State:

National
The temporary or contingent workforce is the fastest growing segment of the national workforce, with almost 75 percent of employers in all industries using them, according to results from the 2010 CyberShift American Payroll Association Trendline Survey, "It's About Time." Contingent workers are those who are hired through staffing firms or leasing companies and whose jobs are structured to last only a certain length of time. The contingent workforce may include part-time temporary workers, independent contractors, consultants, contract employees, leased employees, and direct hires. Other than some leased long-term employees, most contingent workers are considered “temporary,” and therefore the terms “contingent” and “temporary” are often used synonymously. While most companies hire only a few contingent workers at a time, some may lease their entire workforce on a quasi-permanent basis.
Defining contingent workers. If a company does not clearly define what is a contingent worker, who is an employee, and who is not an employee, managers may start using contingent workers to fill regular positions. For example, if there is a hiring freeze on regular employees but not on contingent workers, those workers may end up as long-term employees.
Benefits. Employers using contingent workers have potential advantages in both flexibility and cost savings. Workforces can be expanded and contracted as needed. Employers may also achieve reduced labor costs through lower hourly wages and the absence of benefit payments. Employers find that the use of contingent workers allows them scheduling flexibility, alleviates overloads, accommodates onetime projects, and prevents a succession of expensive hires.
Savings. The use of temporary employment arrangements increases each year. The staffing vendor's markup of 25 percent to 30 percent must be included when calculating whether the cost of contingent workers is indeed lower than hiring permanent employees. Cost-effectiveness doesn't depend just on savings in salary and benefits; it also depends on output. A contingent worker whose productivity is lower than a similarly situated permanent worker may not be a bargain. It may also be less expensive to outsource the job.
There are many types of contingent workers.
Agency temporaries. The more traditional type of temporary worker, employed through an agency, is still the most likely to be used as a staffing alternative. Agency “temps” tend to be used in clerical, secretarial, nursing, accounting, word processing, or light industrial duties, to fill in for employees on leave, handle excess or special workloads, or perform short-term assignments. The worker is generally an employee of the staffing agency.
Contract employees. These are workers who, by contract, perform professional, production, or administrative support activities. Generally, the employer and employee deal directly with one another, but sometimes there is an outside service firm that negotiates the contract. Typically, contract employees include lawyers, doctors, security staff, cleaning and maintenance staff, editors, and computer technicians.
Directly hired. These are usually members of a pool of employees who are available to work as needed. Many large companies have formed their own labor pools of temporary employees, often made up of retirees or former employees. These employees might fill in for others who are out, assist in areas with immediate needs, or participate in special projects. They are usually considered to be employees of the company, even though their employment is contingent upon demand. This form of a contingent workforce gives employers an alternative to hiring temporary employees from an agency.
Leased employees. Leased employees work for a company that, for a fee, provides temporary or permanent employees and is responsible for their wages and benefits. A leasing company can supply a single employee, a “crew” of employees, or an entire staff, and may take full responsibility for payroll, benefits, and personnel functions. A leasing firm may also be responsible for advertising, supervising, recordkeeping, housekeeping, security, or general office management. Small employers may turn to leasing companies for employees because they don't have to provide benefits, and they can save on administrative costs.
Part-time employees. These are employees who generally work less than 30 hours per week, but are still on the employer's payroll and are entitled to certain benefits of employment. Please see the national Part-Time Employees section.
Independent contractors are self-employed people who work on an agreed-upon product or service, to be delivered at a certain time, for a set fee. They may be considered contingent workers in the sense that their services are not needed on a permanent basis.
Independent contractors have control over when, how, where, and in what way they work. One way to determine if a worker is an independent contractor is the "lunch" test. If an employer is responsible for telling a contingent (temporary) worker when to go to lunch, the worker is contingent, and the employer is responsible for the worker and accountable for the worker's actions. If not, the worker is most likely an independent contractor. Please see the national Independent Contractors section.
Employers should be aware of the legal issues of employing contingent workers and not assume that they are immune from issues of employment law; most laws that apply to "regular" workers also apply to contingent or leased workers.
The Equal Employment Opportunity Commission (EEOC)Enforcement Guidance 915.002 concerning contingent workers clarifies that staffing firms and employers using contingent workers may not discriminate on the basis of race, color, religion, sex, national origin, age, or disability, nor can they ask the medical questions forbidden by the Americans with Disabilities Act (ADA).
