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Complying with regulations for temporary workers

No Worries: Complying With Regulations Regarding Temporary Workers

2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

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The Compliance Challenge

COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

The use of temporary workers is growing in the United States, now representing 22% of the total workforce. Temporary workers are referred to as freelancers, non-employees, indirect workers, agency contractors, consultants, interns, independent contractors, and many other terms. They include all Individuals who take on an assignment bounded by time or by completion of a deliverable, and are typically utilized to fill gaps in a companys skill set or to cover for temporary vacancies. Temporary workers may be hired as self-employed freelancers or as individuals placed through a staffing agency, but they are not employees of the client company that uses their services. These individuals may work part or full-time, and assignments may last from one day to several months. The Department of Labor (DOL) administers and enforces more than 180 federal laws that govern employment in the U.S., and nearly all of these apply in some manner to temporary workers. Employment laws regulate hiring, wages, hours and salary, discrimination, harassment, employee benefits, paid time off, job applicant and employee testing, health and safety, privacy and other workplace and employee rights issues. Unfortunately, many federal and state employment laws were passed during a time when the predominant working relationship was one in which a worker was a full-time, permanent employee of a company. The applicability of sections of each of these laws to temporary workers is often unclear, challenging companies to properly interpret the law as it pertains to all of their workers.

What constitutes a permanent employee vs. temporary worker?

The first challenge is to determine whether an individual is viewed by the government as a temporary worker or as a permanent employee. The IRS and many individual States specify criteria to be used to make this determination. If the independent contractor tends to work under minimal supervision, using tools and expertise applicable to other organizations, invoicing for goods or services rather than straight hours of work, and providing a function extraneous to the organizations core operations, the contracting company is less likely to be viewed as an employer. The governments focus on this issue has never been greater, and companies found to have misclassified workers face severe penalties. Why? A great deal of the tax revenue that funds ongoing state and federal government functions comes from employer collected income taxes. The government has an ongoing interest in increasing and speeding up the income tax collection process. Self-employed workers (i.e., freelancers or independent contractors) are required to pay taxes quarterly rather than during each pay period, slowing the governments receipt of funds. In addition, independent contractors do not contribute to unemployment, workers compensation and state-funded disability programs. Chronic and high unemployment has reduced the overall tax base, and has largely drained state unemployment insurance (UI) funds and most states are borrowing from the federal government to meet benefit needs. As a result, during the past few years the U.S. Department of Labors Wage and Hour Division (WHD) has spearheaded an employee misclassification initiative, partnering with other Federal and State agencies to bolster its enforcement of independent contractor compliance. Hundreds of additional inspectors have been hired to uncover misclassified workers and recover taxes, fees and fines. To date, 14 states have joined the misclassification initiative. If a court decides that an individual designated as an independent contractor is really a regular employee, the worker must receive the benefits he would have received had he been classified correctly. This could include health insurance, life insurance, retirement benefits, eligibility for leaves of absence, and stock options. In addition, the employer faces heavy fines.

The 50 Employee Rule

Companies that reduce their permanent headcount below 50 while increasing the number of contractors may be targeted by the DOL. Audits are used to determine whether the reduction is to avoid compliance with the Family and Medical Leave Act (FMLA) and Patient Protection and Affordable Care Act (PPACA).]

2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

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DOS

COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

Dos & Donts When Using Independent Contractors DONTS

Have Human Resources or Line Managers drive the selection process Ask the independent contractor to complete an employment application Allow independent contractors to enroll in any company-sponsored benefit plans Require the contractor to complete a I-9 Have contractors perform similar work of employees or perform routine work Pay by the hour, week or month unless a flat fee is agreed to be paid at regular intervals Pay independent contractors from a payroll account Pay contractors for any company holiday Pay contractor expenses Provide an employee handbook or offer continuing education training Conduct performance employee evaluations evaluations similar to

