
Many businesses, intentionally or unintentionally, engage with individuals or organizations that are misrepresenting their identities, showcase false positives, engage with targeted individuals, and overlook security compliance issues.
This is why it’s important to verify the incoming worker or client against the authorized watch lists.
While many small businesses argue that ensuring compliance is expensive, they don’t seem to realize that the cost of non-compliance is even higher, and could even be the end of your business.
This calls for a change in the Know Your Customer/Client process, where the onboarding business can validate and verify the tax details of the vendor or customer. It would further help in avoiding TIN mismatches and the year-end W-9 solicitation rush in the gig economy.
Stabilizing Gig Economy Businesses Through Identity Checks
It is safe to say that there is a trust deficit within the gig economy and the dip is only going to get deeper. With a regulatory compliance protocol like identity check, the gig economy can mobilize, accelerate and stabilize its own ecosystem.
Identity checks are one of the smartest compliance tools designed for businesses in the 21st century. Regardless of the size of your business, you can utilize the identification framework to validate an individual’s identity or entity’s real-time compliance status, saving you from engaging with unverified or illegal parties.
The following identity checks help businesses stay compliant and avoid unrequited attention from federal forces.
Check #1: TIN Match
Before you add a new vendor or customer to your master sheet, validate the tax identification number (SSN, EIN, BIN, etc) and name provided by the individuals. If the details provided are in accordance with the IRS records, the individual passes the tax identity compliance check.
Check #2: OFAC Sanctions Watch List
The Office of Foreign Assets Control maintains a national security watch list that contains the names and personal information of targeted individuals as identified by the OFAC. Validating an individual against this list will help you see if you are engaging with someone who is listed as a threat to the national security of the U.S.
Check #3: European Sanctions List
This check will help you verify if an individual or an entity is associated with money laundering activities and terrorism-financing activities. Engaging with a person listed on this watch list will compromise your business compliance status. The federal forces will penalize you for each violation and put your business operations on hold temporarily.
Check #4: Death Master File
Identity theft is a serious crime. This check will help you identify if a new vendor or client is misrepresenting their identity with a deceased person’s social security information. Essentially, this check will help you from associating with imposters.
Check #5: Politically Exposed People
Typically, people who engage in money laundering activities, bribery, corruption, and similar activities are listed in this file. Working with someone who has a controversial history with federal forces will damage your goodwill and reputation.
In Conclusion
The whole idea of identity checks is to ensure that you are complying with the IRS and other federal organizations while making certain that you associate with compliant individuals and entities.
By identifying and validating someone, we get to see if they really are who they say they are. And this will make room for risk mitigation and penalty prevention.
The gig economy has a long way to go and without a healthy ecosystem, businesses and workers will have to endure the dreadful aftermath of noncompliance.
Identity Checks With TIN Verify
TIN Verify powers businesses with consolidated identity checks, which help you identify, validate, and verify the tax and compliance status of an individual and entity.
