In times of economic uncertainty, with employers either downsizing or hesitant to hire additional staff, companies historically turn to contingent workers to assume the work that they might otherwise assign to traditional, full-time employees. The use of contingent workers -- including temporary, part-time, seasonal, leased, contract, on-call workers and independent contractors -- can provide staffing flexibility, cost reductions and tax savings for employers. Today there are few companies of any size that do not use contingent workers in some aspect of their business.
As the use of alternative staffing climbs, regulators and the courts are increasingly concerned with preventing companies from taking unfair advantage of contingent employment arrangements to avoid their legal responsibilities to workers. As a result, the laws related to contingent workers are continually changing, and contingent workers have recently succeeded in lawsuits charging that companies unfairly denied them the rights and status of employees.
Since employment-related laws generally do not apply to independent contractors, many employers erroneously assume that by using contingent workers -- especially those procured from staffing agencies or contract firms -- they are not obligated to comply with federal and state employment laws with respect to these individuals. This mistake can result in costly legal liabilities and financial penalties. In order to avoid potential legal liability, it is essential that employers carefully evaluate whether their contingent workers are legally considered to be "employees," and understand the key laws as they apply to these individuals.
There is no precise legal definition of an independent contractor, and to make matters more confusing for employers, the major employment laws have differing standards for determining an independent contractor relationship. As a rule, the more control a company exerts over the direction of the individual´s work, the more likely it is that the worker will be considered an employee rather than an independent contractor. Below are some of the key legal areas that an employer should understand in evaluating its obligations to its contingent workers.
IRS Regulations. If employers misclassify employees as independent contractors for employment tax purposes, they may be held liable for employment taxes for those individuals. The Internal Revenue Service has established its own criteria to distinguish independent contractors from employees. These factors include whether the organization tells the individual where, when and how to perform the work; whether the individual is free to offer services to other entities; and whether the individual is free to subcontract the work to others. More detailed information and informative examples are available in IRS Tax Publication 15-A, Employer´s Supplemental Tax Guide.
EEOC Guidelines. The Equal Employment Opportunity Commission (EEOC) has issued guidelines outlining the application of EEO laws to contingent workers. Under these guidelines, even if the contingent worker is technically employed by a staffing or contract firm, if the client has the right to control the manner and means of a worker´s performance, the staffing firm and the client are considered "joint employers." This concept of joint employment makes both parties responsible for compliance with anti-discrimination and anti-harassment laws, and requires both parties to take investigative action and refrain from retaliation if an employee complains of discrimination or harassment.
Recently, EEOC has also expanded its guidelines to the Americans with Disabilities Act. These guidelines hold both staffing agencies and their clients responsible for providing reasonable accommodations to disabled workers, and state that if either party knows the other to have violated the law, both parties may be sued. More information about applicable EEOC guidelines is available at www.eeoc.gov.
Wage and Hour Regulations. Under, the Fair Labor Standards Act, federal minimum wage and overtime requirements apply to all contingent workers except independent contractors and self-employed individuals. This law also includes coverage for joint employers. For example, if a company fails to pay proper overtime to a temporary employee procured from an agency, both the company and the agency can be held liable.
Labor Issues. Recent decisions of the National Labor Relations Board have allowed temporary employees working side by side with permanent employees in a union setting to become part of the same collective bargaining units as regular employees. One such decision even applied to temporary workers supplied by a temporary agency.
Employee Benefits. In general, contingent workers are not entitled to participate in company health and pension benefit plans. However, if a company misclassifies a worker who is later found to be an employee, it may be responsible for retroactive payment of benefits that were denied under its benefit plans. Employers should also pay careful attention in drafting the language used in their benefit plans to ensure that covered and excluded classes of workers are clearly defined.
Due to the potentially substantial legal and financial consequences for failing to adhere to all of the relevant guidelines, it is important that employers in doubt about the applicability of any regulations or guidelines discuss their specific situations with a qualified legal professional. In addition, as the laws regarding contingent workers are continually evolving and changing, organizations should engage in a continuing evaluation of their use of contingent workers to ensure ongoing compliance.
