If an employee has two employers with actual or potential legal duties, that relationship is called co-employment. This is often the result of contracting workers through a staffing agency since both the staffing firm and its client can develop employer-employee relationships. The staffing agency is technically considered the primary employer. The serious issues arise after a client, or “secondary” employer, oversteps, such as controlling the worker more than the law allows. Using a contract can establish better parameters on the relationship and protect the worker, staffing agency, and clients from legal issues. Are your clients properly protected from these co-employment risks?
The Risk of Co-employment
The key risk of co-employment occurs when the staffing agency client does not understand the legal components of co-employment and therefore tries to extend control over the contractor. This will typically arise through an issue with employee benefits of Employee Retirement Income Security Act (ERISA).
Those who hire workers at a staffing agency and begin to push too much control over the contractors’ work behavior and financial compensation then legally take on the primary employer’s role. The courts consider the extent to which you meet specific factors according to a “common factor test.” If you are deemed the primary employer, you are liable for everything the staffing agency has been performing. Both the employer and the staffing firm can be held equally responsible for a wide range of issues resulting from the contractor’s employment.
Contrary to popular belief, it is not true that if a company only allows a maximum of contractor service time to less than 1,500 hours over 52 weeks, it’ll prevent the company from becoming liable for the contractor’s benefit coverage. This could be illegal if it is done to prevent workers from reaching the hours needed for plan participation.
Each party involved must also be well aware of employee classification. Federal agencies that strongly impact employee classification include:
- IRS – Internal Revenue Service
- EEOC – Equal Employment Opportunity Commission (EEOC)
- DOL – Department of Labor, Wage and Hour Division
- OSHA – Occupational Safety and Health Administration
Managing the Risks of Co-employment
Your clients should be well educated in the legal principles of co-employment, including all employment-related laws. Thoroughly understanding these concepts and taking on appropriate co-employment practices is crucial.
It is also best for contract workers to be excluded from company benefit plans with explicit language in the employment contract that contractors waive claims to compensation or benefits from their placement employer. Attorneys can help review contracts for independent contractors and staffing agency workers to check that employees have waived their rights to benefits.
The contract should be obvious regarding the division of responsibility between the staffing firm and its clients.
Keep in mind that the staffing agency also retains responsibility for labor relations, is responsible for evaluating employee performance, hearing complaints about working conditions, and payroll.
Staffing agencies who are servicing those seeking to hire a large number of contractors for an extended time, should have an on-site supervisor to mitigate management over-control issues.
The “gig economy” continues to rise which has led to a significant increase in co-employment scenarios and therefore, the issues that come along with it. With better-tailored training for those who manage contractors, risks can be limited.
Staffing agencies and their clients should always have their contracts legally reviewed prior to employee placement to help keep everyone on the right side of employment law.
About World Wide Specialty Programs
For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage, we have available to protect your staffing business, give us a call at (877) 256-0468 to speak with one of our representatives.