Co-employment requires facility executives to watch legal details

By Stormy Friday  

For most FM departments, the use of external resources to supplement or replace existing in-house staff has become a way of life. The issue is no longer whether external resources should be used, but how.

Many facility executives have a good handle on outsourcing. In legal terms, outsourcing is referred to as “managed service.” The FM department defines the scope of work and then establishes a contractual basis for delivery of services. The FM department typically does not supervise or control the daily activities of the outsource firm’s staff. The idea is for the outsource firm to deliver services using its own supervisors and managers.

Using temporary and part-time workers is another way for facility executives to tap an external resource pool. Relationships between temporary staffing agencies and FM departments are the most familiar examples. These relationships establish a co-employment situation that is legally different from outsourcing.

In legal terms, co-employment is a contractual arrangement that applies when two separate organizations exert some control over an employee’s work or working conditions. Co-employment creates a situation in which temporary staff may or may not be viewed as employees of the FM department. It is important for the facility executive to maintain the distinction.

In these cases, both the FM department and the temporary staffing organization have actual or potential legal rights and duties with respect to the individuals on-site.

The term for co-employment or temporary staffing relationships is “employee leasing.” In facility management, assignments for temporary staff may be short — filling in while a permanent employee is on vacation or out for short illnesses. More and more, however, temporary staffs are assigned to work on longer-term projects or have “indefinite assignments” that may extend for months.

In either case, the temporary staffing agency has responsibilities that include providing a paycheck, deducting and paying taxes, and providing worker’s compensation and health insurance. At the same time, the FM department provides direct supervision and directs the daily work of temporary personnel when they are on-site. The FM department provides and controls the work environment and generally determines the length of the worker’s stay within the organization.

Pros and cons

Co-employment arrangements make sense and can be a fairly straight-forward staffing solution, but there are both downsides and benefits, and the legal environment is ripe for cases involving co-employment. There are many nuances to laws and regulations that are important in co-employment but do not have to be considered in outsourcing arrangements.

The challenges associated with co-employment were dramatically detailed in a ruling related to Microsoft’s use of temporary workers. An independent contractor who had been working for the company on site for three years was denied a full-time position and filed a claim stating that he had always been an actual employee of the company. The court ruled that temporary employees (called “permatemps” in the court case) are common-law employees of the client company (Microsoft), even if a temporary agency is the employer of record. Microsoft might be liable for millions of dollars in back benefits for the permatemp category of temporary staffing it has been using for years.

FM departments should be aware of the following downsides of co-employment:

  • Length of time as temporary employee. The primary issue surrounding co-employment status is the length of time the temporary staff person is on site with the client organization.It is easier to keep a temporary employee who is working well than constantly have to change individuals. However, legal experts advise clients — in this case, the FM department — to institute a policy restricting temporary staff to 1,000 to 1,500 hours per year and establishing a mandatory 90-day break in service before an employee is allowed to return. This policy makes it clear to temporary staff that they are not “permanent” employees of the organization.
  • Safety on the job. In a co-employment situation, the FM department needs to maintain records of illnesses and injuries of any temporary staff the department has supervised in the same way it does for permanent staff. Failure to maintain these records opens the door to a potential OSHA violation because the party in direct control of the workplace is responsible for worker safety. The temporary staffing firm will only be in violation if it knew the job site was unsafe before the individual was placed.
  • Wages and hours worked. The Department of Labor has held that a temporary staffing firm has prime responsibility for tracking hours their staff work and paying the proper overtime. With co-employment, however, workers are considered joint employees of both the firm and the client, so clients may be liable for overtime pay.
  • Worker civil rights. Co-employment provides the same worker civil rights coverage for temporary staff as for permanent employees. Customer organizations are not exempt from civil rights compliance that extends to prohibition of discrimination under measures such as the Americans with Disabilities Act.
  • Testing for pension plan tax qualification. Although temporary staff provided through a co-employment arrangement are not entitled to employee benefits, they must be counted for coverage testing purposes if they perform more than 1,500 hours of service in a given year.

There also are positive aspects of co-employment arrangements:

  • Workers’ compensation. It is through state workers’ compensation laws that employees accidentally injured on the job are awarded benefits on a no-fault basis and are prohibited from suing employers for further damages. Most courts have said that under a co-employment provision, the customer organization is a “special employer” covered under workers’ compensation laws in the same manner as other employers.
  • Employment status verification (I-9). The temporary staffing firm is entirely responsible for verifying the status of individuals hired for temporary work. It is also up to the temporary staffing firm to ensure that information they obtain on employment status in not used to discriminate.
  • Employment taxes. The Internal Revenue Service is clear (and court cases have upheld the regulations) that temporary staffing firms act as the sole employer with respect to withholding employment-related taxes.

Making Co-Employment Work

To make certain that co-employment arrangements run smoothly and that the temporary staffing company retains and maintains the employer-of-record status, facility executives should take the following measures.

  • Clear, written policies and procedures should be developed regarding use of temporary staff and the relationship between the FM department and the staffing firm. These documents should cover length of stay of temporary staff, safety on the job, wages and hours worked, civil rights, testing for pension plan inclusion, workers’ compensation, verification of employment status and employment taxes.
  • It is important to have a well-articulated contract with the temporary staffing firm to ensure the temporary staffing firm maintains its employer status. The scope of work should include issuing paychecks; withholding taxes; providing required insurance, interviewing, assigning and reassigning work; setting pay rates and benefits; negotiating nature of work (duration of assignments, work environment conditions); maintaining supervisory responsibilities (how work is going, receiving complaints, disciplining); and evaluating staff performance.
  • Although training might be a standard component of the FM department’s staffing plan, it is important not to extend training opportunities to temporary staff. With the exception of basic instructions on how to perform the work assigned through the temporary staffing firm, temporary staff should not be involved in any FM-department-supported training.
  • FM departments need to be careful that they do not provide job coaching or counseling to temporary staff. They also need to be certain that they don’t discuss job vacancies within the organization. When this occurs, it creates the appearance that the temporary employee is being treated like a permanent employee.
  • Finally, while it may be common practice to include contractors in employee functions to foster partnership, facility executives should not include temporary staff in FM staff functions. Similarly, FM departments should not extend privileges such as use of the health club or tickets to events to temporary staff.

Stormy Friday is president of The Friday Group, a facility management consulting firm specializing in organization development and re-engineering, strategic sourcing alternatives, and customer service and marketing strategies.

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  posted on 8/1/2006   Article Use Policy

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