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Contingent Workforce Can Create a Compliance Conundrum

Temporary workers can misunderstand that the employee’s actual boss is the staffing agency. Employers also may think they can avoid anti-discrimination laws by using indirect hiring, but they may still face legal exposure.

September 6, 2013

Cost-conscious employers often call on staffing agencies to fulfill workforce needs and help handle administrative aspects of employee relations.

But employers should be aware that the use of temporary workers can pose a number of unanticipated issues. For example, temporary workers can misunderstand that the employee’s actual boss is the staffing agency, not the employer using the services. Employers also may think that they can avoid anti-discrimination laws by using indirect hiring through staffing agencies, but they may still face legal exposure as a “co-employer.”

Here are five tips to help employers avoid potential pitfalls while using a contingent workforce. 

1.     Work only with reputable staffing firms. These firms will understand the nuances of co-employer relationships, and will appropriately classify employees under the Fair Labor Standards Act for the purposes of paying overtime. Fly-by-night staffing agencies can sometimes disappear without paying their employees’ wages — which can lead to legal trouble for you, even if you already paid the staffing company. 

2.     Document your agreement with the staffing agency through a written contract. The written contract should identify who is responsible for various aspects of the employment relationship, including unemployment taxes, Medicare contributions and compliance with various laws, including the Fair Labor Standards Act, which governs overtime payments. In addition, employers should seek indemnification from the staffing agency through the written agreement to ensure that the staffing agency retains liability for employment-related claims, to the greatest extent possible, as temporary employees often name both the staffing agency and the employer in charges and claims.

3.     Ensure that the staffing agency controls all aspects of the employment relationship with temporary workers. The staffing agency should set the hours of work, provide training, negotiate pay rates, address disciplinary issues that may arise and terminate the worker when necessary. This is important to ensure that all parties view the staffing agency as the “employer” for liability purposes. 

4.     Do not treat temporary workers as “employees” of the company. Do not provide them with business cards, employee identification badges, employee handbooks, access to corporate facilities (such as gyms) or other materials provided to employees. When ID badges or other materials are provided to temporary workers, those documents should clearly differentiate between “employees” and temporary workers provided through a staffing agency. Review all internal documents (including benefit plans) to ensure that they are clear in that employee benefits do not apply to temporary workers. 

5.     Assume that you have to comply with anti-discrimination and similar laws with respect to everyone — even temporary workers. All employment decisions relating to all workers, including temporary workers, should be entirely unrelated to race, gender, religion or other protected classification. Similarly, if the staffing agency bills you for overtime worked by a temporary employee, make sure that the staffing agency actually pays its workers, and consult your written agreement to determine if the overtime was billed appropriately. In the event that a temporary worker complains of discrimination or harassment, consult with counsel immediately to ensure prompt, appropriate action is taken, and make sure that your written agreement requires the staffing agency to cooperate in any internal employee investigation you conduct that relates to temporary employees. 

Use these tips and you can make cost-effective use of staffing agencies. Still, it’s wise to consult the laws of your jurisdiction for further detail on using temporary workers to meet your staffing needs.

Heather A. Jackson and Cary E. Donham are shareholders at Shefsky & Froelich in Chicago. To comment, email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.