By: Melanie Berkowitz, Esq.
Keeping a staffing company compliant requires service to three masters: the client, the workers seeking jobs, and last but not least, the staffing firm’s own business needs.
There are also timing considerations. While some compliance issues are longstanding, others are more pressing, such as the Affordable Care Act (ACA).
Either way, say experts, it’s best to not be complacent about compliance, particularly with scenarios involving the ACA.
“This is not the time to stick your head in the sand when it comes to Obamacare compliance,” cautions Jason Hill, founding partner of Sound Advice Consulting Services.
“Just because a deadline has been extended doesn’t mean it is going away. Know what compliance issues affect your business and how to address them -- now.”
The scenarios below look at possible staffing violations and suggestions on how to avoid them.
Concern: Misclassification of Employees as Independent Contractors
By now it is no secret that, beginning in 2015, the healthcare bill will requires employers with more than 50 workers will have to provide employees with healthcare.
To circumvent this threshold, some smaller businesses are turning to staffing companies to provide them with a workforce of independent contractors who don’t count towards the 50-worker maximum.
The problem is that some of these workers should actually be categorized as employees, with all the benefits and costs than such a relationship brings.
Even before the ACA, the IRS had started cracking down on companies -- including staffing firms -- that wrongly classified employees as independent contractors. Now this scrutiny is tougher than ever.
Action Plan: Use Strategies for Avoiding Misclassification and Audits
First, takes steps to avoid being audited at all. According to Jill Stoppard, Staffing and Human Resources researcher for Emergent.com, some common scenarios that can trigger IRS scrutiny include:
- An independent contractor filing an application for unemployment or workers’ compensation benefits
- A temp failing to properly report income taxes
- A worker who believes he or she is misclassified reporting the issue to the IRS.
Both Hill and Brandon Metcalf, founder and COO of Talent Rover agree that when it comes to staffing company compliance, knowledge and information is vital.
As Metcalf puts it: “Obamacare and compliance distract from what staffing companies really want to do: make great placements. Having the right tools to manage compliance up front will let staffing firms get back to business.”
To reduce the chance of facing an audit or being found liable for misclassification penalties, staffing companies should consider the following:
- Become familiar with IRS directives about proper worker classification and apply them to the workers being placed.
- Make your contractors “W2” employees and be the employer of record for all city, state and Federal requirements. This scenario gives the client the independent contractor it desires while protecting all parties from risk.
- Invest in software to track and manage every step in the staffing process. Platforms are available that make it easy to see the number of hours each worker works, pay rates, schedules and other information relevant to the placement process, which is also important for compliance.
- Be wary of any client that asks for a “permanent placement” it intends to treat as an independent contractor. If a client misclassifies a worker who is not a staffing company employee, the staffing firm could find itself liable for penalties because of the client’s action.
- Use all of the information available, whether through reports from a software system, expert advice or participation in industry groups to help you make decisions about how to best comply with laws and regulations.
Concern: Violation of Federal Employment Laws
When the staffing company acts as employer of the workers it places, “onboarding compliance becomes a huge issue,” says Metcalf. This is because the staffing agency will be liable for following all of the laws related to the employment relationship even if one of its clients is directing the worker on a day-to-day basis.
Placing a worker with a client usually means customizing the onboarding process to that client’s specific needs. If something goes wrong with the placement, the staffing company -- as ultimate employer -- could find itself liable.
Action Plan: Be Aware of All State and Federal Laws
As the employer of the workers it places, it is up to the staffing company to make sure that both it and its clients follow both Federal law as well the laws of whatever state it operates in.
While knowledge of all Federal employment laws is important, there are a few that become more complicated when applied to the staffing industry.
- Wage and Hour -- As employer, it is up to the staffing company to make sure its placements are paid for all hours they work at minimum wage or above, including overtime. Failure to maintain proper records or pay the right amounts can result in major penalties.
- Non-Discrimination -- Not only do the staffing company’s own hiring and placement policies need to be non-discriminatory, but if a client discriminates against a worker on the job, EEOC guidance holds that both the client and the staffing company could be liable.
- State Law -- Workers’ compensation laws differ from state to state and it is important for the staffing firm to understand how and when a client may be held jointly liable for a worker’s on-the-job injury. Unemployment insurance is also governed by state law and is another potential source of conflict.
- Locality-Specific Laws -- Be mindful of unique state or city regulations that may affect workers only on certain jobsites. Hill points to legislation in New York State that requires employers to provide employees with a written statement of their wage before they begin work -- a heavy burden for staffing companies that may place dozens or more temporary workers in new jobs across the state every day.
Legal Disclaimer: None of the information provided herein constitutes legal advice on behalf of Monster.