Contingent Workers Training for Supervisors: Parts
I, II & III
Introduction
Employers use various types of workers to perform the services they require.
Most of these workers are classified as employees. Other types of workers are
non-employees or contingent workers, such as temporary staffing agency
employees and independent contractors. Correct classification of workers as
employees or contingent staff has always been an important employer
responsibility. It was not until the landmark Microsoft class action lawsuit,
however, over a decade ago that employers became acutely aware of the costs of
misclassification and the tax, the Employee Retirement Income Security Act
(ERISA), employment law, and civil lawsuit consequences. To avoid these costly
errors, employers need to train new and retrain current supervisors on the use of
contingent workers.
These sample presentations on contingent workers are structured to be given in
three sessions and are organized into six parts. The first session (Parts 1-3)
includes the definition and types of contingent workers and covers leased
employees, temporary staffing agency employees and co-employment. The
second session (Part 4) pertains to independent contractors. The third session
(Part 5) covers interns and includes Part 6 which is a Quiz. The sessions are
intended for presentation to supervisors and other individuals who hire and
manage workers. They are designed to be presented by an individual who has
comprehensive knowledge of contingent workers and relevant employment laws.
These sample presentations must be customized to include state laws and the
employer’s own policies and practices.
©SHRM 2008
Presentation Contents
•
This presentation contains Parts 1 through 3 of a five-part
series of training presentations for supervisors on contingent
workers. These first three parts include the definition and types
of contingent workers and discusses leased employees,
temporary staffing agency employees and co-employment.
•
Part 4 covers independent contractors.
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Part 5 covers interns.
•
Part 6 is a Quiz.
©SHRM 2008
Objectives
At
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the close of this session, you will be able to:
State what contingent workers are
Name common types of contingent workers
Cite the reasons it is important to properly classify
workers
• Define leased employees and Professional Employer
Organizations (PEO’s)
• Define temporary staffing agency employees
• Explain what co-employment is and its implications
when using leased and temporary staffing employees
©SHRM 2008
What are Contingent Workers?
How Do You Define Contingent Workers?
• Contingent workers are defined as non-traditional and nonemployee workers. (Employees are defined under the Fair
Labor Standards Act (FLSA) as persons whose activities are
controlled or directed by an employer and who work
necessarily and primarily for the employer's benefit.)
©SHRM 2008
What are the Common Types of Contingent Workers?
Common types of contingent workers are:
• Leased employees – those who are employed and paid by a
leasing firm (professional employer organization (PEO) which
leases the workers to a company
• Temporary staffing agency employees – workers who are
employees of a temporary staffing agency but who perform
services for the agency’s clients. The client retains
management and responsibility for the work but the agency
pays the worker.
©SHRM 2008
What are the Common Types of Contingent Workers? (cont’d)
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Interns – individuals (generally a college student receiving
college credit for participating in an established internship
program ) who are receiving training from the employer, who
are performing no work that is of benefit to the employer, and
who are unpaid.
Independent contractors - Self-employed individuals who
performs services for employers under an express or implied
agreement and who are not subject to the employer's control, or
right to control, regarding the method and means in which the
services are performed.
©SHRM 2008
Why is it important to properly classify workers?
It is important to classify workers properly because of the following:
1.
2.
3.
4.
Taxes
Benefits plans under the Employee Retirement Income
Security Act (ERISA)
Employment laws
Civil lawsuits
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
1. Taxes
• When an employer has leased employees, uses workers from a
temporary staffing agency, or classifies workers as unpaid
interns or as independent contractors, it is not required to
withhold federal and state payroll taxes or pay unemployment
and workers compensation taxes. These taxes include federal
and state income taxes and Social Security and Medicare taxes
(known as FICA taxes) and unemployment and workers
compensation taxes.
• An employer is required to withhold and pay all these taxes for
employees, however.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
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If a governmental agency or a court determines that the
employer has misclassified workers as non-employees, such
as independent contractors instead of as employees and has
not withheld and paid mandatory taxes, the employer faces
significant financial and legal consequences.
The employer will be responsible for making up those taxes and
also faces penalties for late tax payments.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
2.
Benefits plans under the Employee Retirement Income
Security Act (ERISA)
•
ERISA applies to all employer-provided benefit plans if the
employer is engaged in interstate commerce and unionprovided plans if the union represents employees in
interstate commerce or joint employer-union plans.
