If the staffing agency you use to fill positions is not fully compliant with all the applicable employment laws, your company can ultimately be held responsible for the staffing agencies missteps. That is why it pays to do business with a staffing agency that is in compliance with all employment laws. While it may seem like good business sense to choose the staffing agency that charges less because they classify their workers as independent contractors and not employees, unless you can be assured that they are obeying all applicable employment laws, it will end up being short-term gain for long-term pain.
The classification of workers as employees or independent contractors is an age-old issue that has recently risen to prominence again. While it may seem like whether a worker is an employee or independent contractor is a straightforward issue, the opposite is true. There is no simple black and white test for employers to use in making the determination. To the contrary, there are multiple, often conflicting tests at both the state and federal level complicating this matter.
Multiple factors play into the recurrence of this issue. The 2017 overtime rules promulgated by the US Department of Labor (“DOL”) prompted more awareness of the FLSA rules for both regulators and plaintiffs’ attorneys. As of 2017, there is an extra allocation of $10 million in the proposed Federal budget for more DOL investigators to look into misclassification. The states are also continuously looking to recoup money being lost from unpaid payroll taxes due to misclassification of employees (especially in the construction industry). All of the above clearly indicate that the risk of being pursued for worker misclassification is very high right now.
The penalties for misclassification are steep. Tax penalties alone can be in excess of 40% of the amount paid to independent contractors that should have been deemed employees. Officers of companies can be held personally liable for these amounts. Add to that claims for unpaid overtime or failure to pay minimum wage, liquidated damages, and attorneys’ fees, and the dollar amount rises even higher. Finally, employers may also be on the hook for unpaid PTO, the value of unprovided benefits (such as life insurance or retirement plans), and Affordable Care Act Penalties. There is no shortage of incentive to not run afoul of the law on this issue.
To add more fuel to this fire, the DOL also indicated in January of 2016, that they would expand their definition of joint employment. The DOL specifically indicated that it would be looking at stricter enforcement in industries such as construction and staffing going into the future.
The expansion of joint employment is important to clients of staffing firms because it means that the client can be held financially responsible for any violations of employment law perpetrated by the staffing agency. Put another way, if a staffing agency doesn’t pay their workers overtime or misclassifies them, the client will be jointly liable for any penalties.
With all the myriad of penalties and costs that a staffing firm client could be subject to for misclassification of employment law, it pays to do business with a reputable staffing firm that complies with all employment laws.
Written by: Andrew Nielsen, Director of Compliance Services, myHRcounsel