“In today’s workplace, traditional employment relationships are changing. Flexibility is the watchword, for both employers and workers. Companies are establishing smaller “core” workforces and supplementing them with part-time and temporary workers in a variety of alternative employment arrangements. Some businesses are outsourcing employer responsibilities under ‘professional employer’ arrangements that often are confused with staffing services.”

Edward A. Lenz, Co-Employment

 

By Alexandra Zatarain

 

Co-employment relationships are established between two or more business, where each has actual or potential legal obligations and rights as an employer in respect to the same employee. Obligations can include providing wages, benefits, paying and withholding taxes, insurance, and more.

When the facts and circumstances align, the law imposes obligations on the employer towards the employee. Because of the nature of the staffing firm’s work, both the firm and the end client will have enough contact with the employee so that both will be viewed by the law as employer.

The following table describes responsibilities that usually fall under each side of the relationship:

Staffing firm	End Client
Pays employee Pays and withholds payroll taxes Provides workers’ compensation coverage Has the right to hire and fire Hears and acts on complaints from the employee about working conditions	Supervise and direct the employee’s day-to-day workControl working conditions at the worksite Determine the length of the assignment

 

It is clear now to understand why co-employment is inherent to most staffing arrangements. But it’s also crucial to understand which are the liabilities attached to this business relationship.

As Lenz describes in his book Co-Employment, the liability in a co-employment relationship “generally is not ‘joint and several’,” meaning that “one employer generally cannot be held vicariously liable for the wrongful acts or omissions of the other without regard to fault.” Each employer is held liable for its own actions toward the employee.

While liability for compensation and benefits is primarily governed by “the operational relationship between the individual and the employer,” liability for employment practices “is governed not only by the structure of the working relationship but also by the employer’s action or inaction as it affects the worker.”

 

Minimize liabilities

Kelly Services outlines four main strategies for steering away from liabilities under a co-employment relationship.

1. Maintain appropriate boundaries of contact. Allow the staffing company to manage its side of the arrangement, which includes things that fall into the category of “employer responsibilities,” such as wage/benefit negotiation, paycheck distribution, testing and training, performance reviews and disciplinary actions. Companies can also differentiate between staffing firm employees and regular employees with the use of badges, business cards, and separate communications. Also make sure to send any social invitations through the staffing firm.
2. Amend your benefit plans to clearly exclude temporary employees. Law doesn’t require employers to cover all employees with their benefit plans. Companies can exclude staffing firm employees but should state that in the contract with clear and specific language compliant with IRS rules.
3. Have your temporary employees waive the right to benefits. Require legal writing from temporary staff acknowledging that they are employees of a staffing company and therefore are not eligible for coverage under the organization’s benefit plans, practices or programs, “even if later reclassified by the IRS or a court.”
4.  Work with your staffing company to implement these strategies effectively.  The staffing supplier should be familiar with all the details of the arrangement, and should support the end client in procedures and processes to ensure the strategies are successful.

 

Any employment relationship has its downfalls, but co-employment is particularly risky if key elements are overlooked. The best way to rest the mind is for companies to partners with strategic suppliers that can minimize the issues and deal with challenges.