Contingent workers who are employees must still be authorized to work in the United States. If contingent workers are obtained through an agency that employs them, the agency can be required to confirm the individual's right to work in this country. If a company attempts to use contingent workers as "independent contractors" to avoid the I-9 form, the U.S. Citizenship and Immigration Services Bureau may determine that the worker really is an employee and that the employer is still responsible for obtaining an I-9 for the individual. Please see the national Aliens and Immigration section.
The Fair Labor Standards Act (FLSA) governs wage and hour issues in the workplace. FLSA defines employee as “any person acting in the interests of an employer in relation to an employee.” Under the Equal Pay Act, differences in pay and benefits between regular full-time employees and contingent employees can suggest unlawful discrimination.
Respondents to the CyberShift poll said that capturing data and keeping timely and accurate records of pay data, absences, leave, and paid time off are their biggest challenges with contingent workers.
Most contingent employees do not receive benefits because they are not employed long enough to qualify for them. Many insurance policies have provisions limiting coverage to full-time and regular employees. Generally, employees who work 1,000 hours in a pension plan year are considered regular employees under the Employee Retirement Income Security Act (ERISA). The rules governing employee benefits can be very complex and specific, so if you use contingent workers, be sure to consult your benefits administrator about which rules apply. Please see the national ERISA section.
Contingent workers, other than independent contractors, may be covered under the Family and Medical Leave Act (FMLA) if they were employed for at least 12 months and if they worked for the employer for more than 1,250 hours in the previous 12-month period.
Along with accompanying state laws, the Occupational Safety and Health Act (OSH Act) requires contingent workers who are employees to be provided a safe workplace under its standards. Employers are obligated to inform all employees and contingent workers of any hazards in the workplace. Employers responsible for daily supervision are to keep a record of accidents for all workers in their workplace.
The National Labor Relations Act (NLRA) requires businesses to bargain in good faith with their employees’ labor unions and prohibits the use of unfair labor practices directed against employees and unions seeking to organize them. Companies often use contingent workers to insulate themselves from liability and the obligation to bargain collectively. The use of contingent workers can create a joint employment relationship. Previously, the law required that the company possess and directly exercise authority to immediately and directly control the essential terms and conditions of employment of those employees alleged to be jointly employed with the other employer. Such “essential terms and conditions of employment” include hiring, firing, discipline, supervision, the number of workers supplied, scheduling, seniority, and overtime, among other things. However, under the new two-part standard, the National Labor Relations Board (NLRB) may find that two or more entities are joint employers of a single workforce if they are both employers within the meaning of the common law and if they share or codetermine the matters governing the essential terms and conditions of employment. It is irrelevant whether the employer actually used its ability to control the employees’ terms and conditions of employment. The ability to exercise control is sufficient (Browning-Ferris Industries of California, Inc., Case No. 32-RC-109684 (Aug. 27, 2015)).
The NLRB has ruled that temporary workers may not join the union at the site of employment unless both the staffing agency and the employer agree (H.S. CARE, LLC, d/b/a Oakwood Care Center, 343 N.L.R.B. 659 (2004)). The NLRB reasoned that unlike permanent employees, temporary workers are employed by both the staffing agency and the employer. Therefore, both employers must consent before temporary workers can join the bargaining unit at the employer’s site.
Please see the national Unions section.
An agency and the user-employer may be considered joint employers and be held liable for an employee's workers' compensation, discrimination, or OSH Act claims. The definition of “joint employer” varies from state to state, but the overall test is the amount of day-to-day supervision exercised by each employer. If found to be joint employers, both may be responsible for claims filed under:
Wage and hour laws. While the agency is usually held responsible for wage and hour issues, the FLSA imposes joint obligations if the employee works for two employers in 1 week.
Employment taxes. The agency is responsible for deducting taxes from employees' pay. Companies that fail to withhold from contingent workers who are actually employees may encounter problems with the Internal Revenue Service. Independent contractors are responsible for paying their own taxes.
FMLA. The FMLA specifically applies to temporary or leased employees, stating that joint employment will typically exist in those relationships. Employees in joint employment relationships must be counted by both entities for purposes of coverage under the FMLA. Generally, however, temporary agencies and leasing firms will be regarded as the primary employers and are responsible for notifying the employee, providing leave, maintaining health benefits during leave, and restoring employment following the leave. Please see the national Leave of Absence section.
ADA. Both the agency and user-employer are required to reasonably accommodate a worker with a disability. Please see the national Disabilities section.
