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Temporary Employees
Employee Leasing
Payrolling
Best Practices for Temporary Staffing and Staff Leasing Firms
Co-employment or joint employment; "single employer"
Independent contractors
Temporary employees Top of Page
Temporary employees hired directly by a company are the company's employees for all intents and purposes and can file unemployment claims when the job runs out
alternative: hire temporary employees through a temporary help service
in such a case, the temporary service is the employer and will deal with any unemployment claims from such employees
hourly labor cost is higher, but at least there will be no unemployment claims to worry about
temporary employees can be considered employees of both the client company and the staffing firm for purposes of wage and hour statutes and other laws under joint employment rules - cover this issue in any staffing agreement that you sign
"1000-hour rule" – this is a requirement under the federal pension and benefits protection law known as ERISA – it requires that if an employee works at least 1000 hours in a 12-month period, and if the company has some kind of pension or retirement benefit plan, the company must give that employee the chance to participate in the plan – that rule does not apply to other types of benefits, though (see ERISA section)
Employee leasing Top of Page
In Texas, staff leasing companies are considered the "employers" of workers assigned to various clients, as long as the staff leasing firms are properly licensed and certified under applicable statutes (Chapter 91 of the Texas Labor Code)
Recent changes in Chapter 91 (staff leasing) mean that staff leasing firms are liable for unpaid wages only if they have contracted to assume such liability
"Payrolling" Top of Page
With payrolling, a client company sometimes attempts to escape the obligations of an employer by assigning its employees to an outside entity known as a payrolling company for payroll purposes only – the payrolling company, though, does not act as an employer in any other way
Texas considers such workers to be employed by the clients, not by the payrolling entity
For online tips from the IRS on how to use third-party payroll service providers, see http://www.irs.gov/businesses/small/article/0,,id=176943,00.html
Best Practices for Temporary Staffing and Staff Leasing Firms Top of Page
To minimize risk that TWC will conclude that a staffing relationship is merely payrolling, the temporary staffing or staff leasing firm needs to act like the real employer:
reserve the right in the client service agreement to exercise as many of the prerogatives of an employer, at least on paper, as possible, i.e., hiring, firing, reassignment, training, pay, benefits, and so on
have employees fill out employment applications
run all new temps/leased employees through the I-9 process
do at least minimal background/reference checks
get W-4s filled out
give workers' comp coverage notices (Notice 5 for non-coverage, Notice 6 for coverage)
give them company policy handbooks
have them sign clear acknowledgement of receipt forms listing the staffing firm as the employer
any benefits should be given in the staffing firm's name
pay stubs should identify the staffing firm as the employer
do not let client firms include assigned employees in the client firm's internal employee e-mail distribution groups, employee rosters, or mailing lists
give all statutorily-required notices for UI purposes (Section 207.045(h) for temporary help firms and 207.045(i) for staff leasing firms)
report wages and pay UI and other payroll taxes to TWC and IRS
upon commencement of health plan coverage, termination of the employment relationship, and other qualifying events, give COBRA notices (PDF) to the ex-employee and affected beneficiaries when applicable
give reminders of who the employer is throughout the employment relationship and at the conclusion of the assignment, along with clear written instructions on how to recontact the employer for reassignment
Co-employment or joint employment; "single employer" Top of Page
Especially in the case of temporary help and staff leasing firms, but also with other companies, the possibility of joint employment exists – if two independent entities jointly exercise enough of the attributes of an employer with respect to certain workers, it may be possible that the two entities will be considered "joint employers" of those workers for purposes of various employment laws
a similar concept is that of the "single employer", which occurs when two nominally separate companies are so closely interrelated that they form a single employing unit for purposes of various employment laws. From a 1965 Supreme Court case called Radio Union v. Broadcast Service (380 U.S. 255, 257), the four criteria for determining whether two companies are really a single employer for employment law purposes are: (1) interrelation of operations; (2) centralized control of labor relations; (3) common management; and (4) common ownership or financial control. According to the Fifth Circuit Court of Appeals (the federal appeals court responsible for interpretation of federal law for Texas, Louisiana, and Mississippi), the most important criterion is the second one, i.e., centralized control of labor relations (see Schweitzer v. Advanced Telemarketing Corp., 104 F.3d 761, 764 (5th Cir.1997)). If one person or department does essentially all of the hiring, personnel administration, payroll, and firing for both companies, then there is a high probability that a court or agency will find that a single employer situation exists.
Independent contractors Top of Page
independent contractors are self-employed – they are independent business entities in a position to make a profit or loss based upon how they manage their own independent enterprise – an employer of such an individual is merely one of the clients of that contractor
most states and IRS use similar tests to determine whether given workers are employees or independent contractors
whether the test applied is the common-law direction and control test, the ABC test, the economic realities test, or the IRS eleven-factor test, the issues are basically the same – all the tests boil down to whether the employer exercises direction and control over the performance of the services of the worker
all the laws presume that a worker performing services for pay is an employee – if an employer thinks otherwise, it has the burden of proof in almost any possible legal situation
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