In today’s economy, businesses are always searching for an easy, yet inexpensive way to supplement their workforces as supply and demand fluctuate. One option is to use outsourced contractors–either individuals providing services as an independent contractors or temporary employees engaged through a third-party staffing agency. Many companies struggle with their legal responsibilities and risks in using contract workers. But those risks shouldn’t stand in the way of getting work done.

Co-Employment

A co-employment relationship exists where two or more companies have the right and obligation as an employer or joint employer to maintain responsibilities over the worksite, job duties, day-to-day job functions, and supervision of an individual. In a co-employment relationship both the employer of record (e.g., a staffing agency) and host employer (e.g., the staffing agency’s client) are legally responsible for complying with federal, state, and local employment laws. These include wage and hour requirements, leave entitlements, OSHA compliance, and discrimination and harassment claims.

Usually, hiring a contractor through a staffing agency to provide services as an independent contractor or temporary employee need not be any riskier than hiring an individual directly as a W-2 employee. However, if your company decides to utilize contractors, some preventative measures will better protect you and reduce the risk of future co-employment based claims.

Use a Reputable Staffing Agency

Whether you need a single person to complete one short-term project or have an ongoing need to supplement your workforce, you should adequately vet any staffing agency that you work with. The staffing agency should be financially stable, have extensive history providing services to clients in your industry that are similar in size and scope, and be able to provide reliable references. It should also have a reputation among employees and clients for always conducting business professionally.

The American Staffing Association maintains a searchable online directory of its staffing agency members.

Document the Relationship

While it is impossible to eliminate the risk of a claim arising as a result of a contractor being placed on assignment, you should have a well-drafted agreement that contains the parties’ expectations, legal responsibilities, and roles and responsibilities of each party. The contract should aim at reducing the overall risk of exposure to the company. This includes addressing indemnity obligations to apply if a claim arises.

At a minimum, the agreement should clearly define the staffing agency’s role as the employer of record and state the client company’s requirements for any contractor placed on assignment. This may include pre-employment background and drug screenings, reference checks, or credit checks. The agreement should also identify insurance coverage requirements and define the parties’ liability and indemnity obligations.

Proper Training

It is essential to educate company managers on the overall risks of co-employment. Company managers should understand that they will be responsible for the assignment of job duties and day-to-day supervision of the contractors, but the staffing agency, as the employer of record, is usually responsible for most other functions. This typically includes the recruiting, onboarding, employment, termination, payment of wages, reviews, and handling of disciplinary matters pertaining to temporary employees.

The staffing agency should review all documentation or formal communications between the company and temporary employees. It should clearly define the individual’s role as a company contractor to avoid confusion and reduce the risks of co-employment claims. This includes all company policies and procedures, training manuals, badges, company handbooks, and memos provided to the workers throughout their assignments.

It is also vital to educate company managers on the laws that pertain to joint-employer relationships. Managers need to understand that even though the contractor works directly for the staffing agency, the company still has a legal obligation to provide each contractor with a safe workplace free from discrimination and harassment. Since the company is benefiting from the services of the contractor, it is probably also jointly responsible for compliance with all applicable employment laws. Many managers will not recognize these legal responsibilities without focused training.

Disciplinary Matters Involving Temporary Employees

The procedure for handling the investigation and discipline of temporary employees can cause confusion. An improper approach can increase the risk of co-employment claims.

To the extent possible, the staffing agency (as employer of record) should handle the recruitment, onboarding, employment, and termination of contractors. Exceptions might be necessary in limited circumstances. Sometimes the host employer might have to terminate a temporary employee’s assignment immediately and even escort them out of the building. But if a situation like this arises, the staffing agency should be contacted immediately and advised of the termination. As employer of record, the agency should then contact the worker as soon as possible to follow up as appropriate.

Whenever a workplace investigation involves a temporary employee, the host employer should promptly involve the employer of record. The staffing agency should always have an agent present, either by phone or in person, for questioning of a temporary employee. A representative of the host employer will usually also be present during the interview. They might even conduct the interview. But an individual from the primary employer must be present to serve as a representation for the contractor, review the details, and be available to ask any necessary follow-up questions.  This is especially important if the investigation involves a workplace injury or a complaint that could result in an administrative claim or litigation. This approach also reduces the need for subsequent meetings between the parties to discuss what occurred and the appropriate corrective action.

Employee Benefits

Before engaging contractors, your company should review all benefit plans to confirm that they apply to direct employees only. Your plans and policies should expressly exclude workers engaged as temporary employees or independent contractors employed by a staffing agency or other third party. Address all benefits plans, including medical and dental insurance, 401(k), life insurance, workers compensation, and unemployment insurance.

If, alternatively, you intend to extend benefits to contract workers, carefully consider the legal ramifications. Doing so might convert the worker to direct employee status and interfere with the idea of engaging them as a contractor.

Keys to Remember

Here’s a final checklist to help you avoid co-employment claims from temporary employees and independent contractors:

• Work with a reputable staffing agency that is familiar with your company’s industry.
• Obtain a qualified candidate from the staffing agency.
• Require and allow the staffing agency to manage the person properly during the assignment.
• Proper management should include regular and consistent contact with the employee.
• Provide co-employment training to your managers and human resources personnel involved in the day-to-day management of the temporary employees.
• Don’t extend employee benefits to temporary employees or independent contractors.
• Comply with all applicable employment laws regarding both direct employees and contractors.

Not sure whether someone working for you is an employee or independent contractor? Watch our recorded webinar for more on that issue.