How are independent contractors treated by the FCRA and other employment laws?

If your company engages contractors (using a 1099 tax form) instead of full-time employees (using a W-2 form), you may wonder whether you have the same obligations under the Fair Credit Reporting Act, Equal Employment Opportunity Commission guidelines, and state "Ban the Box" laws as you would for full-time W-2 employees.

Fair Credit Reporting Act (FCRA): According to commonly accepted interpretations of the Fair Credit Reporting Act (FCRA), purchasing and reviewing background checks as part of the screening process for independent contractors or volunteers falls under "Employment Purposes," making reports for contractors/volunteers subject to the same FCRA guidelines as for employees.

EEOC guidelines and state/local laws: Each state and local law (such as "Ban the Box" laws that are becoming more common) takes a slightly different position on how it applies to independent contractors. That said, the spirit of the EEOC guidelines and the guidance they provide on non-discrimination is intended to cover all types of employment relationships.

Co-employment Risk: Co-employment risk arises when individuals hired as contractors (often through staffing agencies) are effectively treated like full-time employees, and must then be subject to the same employer obligations as full-time employees. Just because you engage 1099 contractors instead of full-time employees, it is not a guarantee that you are exempt from co-employment risk. The IRS lists 20 factors that are used to determine whether an independent contractor relationship is valid. Having even some of those factors, not all, may lead to the determination that your 1099 contractors are actually in an employment relationship with you.