Keep your independent contractor staffing agency legally compliant
Keeping a staffing company compliant requires service to three masters: the client, the workers seeking jobs, and the staffing firm’s own business needs. There are also timing considerations. While some compliance issues are fairly consistent, others are constantly changing. Either way, say experts, it’s best to not be complacent about compliance.
The scenarios below look at possible staffing violations that could trip up an independent contractor staffing agency. And, more importantly, suggestions on how to avoid them.
Concern: misclassification of employees as independent contractors
The difference between employee and independent contractor has been a big issue for many companies.
In recent years, gig industry businesses, as well as small businesses, have thrived on treating their workers as independent contractors.
This trend continued after passage of the Affordable Care Act (ACA), which required certain health insurance benefits for companies that met a threshold number of employees. Many businesses sought to avoid the threshold (and requirements) by classifying workers as independent contractors.
The IRS has taken notice of the growing trend toward the use of independent contractors, cracking down on companies — including independent contractor staffing agencies — that wrongly classify employees as independent contractors.
State governments have also been cracking down. In California, the government determined that Uber and Lyft, which employ drivers on an independent contractor basis, must treat their workers as employees.
Action plan: use strategies for avoiding misclassification and audits
First, take 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 submitting 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.
Jason Hill, founding partner of Sound Advice Consulting Services, and Brandon Metcalf, founder and COO of Talent Rover, agree that when it comes to company compliance, knowledge and information is vital. “Having the right tools to manage compliance up front will let staffing firms get back to business,” Metcalf says.
To reduce the chance of facing an audit or being found liable for misclassification penalties, staffing companies should:
- Become familiar with IRS directives about proper worker classification and apply them to the workers being placed.
- Make 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 the employer of the workers it places, “onboarding compliance becomes a huge issue,” says Metcalf. This is because the independent contractor 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 could find itself liable.
Action plan: be aware of all state and federal laws
As the employer of the workers it places, the staffing company should make sure they follow federal and state laws where they operate. While knowledge of all federal employment laws is important, there are a few that become more complicated when applied to the staffing industry. Here’s a brief rundown of some of the more relevant legal topics:
Wage and hour — As employer, the staffing company should ensure 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 requirements — Workers’ compensation laws differ from state to state and the staffing firm should understand how and when a client may be held jointly liable for a worker’s on-the-job injury. Unemployment insurance, for example, is governed by state law and is a source of potential conflict.
Locality-specific laws — Be mindful of unique state or city regulations that may affect workers only on certain jobsites. Hill points to laws in New York that require employers to provide employees with a written statement of their wage before they start work – a heavy burden for staffing companies.
Action plan: keep your recruiting compliant with the latest expert insights from Monster
Employers — which can include an independent contractor staffing agency — must be vigilant about compliance every day, especially when it comes to staffing. Fortunately, you have an established resource at your side. Get connected with Monster Hiring Solutions, where you’ll have access to the latest in expert recruiting tips, hiring trends, and more.
Legal Disclaimer: None of the information provided herein constitutes legal advice on behalf of Monster.