(Government and church pension plans and plans
maintained to comply with workers' compensation,
unemployment and disability insurance laws are exempt from
ERISA coverage.)
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
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Covered plans include, but are not limited to, medical, surgical
or hospital benefits, sickness and disability benefits,
apprenticeship or other training programs, day care centers and
pension plans.
When an employer classifies workers as non-employees, it is
not required to provide these workers with benefit plans
regulated by ERISA.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
•
If a governmental agency or a court determines that the
employer has misclassified workers as non-employees, such
as independent contractors instead of as employees and has
not provided the contractors with benefits plans its employees
are eligible for and which are regulated by ERISA, the
employer faces significant financial and legal consequences.
•
The employer will be responsible for retroactively providing the
benefits and also faces significant penalties for ERISA
violations.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
3. Employment Laws
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Numerous employment laws cover only employees.
Misclassification of workers as non-employees denies the
protections of these laws. If a governmental agency or a
court determines that an employer has misclassified
workers as a non-employees, the employer faces penalties
for violations. The major laws and regulations and examples
of violations follow.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
 Fair Labor Standards Act (FLSA) – Two important requirements
of the FLSA are for employers to pay minimum wage and
overtime rates for employees. If a governmental agency or a
court determines that the employer has misclassified workers
as a unpaid interns instead of as employees, the employer may
face violations under the FLSA for not paying minimum wage
and overtime rates.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)

Workers’ Compensation - Workers’ compensation is a system
of state laws that provide medical care and compensation to
injured workers on a no-fault basis. Many states only
mandate coverage for employees. An example of a possible
violation is the misclassification of workers as independent
contractors instead of as employees and failure to provide
paid medical care and compensation for work-related injuries
or conditions as required by workers’ compensation laws.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
 Immigration Reform and Control Act (IRCA) - The IRCA
requires employers to complete Forms I-9 for all employees
hired on or after November 7, 1986 as documentation to work
legally in the U.S. If a governmental agency or a court
determines that the employer has misclassified workers as
independent contractors instead of as employees, it may face
violations under the IRCA for not having Forms 1-9 completed
and possibly for employing individuals who are not eligible to
work in the U.S.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
 Family and Medical Leave Act (FMLA) – FMLA is the federal
law which requires employers to grant leave for family and
medical circumstances, reinstate the employee to the same or
an equivalent position upon conclusion of the FMLA leave, and
requires employers to continue health benefits at the same level
as prior to the start FMLA leave. An example of a possible
violation is the misclassification of workers as unpaid interns or
as independent contractors instead of as employees and failure
to provide FMLA leave, job reinstatement, and continuation of
health benefits as required by the FMLA.
©SHRM 2008
Why is it important to properly classify workers? (cont’d)
4. In addition to violations of employment laws, employers face
possible civil lawsuits for misclassifying workers. It is becoming
common for independent contractors to sue previous
employees for denial of benefits, stock options and other
compensation based on the assertion that they were
misclassified as contractors instead of as employees eligible for
these benefits and compensation.
A well-known case is the Vizcaino vs. Microsoft class action suit
involving 10,000 workers that resulted in a $97 million
settlement in favor of the misclassified workers.
©SHRM 2008
Questions ? Comments ?
©SHRM 2008
Part ll – Leased Employees and Professional Employer
Organizations (PEO/s)
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A common type of contingent workers are leased employees.
Leased employees are workers who are officially employed by a
leasing company, generally a Professional Employer
Organization (PEO), which is responsible for overseeing all HRrelated functions for the business owner.
Employee leasing is a contractual arrangement in which the
leasing company, the PEO, is the official employer. The PEO
handles all aspects of employee administration, such as
providing benefits and workers compensation, and maintaining
payroll. The PEO then “leases” the workers back to the
business owner using the workers whose main responsibility is
writing a check to the leasing company to cover the payroll,
taxes, benefits and administrative fees.
©SHRM 2008
Part ll – Leased Employees and Professional Employer
Organizations (PEO/s) (cont’d)
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Advantages of PEO’s are particularly significant for small
business owners. The business owner no longer has to
manage human resources issues directly. This frees up time for
the owner to concentrate on growing his company.
Another advantage of PEO’s is that due to their size they are
able to negotiate better contracts for health insurance and other
benefits because of the volume of business they offer.