Workers' compensation laws. Whether a contingent worker will be considered an employee for workers' compensation purposes, and is, therefore, eligible for workers' compensation, depends on state law. In a very general sense, the agency is usually the primary employer of a contingent worker and pays for and receives the benefits of workers' compensation. However, the user-employer may also be immune from civil lawsuits resulting from accidents, and thus the employee's remedy may be limited to workers' compensation.
Many workers' compensation insurance policies have an “alternate employer” endorsement that provides coverage for contingent workers, among others. Employers who make sure they are added to the agency's policy will avoid lawsuits from leased or temporary employees injured on the job.
Employers should interview several agencies before negotiating any contract(s) using these points to consider:
• Make sure that the agency is reputable. Ask around, or call the state Department of Labor.
• Make sure that the agency follows EEOC guidelines.
• Compare fees among agencies and ask about discounted fees for high-volume business.
• Find out what kind of training the agency provides or what tests they administer to guarantee competency.
• Find out if the agency will pretrain workers to company specifications.
• Find out if the agency does background checks. If background checks are not conducted on contingent workers, the company could be liable for negligent hiring.
• Ask about the termination process if the employee turns out to be unsatisfactory.
• Ask if there are any restrictions or fees associated with hiring the employee on a permanent basis.
• Ask about the size of the agency's pool of applicants, their availability, and the time frame associated with having them begin work.
Generally, the employer pays the agency a contracted fee for the work, and the agency pays the worker's wages, deducting taxes and paying workers' compensation, Social Security, and other charges. This means that if the employee is earning $10 an hour, the employer is probably paying the agency $15 to $20 per hour. Many employment agencies will charge employers a lower hourly rate if the employer can guarantee consistent business.
Employers may choose to hire contingent workers on a permanent basis after a period of time. However, employers who decide to hire the employee on a permanent basis should be aware that the agency may impose restrictions (e.g., requiring the employee to work for a certain length of time) or require a “finder's fee.” Finder's fees vary according to agency, and employers should negotiate this with the agency up front.
It is critical for employers to clarify the specifics of any agency agreement entered into. Employers can avoid legal problems if they obtain a written agreement specifying exactly what the agency, and not the employer, is required to do.
Contingent employees should receive the same orientation as regular full-time employees where applicable. There should be clear communication channels to convey company policies and performance standards to contingent staff and designated contact persons for them to go to with questions in both the worker's department and in Human Resources.
Last reviewed October 2015.
Related Topics:
National
The temporary or contingent workforce is the fastest growing segment of the national workforce, with almost 75 percent of employers in all industries using them, according to results from the 2010 CyberShift American Payroll Association Trendline Survey, "It's About Time." Contingent workers are those who are hired through staffing firms or leasing companies and whose jobs are structured to last only a certain length of time. The contingent workforce may include part-time temporary workers, independent contractors, consultants, contract employees, leased employees, and direct hires. Other than some leased long-term employees, most contingent workers are considered “temporary,” and therefore the terms “contingent” and “temporary” are often used synonymously. While most companies hire only a few contingent workers at a time, some may lease their entire workforce on a quasi-permanent basis.
Defining contingent workers. If a company does not clearly define what is a contingent worker, who is an employee, and who is not an employee, managers may start using contingent workers to fill regular positions. For example, if there is a hiring freeze on regular employees but not on contingent workers, those workers may end up as long-term employees.
Benefits. Employers using contingent workers have potential advantages in both flexibility and cost savings. Workforces can be expanded and contracted as needed. Employers may also achieve reduced labor costs through lower hourly wages and the absence of benefit payments. Employers find that the use of contingent workers allows them scheduling flexibility, alleviates overloads, accommodates onetime projects, and prevents a succession of expensive hires.
Savings. The use of temporary employment arrangements increases each year. The staffing vendor's markup of 25 percent to 30 percent must be included when calculating whether the cost of contingent workers is indeed lower than hiring permanent employees. Cost-effectiveness doesn't depend just on savings in salary and benefits; it also depends on output. A contingent worker whose productivity is lower than a similarly situated permanent worker may not be a bargain. It may also be less expensive to outsource the job.
There are many types of contingent workers.
Agency temporaries. The more traditional type of temporary worker, employed through an agency, is still the most likely to be used as a staffing alternative. Agency “temps” tend to be used in clerical, secretarial, nursing, accounting, word processing, or light industrial duties, to fill in for employees on leave, handle excess or special workloads, or perform short-term assignments. The worker is generally an employee of the staffing agency.
