Contingent workers provide a valuable service to companies looking to staff short-term projects or reduce the costs of paying for full-time employees with benefits. However, many employers let talented contingent workers go after a pre-determined number of hours due to the perceived risk associated with co-employment.
Simply put, co-employment means that an individual is employed simultaneously by more than one employer. In a co-employment arrangement, the staffing firm is typically responsible for things like paying the worker’s wages and taxes and providing workers’ compensation insurance, while the client company is responsible for directing the gig or contingent worker’s day-to-day activities.
Origins. Wariness of co-employment can be traced back to the 1996 Vizcaino v. Microsoft lawsuit, in which independent contractors working for Microsoft sued the company, arguing that they were entitled to be included in Microsoft’s employee benefits program. Microsoft ultimately settled the suit for $97 million.
Ultimately, the case came down to how Microsoft’s benefits plans were written. “Microsoft could have excluded these individuals from at least most of its employee benefits plans if it had included effective exclusion language in its plans,” according to Don Mazursky, a partner at the law firm of Smith, Gambrell & Russell and co-chair of its executive compensation and employee benefits practice.
“In general, the fear of co-employment is unwarranted,” according to Jamie Kitces, associate general counsel at Randstad USA. “There are some broad guidelines that talent leaders need to be aware of, but organizations can mitigate risk by working with reputable staffing firms that are true human resource partners and are knowledgeable about – and compliant with – employment laws.”
The key to avoiding liability is to clearly define who controls and supervises contingent and temporary workers and to ensure that employee benefit plans clearly state who is eligible to participate and who is not. For example, contingent, gig, and contract workers should be excluded from plan participation.
Regardless, many businesses to this day remain apprehensive about using outside contract workers and being liable for benefits in the future, and many employers resort to term limits in order to mitigate those risks. This practice is not only unnecessary but can be harmful both to workers and business efficiency and productivity.
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The balance sheet and the brand. Letting talented contingent workers go prematurely because of a misunderstanding about the law not only impacts the worker’s livelihood, but also can negatively impact your company. If a business is consistently churning through new flexible workers, it loses productivity by having to constantly get new talent up to speed. This practice can cause discord among those who want to work with a quality employer but do not understand why they are being rotated out and can also result in temporary workers seeking third-party representation, such as unions. Additionally, a constantly churning and dissatisfied temporary workforce can greatly damage a company’s brand, resulting in negative reviews on social media and employment websites like Glassdoor.
Lost opportunity. Anxiety associated with benefits liability exposure can rob organizations of the many economic benefits of a flexible workforce. For example, when a staffing firm is involved, the staffing company assumes responsibility for tasks such as verifying employees’ eligibility to work in the United States and complying with the Family and Medical Leave Act and the Affordable Care Act, which takes the burden off organizations.
Additionally, a true staffing partner will advise the employer on co-employment risks and pitfalls, provide benefits to temporary staffing employees, and clearly establish itself as the employer of the contingent workers. The true staffing partner also will clearly denote its important role to its client and the workers themselves. In these situations, the relationship between the client and the staffing company results in protection, not liability.
Businesses that worry about assuming liability for benefits as part of a co-employment relationship should be reassured that these concerns can be mitigated, and the advantages of contingent workers can be realized with clear knowledge of, and compliance with, applicable employment and benefit laws. Temporary workers serve a valuable and important purpose, especially when the country is trying to rebuild its labor force, and utilizing the staffing flexibility of contingent workers should not be deterred by fear of co-employment.
The information included in this piece is meant for informational purposes only and should not be interpreted as legal advice.