"With an independent contractor, your company makes the classification. Which means if it is ever wrong, your company is the one that has to deal with the problem."
This is a question I get all the time, from functional leaders and from program managers. What is the difference between engaging someone as an independent contractor and engaging them through an agent of record? Let me unpack it simply, because it is not a technicality you can leave to the contract. It is about who carries the risk.
The independent contractor
When you engage an independent contractor, that is a relationship your company establishes directly. So your company is the one making the determination that the person can be engaged as an independent contractor. In other words, your company is doing the classification on its own.
That is fine when it is done well. The thing to understand is where it leaves you. If that classification is ever determined to be wrong, if there is a claim of misclassification down the line, your company has to deal with it.. The risk sits with you. And classification is not one clean fact you check once. It depends on the whole picture of how the work is actually done; no single thing determines it, and the rules vary by country, by state, sometimes by city, and they change over time. For a company whose core business is not running classifications, that is genuinely hard to do consistently.
The agent of record
An agent of record is a different engagement. Here, the agent of record (AOR), which can be the freelancer management solution itself, performs the classification and makes indemnification protection available to the company. So if a worker later comes back with a misclassification claim, there is a layer of protection in between, carried by the agent of record instead of sitting entirely on you.
That is the real difference. Not the label. It is who stands behind the classification, and who is exposed if it gets challenged.
How to judge
So if you are deciding who should handle this, do not just look at the software. Look at how they handle the hard parts. Can they actually be your agent of record, and provide indemnification for the classifications being made? How do they handle compliance across the countries you operate in? How do they handle payments? Do they give you visibility and control in one place, so you can see your independent contractor and agent of record population rather than guessing at it?
Why it gets harder at scale
Classification is not a one-time thing. It applies to every engagement,in every country.So itis not one decision, it is thousands of them, ongoing, and it is easy to underestimate until something surfaces in an audit.
This is where doing it at volume, with the right process behind it, changes things. At Lifted, an Upwork Company, we act as the agent of record for independent contractor engagements. We run 20,000+ worker classifications processed per year across 180+ countries where we can compliantly engage talent,
So for your own contractors, ask one question per engagement. Who made the classification call, and who carries the risk if it turns out to be wrong. If the honest answer is that you are not sure, that is worth knowing now, not when an audit asks.
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Author
Ernesto Lamaina
GM, Lifted
Ernesto Lamaina is the General Manager of Lifted, an Upwork company dedicated to helping enterprises source, engage, and manage contingent talent across every contract type—independent contractors, staff augmentation, employer of record, and managed services.
This content is for general informational purposes only, and is not intended to be and should not be viewed as legal or tax advice. Readers should contact their attorney or tax professional to obtain advice with respect to any particular legal or tax matter. Information discussed can change frequently, and Lifted cannot guarantee that all information is current at all times.
