Abstract: This article is about the optimum relationship between an interim executive and their client. It has been a while since I wrote on Interim Executive Services. In this article, I return to the primary topic of this blog.
What is the difference between interviewing and hiring an interim vs. an employee?
First of all, it is not in your best interest to ‘hire’ an interim.
If the interim is furnished though a firm, they are more than likely paid on a W-2 and you are not technically ‘hiring’ the interim, you are engaging or entering a contact with their firm. The interim is ’employed’ by the firm and not you. Employed is loosely used in this case because while the interim may be on a W-2 program with their firm, the only time they are paid is if they’re producing billable revenue. Sadly for the interim, they get to bear all of the disadvantages of being paid by W-2 while consulting without having the ability to reap any of the benefits of being an independent contractor.
Now assume that you are smart enough and lucky enough to source the perfect independent or free lance interim directly, what then?
Congratulations, you are probably well on your way to having a far superior resource that will be highly motivated to address your situation without the interference of a third party that in my experience, adds little if any value beyond sourcing the interim. If you have experience with this, you know what I’m talking about. When was the last time you saw anyone from the interim firm you engaged other than your interim?
With a free agent, you will be contracting with the Interim or a company (LLC or Sub-S Corporation) they own. Legally, you are dealing with a sole proprietor in most cases regardless of whether their corporate entity is involved or not. For this reason and depending upon the circumstances, you might want to get their personal guarantee of their firm’s performance.
I have a Sub-S Corporation that I can use for contracting. The problem for me is that if I bill though my corporation, I am obliged to pay the federal government 9% of my earnings in the form of federal unemployment tax or FUTA that I can never claim because as an independent consultant, I cannot be ‘laid off’ so I am ineligible to receive FUTA. Don’t get me started. I have been fortunate that my clients have agreed to engage me directly and individually. A corporate structure when dealing with a sole provider affords disproportionate advantage to the provider.
What about insurance? Increasingly, client firms are requesting or requiring professional liability insurance. Setting aside the fact that I have never seen a claim against a professional liability policy for interim services, I have been successful in convincing my clients to name me under their Directors and Officer’s Insurance (D&O) coverage if I as an interim am going to be authorized to execute documents and take actions on behalf of my client. To me, this makes more sense for the client because if I am required to obtain insurance that will most likely be less robust than the organization’s D&O coverage, that cost is going to be passed along and in effect, the client will be paying twice for the same coverage. Not only that, in the event of a problem, you are more than likely going to be drawn into a subrogation fight. If I have no authority and I am not going to be executing documents, i.e., I am engaged to do project work, then liability insurance should be a non-issue.
In another article, I talk about how to find interim executives.
If you have found the ‘perfect’ interim for your transition or challenge, good for you. If the interim is experienced and sophisticated, you should not have any reservation about engaging them directly and putting them to work in your organization immediately.
Once the interim is aboard, do not lose sight and do not allow your organization to lose site of the purpose of the interim engagement which is usually to help an organization work through a transition usually while beginning the process of addressing major challenges or problems. The scope of the work to be performed should be mutually understood and memorialized in the contract with the Interim Executive. Subsequent departures from the agreed scope represent sub-optimization of the engagement at best and a useless waste of resources at worst.
An interim is not an employee and the more you treat them like an employee, the less effective they will be and the higher risk you will bear with respect to their status as an independent contractor. Why should you care about this? If your independent contractor is found by the IRS to be an employee, you may become liable for employment taxes, benefits and possibly overtime.
A number of requirements must be met before your interim reaches reach the IRS threshold of independent contractor status. To name a few:
- You cannot set the interim’s hours
- You cannot dictate when and how the interim does their work
- You cannot require the interim to use your facilities and equipment to do their job
- You cannot subject the interim to your personnel policies and procedures like travel policies, etc.
- You should not require the interim to participate in employee related activities like employee health, computer system training, etc., unless their specific responsibilities require patient contact or hands-on operation of hospital systems which should be very rarely.
- You should never require interims to record time on your organization’s timekeeping system
The more you require your interims to engage in the actives of employees; things like requiring them to attend out of scope meetings, the higher your risk that the IRS may subsequently find that they were not independent contractors and subject your organization to payroll tax liability and overtime claims that you did not anticipate.
Time and again, I have been required by hospital personnel departments to go through all of the clearances and sometimes orientation of employees. Then I get invited to every meeting in the organization. All of this increases the client’s risk while wasting my time. I have asked the person that executed my contract to screen and approve meeting requests to insure that I am able to stay on task and that the rest of the organization understands my roles and its limitations from their perspective.
I tell clients that regardless of the number of hours they pay for, they receive 100% of my mental capacity virtually 100% of the time. I find it difficult if not impossible to mentally divorce myself from the needs and issues of my client whether I am ‘on the clock’ or not. Because of this, flexibility of hours should not be an issue because when I am engaged, I am always working for the benefit of my client. That said, I assure my client that regardless of the ‘normal’ schedule we agree to, I endeavor to make myself available on-site as needed. This means spending weekends in the client’s city and/or traveling on behalf of the client for matters not related to Interim services commuting.
Take another look at my article about how to find an interim. The effort you expend to locate a ‘free agent’ Interim Executive is worth the trouble. My prediction is that you will thank yourself for taking charge of what should be expected to be one of the most important decisions you may ever make because of the potential of a well conceived Interim Engagement to be favorably transformative in your organization.
If you are a Board member or a CEO and you do not know where to start or how to go about finding an independent interim, get in touch with me and I will give you some pointers.