Have the Purchasing department drive the selection process Issue a Request for Quote (RFQ) and have potential independent contractors submit bids Require copy of business or professional license, copy of insurance certificates, copies of the independent contractors advertising, and copy of the contractors business card and stationery Require the contractor to complete a W-9 Establish a written Statement of Work specifying scope of work for a specific duration. Include appropriate indemnity, attorneys fees, and liability clauses Pay pre-negotiated fees for tasks or projects Require the contractor to supply his or her own workers compensation insurance Retain records of all transactions with the contractor, such as contractors invoices for billing Require the contractor to supply his or her own equipment and tools Provide training specific to job or company procedures Periodically review contract compliance Require independent contractors to show evidence that they are serving other clients Retain W-9 for four years for future reference in case of any questions from the worker or the IRS

Transition employees to independent contractors, especially if the work remains largely the same Retain unneeded records that have met the four-year retention requirement unless parties are involved in a dispute that has not yet been reconciled

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COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

Who is the Employer of Record, and is there a secondary employer?

The risk of misclassifying a worker as an independent contractor can be reduced by hiring temporary workers through a staffing agency, where the agency is the workers employer of record. However, under many laws the employees are treated as having two employers the staffing agency and the client that utilizes their services and both companies can be liable under Federal and State equal employment opportunity laws. Courts will consider who exercises the most control over the employee(s), examining who has authority to hire and fire, make job assignments or placements, make payroll, and provide benefits. The primary employer is responsible for communicating required notices to the employee, providing leave, maintaining benefits, and restoring the employee to employment after leave, while the secondary employer is responsible only for refraining from discriminating, retaliating, or otherwise interfering with an employees FMLA rights. The courts have seen a surge in the number of temporary workers filing litigation against companies, claiming to have been permanent employees rather than contingent workers. Federal laws state that employees who log over 1,000 hours in a 12-month period are entitled to participate in the employers pension or retirement program. By reaching that time served threshold, workers may also be entitled to medical or other benefits. In response, many companies believe that by setting tenure limits they are protected from co-employment claims. While this action may help in defending against such a claim, it is not sufficient to prove a temporary worker status.

Safeguard Against Co-Employment Claims

Document all agreements
Establish clear contractual terms with suppliers which indemnify you in the event of any worker violation. Make sure that the supplier can be held responsible for failing to meet the various employer obligations, like workers compensation insurance and the misclassification of workers Have suppliers acknowledge their understanding of roles and responsibilities Ensure that suppliers provide signed acknowledgement of the companys non-discrimination policy, affirmative action plan, and sexual harassment policy, and that they in turn have all contractors sign their versions of these documents As a condition of assignment commencement, suppliers should have workers acknowledge in writing that the supplier is the sole employer of record and that the non-employee is not entitled to and will not seek the benefits of the company

Establish effective policies and processes

Specify that the supplier is solely responsible for candidate screening, negotiating the offer, onboarding and offboarding the worker, and dealing with any performance issues Establish an issue resolution process in which the supplier solely addresses contractor performance issues Audit suppliers screening, offer negotiation, onboarding and offboarding procedures to verify compliance with your processes Do not include contract workers in standard company reward and recognition programs. Have the suppliers host separate events for them Create a detailed process that delegates which parties within the company are responsible for which tasks. Appoint a single individual responsible for touching base with the staffing agency regarding contract details. Assign a single individual to train managers and internal employees on appropriate business relationships with non-employees

Train your staff employees Consider using a managed services provider

Highlight the types of interactions and conversations that are appropriate to have with contract employees and those that open up the company to co-employment risks Having a single point of contact for vendor management, processes and procedures will help keep communications clear and provide an additional level of visibility and risk mitigation. A managed services provider can also monitor compliance, quality and vendor performance

2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

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Beware of the Shades of Grey

COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

Once your workforce has been properly classified as independent contractors, agency contractors or permanent employees, what other issues must be addressed to minimize risk of legislative non-compliance? Consideration must be given to each major regulation to determine potential areas of liability. To further confuse matters, employment litigation case history is also inconsistent, as the outcome of many legal challenges has been based on the interpretation of how companies interact with temporary workers and their suppliers. Areas providing the greatest pitfalls include: Complying with safety requirements Protecting worker privacy Avoiding discrimination Downsizing initiatives

OSHA Safety Standards Apply to ALL Workers

The Occupational Safety and Health Act (OSHA) is intended to make companies take the right precautions and provide a satisfactory working environment to prevent people from being harmed at work or becoming ill. Who is covered under OSHA? The government interprets the term employee to include supervisors, partners, corporate officers, former employees, applicants for employment and employees of other employers. In essence, it applies to everyone who has conducted, is conducting or may conduct work at each facility. Who is held responsible? The Occupational Safety and Health Review Commission (OSHRC) stated that an employer remains accountable for the health and safety of its employees, wherever they work, and cannot divest itself of its obligations under the Act by contracting its responsibility to another employer. As the Employer of Record, a staffing supplier is jointly liable for the safety of its contract employees when they are assigned to a client site. To minimize this liability, many staffing agencies particularly those that place light industrial workers will conduct a safety walk-through of each hiring location prior to submitting a bid to source workers. Safety training, conducted by the contract workers employer of record and/or company safety officer, should be a mandatory component of any onboarding process prior to the commencement of the engagement. The vast popularity of web technology and social media provides companies with unprecedented levels of publicly available and readily accessible information about a prospect or employee. While this enables companies to better screen applicants, track employee productivity, and create online corporate communities, companies are at increased risk of running afoul of international, federal and state privacy and information security regulations. To avoid lawsuits alleging discrimination or violation of the Fair Credit Reporting Act or State laws prohibiting actions that can result in failed confidentiality measures and alleged discrimination, companies should take the following steps: 1. 2. 3. 4. 5. 6. Provide copies of your discrimination, harassment, and confidentiality policies to suppliers and independent contractors. Develop policies that clearly identify the information sources that will be used in the application screening process, the standards for evaluating that information and the procedures that will be followed for obtaining the information. Have all suppliers and independent contractors acknowledge in writing their understanding of your policies and their commitment to adhere to the stated processes. When using VMS technology, select systems that provide role-based information access and that serve as a repository for needed documentation but only provide required levels of information (e.g., drug tests should be pass/fail, with no specifics provided). Make certain that the company does not receive any unnecessary information about contingent workers. Maintain worker information for the required period of time, and then purge data.
2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

Protect Worker Privacy

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Avoid Discrimination

COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

Temporary workers will offer some protection from discrimination liability to the extent that hiring, firing, salary determinations, discipline, and discharge are made by the staffing agency. In fact, current EEOC guidance recognizes that a staffing company is responsible for compliance with the Americans with Disabilities Act (ADA) since the employee is completely under the control of a staffing company. All companies should have a company-wide antidiscrimination policy. However, requiring that suppliers and their contract workers comply with a companys anti-discrimination or harassment policy may increase the likelihood that the company can be viewed as a joint employer with the staffing agency. When entering into contractual arrangements for contingent labor, avoid co-employment claims while ensuring compliance with discrimination policies by following these guidelines: Review the anti-discrimination, harassment, and equal opportunity policies of each staffing supplier. Verify that these policies adequately address potential danger areas and are consistent with those of your company. Incorporate anti-discrimination and anti-harassment language in contractual agreements with independent contractors. Ensure that the agencies providing contract workers have established procedures in place to address ethics obligations and whistleblowing protections. Require that all contract workers provide written acknowledgement of receipt and understanding of these policies, and that the penalty for non-compliance is assignment termination. Periodically audit each suppliers onboarding procedures to ensure compliance.

Why Is Downsizing a Temporary Workforce Issue?