©SHRM 2008
Part ll – Leased Employees and Professional Employer
Organizations (PEO/s) (cont’d)
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A disadvantage is that the business owner no longer has any
employees . When the business transitions to a PEO it legally
terminates all its employees, who are then rehired by the PEO.
By signing with a PEO, the business owner also loses a certain
amount of flexibility in the compensation package the
employees receive. The owner decides how much employees
will be paid but options regarding health insurance and other
benefits may be extremely limited.
©SHRM 2008
Questions ? Comments ?
©SHRM 2008
Part lll – Temporary Staffing Agency Employees
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Temporary staffing agency employees are another type of
contingent workers. The temporary staffing agency recruits,
screens, and hires individuals who are then placed with client
companies on either a temporary or project-specific basis.
The temporary staffing agency trains the employees, sets the
level of compensation and provides workers compensation
coverage. The client company controls the employee’s work
during the assignment and pays the agency the labor costs plus
a fee for its services.
©SHRM 2008
Part lll – Temporary Staffing Agency Employees (cont’d)
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An advantage to using temporary staffing agency employees is
the speed and ease which a business owner may obtain
workers as well as the elimination of payroll and benefit
administration.
A disadvantage is often that the temporary staffing agency
employee may lack the skills, knowledge, and experience
needed to perform the work as well as the additional cost above
actual labor cost to the business owner.
©SHRM 2008
Co-Employment Issues
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Co-employment (also called joint employment) is a legal
doctrine which applies when two businesses exert some control
over an employee’s work or working conditions.
Relationships between employee leasing firms (PEO’s) and
temporary staffing agencies are typically co-employment
situations.
©SHRM 2008
Co-Employment Issues (cont’d)
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The major areas of concern in these co-employment
relationships are compliance with the:
 FLSA which governs worker wages, hours, overtime and
minimum wage and related matters and which provides specific
protections involving co-employment and joint employment
relationships.
 Family and Medical Leave Act which provides for co-employer
liability when temporary employees are involved. Temporary
and leased employees are counted as employees for FMLA
compliance.
©SHRM 2008
Co-Employment Issues (cont’d)
 Federal laws prohibiting employment discrimination, including
the Americans with Disabilities Act (ADA), ADEA (Age
Discrimination in Employment Act), Title VII of the Civil Rights
Act of 1964 (Title VII), and Equal Pay Act (EPA), through
regulations administered by the Equal Employment Opportunity
Commission (EEOC). These laws incorporate and apply coemployment liability when leased and temporary staffing agency
employees file discrimination claims.
©SHRM 2008
Questions ? Comments ?
©SHRM 2008
Summary
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Contingent workers are defined as non-traditional and nonemployee workers.
The most common types of contingent workers are leased
employees, temporary staffing agency employees, interns, and
independent contractors.
©SHRM 2008
Summary (cont’d)
•
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It is important to classify workers properly because of the
following:
Taxes
Benefits plans under the Employee Retirement Income Security
Act (ERISA)
Employment laws
Civil lawsuits
©SHRM 2008
Summary (cont’d)
•
•
Leased employees are workers who are officially employed by a
professional employer organization, which is responsible for
overseeing all HR-related functions for the business owner.
The leasing company, generally a PEO, is the official employer.
Employee leasing is a contractual arrangement between the
business owner and the leasing company, the PEO.
©SHRM 2008
Summary (cont’d)
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Temporary staffing agency employees are workers employed by
the agency which recruits, screens, and hires individuals who
are then placed with client companies on either a temporary or
project-specific basis.
Co-employment (also called joint employment) is a legal
doctrine which applies when two businesses exert some control
over an employee’s work or working conditions. Relationships
between employee leasing firms (PEO’s) and temporary staffing
agencies are typically co-employment situations.
©SHRM 2008
Summary (cont’d)
•
The major areas of concern in these co-employment
relationships are compliance with the FLSA, FMLA, and federal
laws which prohibit discrimination in employment (the ADA,
ADEA, Title VII of the Civil Rights Act, and the EPA). :
©SHRM 2008
Questions ? Comments ?
©SHRM 2008
Course Evaluation
Please be sure to complete and leave the evaluation sheet you
received with your handouts.
Thank you for your attention and interest!
©SHRM 2008