Risks of Co-Employment

Hiring independent contractors or temporary workers may be a smart business decision in certain circumstances, but it also poses significant risks—namely, the possibility of co-employment and misclassification of workers.

Though it can be a tricky situation to navigate, employers should mitigate their risk by being diligent and preemptive in their handling of temporary workers.

What is Co-Employment?

When an employer hires a temporary worker through a staffing company, both the employer and staffing company exert control over the worker. The employer determines the duties to be performed, the skills required and the duration of the assignment, but the staffing company should be responsible for recruiting, hiring, training, payroll, discipline and firing of the worker.

Often, the line can be blurred regarding which party is exerting more control over the worker—if it is the employer, then the worker is likely entitled to the rights of an employee, such as benefits, comparable pay, workers’ compensation, etc. Also, if the temporary workers are treated like employees in certain ways (eligibility for 401(k), benefits, inclusion in company events, etc.), then the employer could be charged with misclassification, and be subject to fines and retroactive employment taxes, workers’ compensation, benefits and more. Government officials have dramatically increased their oversight of employee classification, and penalties can be substantial for employers deemed to have misclassified employees.

Preventing Co-Employment and Misclassification

There are several ways that you can try to avoid the problem of co-employment and misclassification. You should draft a very specific employment agreement for all temporary workers to sign. Also, modify any existing service agreements and company documents relating to temporary workers, to be sure the language in no way implies that  temporary workers are eligible for the benefits of permanent employees. You may want to have an attorney review these documents to ensure they are legally sound.

In addition, it is important to be mindful of your precarious relationship with the staffing companies you work with. Make sure they are handling their responsibilities regarding their temporary workers, so that your relationship does not cross the line into employer-employee. Also, remain aware of your treatment of employees compared to temporary workers. Though it is important to be respectful of temporary workers and provide a positive work environment, you must keep the distinction as clear as possible. Temporary workers should have distinct name badges, business cards and letterhead. Also, any communications should be channeled through the staffing company, and temporary workers should not be included in company training or events, whenever possible.

There should be no mistaking a temporary worker for a permanent employee in any written form or communication. Any such document could be used as evidence of misclassification and make you liable for the penalties described above. For example, Microsoft® was recently held liable for retroactive employee benefits for temporary workers because they had inadvertently offered the workers discounted Microsoft stock—a benefit normally reserved for permanent employees. Diligence regarding your temporary workers can help your company avoid stiff penalties.