As the benefits of using contingent workers become ever more apparent to businesses, the issue of co-employment arises. Co-employment is defined as “a relationship between two or more employers in which each has actual or potential legal rights and duties with respect to the same employee.” In the staffing firm-client company relationship, co-employment issues are of paramount concern since both could be viewed as the employer. Generally the staffing firm is considered the primary employer, but co-employment issues can come into play when the client company extends more behavioral and financial control over the worker and thus takes on the attributes of the primary employer, as defined in the IRS 20-question checklist.
Co-employment first came to the attention of many employers in the Vizcaino vs. Microsoft Corp. case, a class action lawsuit brought by independent contractors and staffing agency employees that resulted in the software giant paying a $97 million settlement for benefits liability. At issue in that case was Microsoft’s language in its employee stock purchase plan program offering this benefit to all “common law employees,” and not specifically excluding certain groups of workers from the benefit. The court held that Microsoft had conceded that independent contractors were common law employees. For the staffing agency employees, the court used a five-factor test to determine common-law employee status, based on the recruitment, training, duration of employment, right to assign additional work and control over the relationship between worker and agency.
What the Microsoft Corp. case also brought to light is the fact that co-employment issues such as benefits liability can be mitigated. For example, if Microsoft had made clear in the language of its stock purchase plan that the program was only available to certain employees – as the company did for its 401K program – it may have succeeded in the case.
Other mitigating measures:
- Use only an experienced staffing firm like netPolarity that clearly understands co-employment issues and the mitigating steps necessary to prevent problems.
- Review all staffing agreements to avoid liabilities on co-employment.
- Require contract workers to sign contracts and waivers identifying themselves as employees of the staffing firm and waiving claims to benefits and other compensation.
- Write benefit plans that specifically exclude contract and contingent workers.
- Allow the staffing firm to control certain tasks of the temporary employees such as the hiring process, the setting of pay rates, any disciplinary actions and performance evaluations.
- Minimize contact with staffing firm employees and consider having the staffing firm provide onsite supervision of the contingent workforce.
- Controlling and managing the entire economic relationship with contingent workers including sourcing and recruiting, compensation, raises and benefits.
- Controlling all communications regarding duration of employment and termination.
- Using account representatives to foster communication and promptly handle all employment-related issues between the client and the contingent workforce.