Temporary and leased employees

The use of leased and temporary workers, also referred to as contingent workers, has greatly expanded in the last two decades. Traditionally, contingent workers performed largely clerical functions. Today, the use of contingent workers is much broader and permeates the entire economy. Currently, the fastest growth of contingent workers is in professional and technical occupations. It is clear these employees now provide specialized skills to a growing number of industries. For example, it is not uncommon today to find a large number of attorneys employed as temporary or leased workers. There are many reasons employers may choose to use contingent workers, including:

• supplementing the workforce during a particularly busy season
• filling in for regular employees absent on vacation or leave
• decreasing paperwork and administrative burdens and costs such as payroll, benefits, hiring, performance evaluations, and disciplinary actions.

Leasing is not without drawbacks, however. A strained relationship between the company, the staffing firm and/or the workers can cause decreased loyalty and productivity. To maximize the benefits of using contingent workers, an employer using a staffing firm must ensure both parties comply with federal and state requirements governing leased or temporary employees, including wage and hour requirements.

The leasing relationship

For years the employee leasing industry and regulators have wrestled with difficulties that arose from the lack of a precise definition for the term “employee leasing.” The Equal Employment Opportunity Commission (EEOC) published guidelines addressing the issue of compliance with federal antidiscrimination laws where contingent workers are involved.  These guidelines outline several potential types of arrangements between staffing firms and client companies.

• Temporary employment agencies

The temporary agency employs the individuals it places in temporary jobs at its clients’ work sites. The agency recruits, hires, pays, and sometimes trains its employees. While the worker is on temporary job assignment, the client company typically controls the employee’s working conditions, supervises the individual, and determines the length of the assignment.

• Contract firms

​A contract firm contracts to perform a certain service with a client company on a long‑term basis. The firm places its own employees, including supervisors, at the client’s work site to carry out the service. The contract firm hires, pays, and trains employees. It also takes on full supervisory responsibility of the workers at the client’s site. Examples of contract firm services include security, janitorial, and cafeteria services.

• Other types of staffing firms

Other variations of the staffing firm/client model exist. For instance, “facilities staffing” is an arrangement under which a staffing firm provides workers on an ongoing basis, but does not manage the operation. Under another type of arrangement, the staffing firm puts workers of the client company on its payroll and leases the workers back to the client.  The staffing firm does not recruit, hire, or train the workforce, but the client company avoids administration of payroll and benefits.

Legal responsibility of leased and temporary employees

As discussed in Chapter 3, Covered employers, two or more employers can constitute “joint employers” for purposes of the FLSA if there is sufficient connection between them.  Joint employment is often inherent in a staffing firm/client company relationship since both have sufficient contact with the assigned worker and will often share responsibilities regarding the assigned employees. Courts routinely find an employer’s use of temporary or leased employees, although technically hired, employed, and paid by another, constitutes a joint employment relationship. In most cases the mere fact that a business permits an employee to work under its control or direction is enough to establish an employment relationship.

Where a joint employer relationship exists, both employers are responsible for complying with the FLSA with respect to the employee, and they have joint and several liabilities for the other employer's violation of the FLSA. Additionally, joint employers must count all jointly employed employees in determining employer coverage and employee eligibility.

The Department of Labor’s Wage and Hour Division takes the position that a company using leased employees is jointly, and in some cases, solely responsible for ensuring:

• minimum wage
• overtime
• proper deductions
• recordkeeping requirements under the FLSA.

If a company uses a staffing firm, and that firm fails to meet these obligations, the company will be liable for any shortcomings.  Given that, in January 2016, the Department of Labor issued guidance reinforcing its broad interpretation of “joint employer,” it is extremely important that a company using leased employees consult with knowledgeable legal counsel to protect itself against exposure to joint employer liability for failing to comply with state and federal laws.

Joint employers of leased or temporary employees

For purposes of FLSA liability, employers are considered “joint employers” where any one of the following criteria are met:

• there is an arrangement between the employers to share the employee's services, as, for example, to interchange employees
• one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee
• the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of teh employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by or is under common control with the other employer.

A determination of whether or not a joint employment relationship exists is determined by viewing the entire relationship in its totality. Consider the following questions:

• Do you control and supervise a temporary or leased worker's day-to-day work?
• Do you control the employee's working conditions, hours of work, and rate of pay?
• Does the temporary or leased worker receive a paycheck directly from you?
• Do you reimburse the temporary or leased worker for travel or other business expenses?
• Do you have the authority to hire, fire, reassign or discipline leased or temporary workers?
• Do you have the authority to decide whether the leased or temporary worker continues to work for you or is sent back to the staffing film?
• Do you allow temporary or leased workers to use company letterhead and envelopes?
• Do you allow the temporary or leased worker to use a company car?
• Do you provide significant tools, materials and other work equipment to the temporary or leased worker?
• Do you allow temporary or leased workers to participate in company picnics/events?
• Do you allow the temporary or leased worker to wear company hats, shirts, or uniforms at work?
• Do you train the temporary or leased employee?
• Do you supervise the temporary or leased employee?

If you answered yes to several of these questions, the chances are you could be considered a joint employer with a staffing firm.

Example:

A farm owner argued his workers were employed by a farm labor contractor who supplied leased employees to his farm. The court decided the farm owner was liable for FLSA minimum wage and recordkeeping violations and treated the workers supplied by the labor contractor the same as direct employees.

Minimizing risk

In order for employers to harness the benefits of leasing without the pitfalls, companies should consider doing the following when making a decision to lease employees:

• Lease both workers and supervisors from the staffing agency in an effort to minimize the degree of control retained over employees and their conduct. This way, the supervision of the temporary or leased workers becomes the responsibility of managers who are employed by the staffing firm. This minimizes the amount of control the client company has over the workers and correspondingly, minimizes the risk the client company will be considered a joint employer.
• Include in staffing agreements a clause identifying who is ultimately responsible (directly and through indemnification) for the employees, including FLSA wage and reporting requirements. In addition, although client companies rarely give staffing firms total control over the temporary work force, the more control the leasing company exercises over critical decisions like hiring and firing, the more likely they are to be held liable for employment law violations.
• Thoroughly investigate a staffing company before entering into a contract since this is a quickly growing industry and largely still unregulated by state licenses or federal standards. Factors to consider are the leasing company’s qualifications, reputation, and longevity. A client company should obtain references from former clients, credit references, and insurance coverage information. Finally, the company should ask whether the staffing firm has been audited by an independent third party and, if so, should request a copy of that report. It is critical to obtain proof that the firm has a history of timely tax, insurance premium, and employee benefits payments. If a staffing company fails to honor its payment obligations, the client company may have liability.

Once the decision has been made to lease employees, the client company should ensure it is properly reporting a leased or temporary worker’s hours to the staffing firm and should keep lines of communication open with the firm to monitor its compliance with wage and hour requirements.

Finally, note that whether an employee will be legally treated as an employee of one or both entities for purposes of laws other than the FLSA, such as payment of taxes, providing workers compensation, benefit and pension plan obligations, oversight, ensuring civil rights compliance (such as discrimination, family/medical leave), and providing a safe work site, depends upon the test applicable in such area. For instance, a worker may be deemed an employee or joint employee of an entity for purposes of minimum wage law but not for purposes of federal employment taxes.