The approaches used to downsize permanent staff can violate the Federal Worker Adjustment and Retraining Notification Act (WARN). This Act requires 60 days prior notice (some States require 90 days notice) if a site terminates a certain number of employees. While on the surface this Act would not appear to impact the temporary workforce, risks occur when The worker was initially sourced by a company and payrolled by the supplier The worker does not have a previous history of having been placed by the supplier at different customers The company has used the temporary worker for an extended period of time A company transfers its own employees to a service provider A company decides to change its suppliers, transferring workers on assignment to another supplier

When the DOL issued its WARN regulations, it stipulated that advance notice is required when a company subcontracts part of its operations to a service provider, transfers employment of employees from itself to the service provider, even though the employees involved do not lose a days work (they just change employers, and essentially continue doing what they did before). However, there have been many challenges to the DOL interpretation of the Act and the issue remains unsettled.

Companies contemplating the transfer of a substantial part of its workforce to a service provider should build sufficient time into the process for giving a formal WARN notice. When a contract renewal period is approaching, and the service provider may receive less than 60-days notice of non-renewal before the end of the contract term, a conditional notice can be issued specifying the possible occurrence or nonoccurrence of the event. Because conditional notices often result in increased unplanned attrition, many suppliers insist on more than 60-days notice for a non-renewal decision. WARN notification requirements can be virtually eliminated if it is clear that both the employment and the project for which the workers are engaged are temporary:
Contracts between a company and its independent contractors and/or staffing suppliers must clearly state that the work assignment is temporary, and a temporary facility will be closed and assignment termination will be the result of the completion of a particular project. Workers must clearly understand and acknowledge at the time of hire that their employment is temporary. Acknowledgement is determined by reference to employment contracts and collective bargaining agreements.

2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

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COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

Documentation is the Best Protection

Most companies believe that recordkeeping requirements when using temporary workers are significantly less than for permanent employees. The need to extensively document terminations may be reduced, as the work assignment was designed as temporary, with with no expectation on anyones part of long-term employment. Processing of fringe benefits, such as health insurance, retirement benefits and unemployment insurance shifts to the suppliers and/or the individual workers. Companies are not obligated to provide medical and personal leaves of absence to temporary workers.

However, proper documentation is critical in successfully surviving an audit or defending against a co-employment or other employment lawsuit. When working with independent contractors, the most critical document is the Statement of Work. For agency-supplied contractors, its the job description. For staffing companies and service providers, its the Master Service Agreement. These documents establish the basis for the relationship. These documents cure a number of ills by: Demonstrating that an engagement is temporary in nature Establishing that the company is not offering employment, and will not serve as the employer of record Helping organizations defend their sourcing, screening and testing practices under Title VII, the ADEA, and ADA Establishing a basis and source of payment

Most employment legislation requires the employer to provide up to three years of detailed records, including source documents, reflecting every step in the workforce procurement and management lifecycle. Supplier and worker credentials must be maintained. Information on accomplishment of deliverables, payments, and hours worked must be captured and maintained. Information must be available on demand. It must also be compiled into a number of government-specified formats. Some regulations require even more rigorous recordkeeping and reporting. For example, for government workers under a McNamara-OHara Service Contract Act (SCA) & Walsh-Healey Public Contracts Act (PCA), complex wage determination tables establish pay rates and benefits. These tables are updated annually. When a contract transfers to a different supplier, the successor supplier must ensure that wages, benefits and vacation accruals of all workers continue uninterrupted and unchanged.

2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

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Technology Enables Compliance

COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

Traditional responses to emerging employment legislation introducing new policies and training managers, then conducting periodic compliance checks typically results in compliance systems that are initially effective, but erode over time. In order to keep pace with Federal employment regulations, compliance practices and technology must continue to be inextricably interconnected. One of the most effective ways to deal with all these requirements and emerge unscathed is to have an effective Vendor Management System (VMS) to handle these matters. A VMS serves as a procurement and labor management system which automates critical compliance steps, issues non-compliance warnings and alerts, analyses performance, and coaches hiring managers, enabling companies to ensure ongoing regulatory compliance while realizing the benefits of a dynamic, blended workforce of regular and temporary employees. A Vendor Management System, optimized to ensure regulatory compliance, must include the following features:

2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

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Technology Enables Compliance

COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS

Classification Guidance The determination of which workers fall under different Federal guidelines can be complicated, typically requiring an examination of the work, the individual and the location in which the work is to be performed. Embedded business rules should provide assistance in determining a positions exempt status, evaluating conformity with independent contractor classification, and assessing job classifications for wage determination. Compliance Firewall An online repository of best practices, legislative updates and active guidance at each step of the workforce procurement and management process can form a firewall of protection against inadvertent actions that can result in non-compliance. Risk Calculation In classifying employees, the VMS should evaluate each individual against a defined set of criteria to assess alignment with requirements, providing scorecards that indicate areas of highest potential risk of non-compliance. The system should also quantify the level of risk by examining the degree of compliance with the requirements of each Act. Compliance Testing An embedded compliance testing system should examine the individual profiles and compensation history of all affected workers as well as the companys total workforce results to evaluate the compliance level. Evaluation must include reviews of all related business documents. Since government contractors are required to ensure complete compliance not only for their own workers, but also for the employees of any sub-contractors that they may employ, a VMS system must provide regular visibility into the labor compensation practices and policies of each sub-contractor. Detailed Record Management The VMS system should have the ability to track and store all data in the system, to retain that data for extensive periods of time, easily update dynamic data such as wage tables, and maintain an audit trail of all changes made to employment records. A dependable VMS program will enable complex wage determination tables to be easily uploaded, will identify workers whose wages are not within the required range, and simplify the schedule and process for wage adjustments. Profile Maintenance A profile of all candidates and workers should be maintained, providing a detailed historical record of credentials, work history, screening activities, and compensation. By assigning a unique identifier to each worker, personnel records should accurately portray policy compliance throughout the individuals tenure, including periods of breaks in service. Companies with a diversified portfolio and many divisions must be able to transfer employees between the divisions, instantaneously changing applicable compensation to reflect shifts in work assignments that may suddenly cause the employee to be re-categorized. Tracking & Alerts The system should automatically issue alerts to everyone in the approval chain when tenure limits approach, documentation renewal is required, mandatory actions are not completed, and/or non-standard actions are taken. Reporting and Analytics The VMS should include the ability to report on all data captured in the system, providing complete visibility at the individual and enterprise level. The report generation capability embedded into the system should enable creation of custom reports without the use of programming skills. Reports should be available in a variety of formats.

2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912

ABOUT DCR
Smart Track Vendor Management Software Smart Track, DCRs innovative Cloud-based suite of workforce supply chain management applications, redefines the role of vendor management systems expanding from conducting transactions to supporting critical interactions and decision-making. Through Smart Track, we forge networks of business managers, suppliers and indirect workers, creating an institutional memory of best practices, and a means of sharing them. Unlimited Visibility into Workforce Lifecycles Forecasting Tools and Wizards On demand Reconfiguration Capabilities Advanced Compliance Support Automated Administrative Processing Device-Independent Access Pre-built Connectors Robust Management Reporting Embedded Business Analytics Highly Reliable, Scalable, Cloud Computing Platform Always On Technical Support

About Us DCR Workforce is an award winning, best-in-class service provider of vendor-neutral Managed Services Programs and Vendor Management Software to help clients maximize the contributions of their agency contractors, freelancers and project teams. Smart Track, our proprietary cloud-based talent management platform, supports Managed Services Programs to manage, procure and analyze your talent with complete transparency, real-time control, high performance and decision-enabling business intelligence. In addition to MSP and VMS solutions, DCR offers workforce intelligence solutions, payroll services, and compliance services. DCR is a certified woman-owned, minority owned company. For more information call +1-888-DCR-4VMS GSA Multiple Award Schedule Contract: GSA # GS-07F-0402Y www.dcrworkforce.com | blog.dcrworkforce.com

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2012 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO 082912