Contract employees. These are workers who, by contract, perform professional, production, or administrative support activities. Generally, the employer and employee deal directly with one another, but sometimes there is an outside service firm that negotiates the contract. Typically, contract employees include lawyers, doctors, security staff, cleaning and maintenance staff, editors, and computer technicians.
Directly hired. These are usually members of a pool of employees who are available to work as needed. Many large companies have formed their own labor pools of temporary employees, often made up of retirees or former employees. These employees might fill in for others who are out, assist in areas with immediate needs, or participate in special projects. They are usually considered to be employees of the company, even though their employment is contingent upon demand. This form of a contingent workforce gives employers an alternative to hiring temporary employees from an agency.
Leased employees. Leased employees work for a company that, for a fee, provides temporary or permanent employees and is responsible for their wages and benefits. A leasing company can supply a single employee, a “crew” of employees, or an entire staff, and may take full responsibility for payroll, benefits, and personnel functions. A leasing firm may also be responsible for advertising, supervising, recordkeeping, housekeeping, security, or general office management. Small employers may turn to leasing companies for employees because they don't have to provide benefits, and they can save on administrative costs.
Part-time employees. These are employees who generally work less than 30 hours per week, but are still on the employer's payroll and are entitled to certain benefits of employment. Please see the national Part-Time Employees section.
Independent contractors are self-employed people who work on an agreed-upon product or service, to be delivered at a certain time, for a set fee. They may be considered contingent workers in the sense that their services are not needed on a permanent basis.
Independent contractors have control over when, how, where, and in what way they work. One way to determine if a worker is an independent contractor is the "lunch" test. If an employer is responsible for telling a contingent (temporary) worker when to go to lunch, the worker is contingent, and the employer is responsible for the worker and accountable for the worker's actions. If not, the worker is most likely an independent contractor. Please see the national Independent Contractors section.
Employers should be aware of the legal issues of employing contingent workers and not assume that they are immune from issues of employment law; most laws that apply to "regular" workers also apply to contingent or leased workers.
The Equal Employment Opportunity Commission (EEOC)Enforcement Guidance 915.002 concerning contingent workers clarifies that staffing firms and employers using contingent workers may not discriminate on the basis of race, color, religion, sex, national origin, age, or disability, nor can they ask the medical questions forbidden by the Americans with Disabilities Act (ADA).
Contingent workers who are employees must still be authorized to work in the United States. If contingent workers are obtained through an agency that employs them, the agency can be required to confirm the individual's right to work in this country. If a company attempts to use contingent workers as "independent contractors" to avoid the I-9 form, the U.S. Citizenship and Immigration Services Bureau may determine that the worker really is an employee and that the employer is still responsible for obtaining an I-9 for the individual. Please see the national Aliens and Immigration section.
The Fair Labor Standards Act (FLSA) governs wage and hour issues in the workplace. FLSA defines employee as “any person acting in the interests of an employer in relation to an employee.” Under the Equal Pay Act, differences in pay and benefits between regular full-time employees and contingent employees can suggest unlawful discrimination.
Respondents to the CyberShift poll said that capturing data and keeping timely and accurate records of pay data, absences, leave, and paid time off are their biggest challenges with contingent workers.
Most contingent employees do not receive benefits because they are not employed long enough to qualify for them. Many insurance policies have provisions limiting coverage to full-time and regular employees. Generally, employees who work 1,000 hours in a pension plan year are considered regular employees under the Employee Retirement Income Security Act (ERISA). The rules governing employee benefits can be very complex and specific, so if you use contingent workers, be sure to consult your benefits administrator about which rules apply. Please see the national ERISA section.
Contingent workers, other than independent contractors, may be covered under the Family and Medical Leave Act (FMLA) if they were employed for at least 12 months and if they worked for the employer for more than 1,250 hours in the previous 12-month period.
Along with accompanying state laws, the Occupational Safety and Health Act (OSH Act) requires contingent workers who are employees to be provided a safe workplace under its standards. Employers are obligated to inform all employees and contingent workers of any hazards in the workplace. Employers responsible for daily supervision are to keep a record of accidents for all workers in their workplace.
The National Labor Relations Act (NLRA) requires businesses to bargain in good faith with their employees’ labor unions and prohibits the use of unfair labor practices directed against employees and unions seeking to organize them. Companies often use contingent workers to insulate themselves from liability and the obligation to bargain collectively. The use of contingent workers can create a joint employment relationship. Previously, the law required that the company possess and directly exercise authority to immediately and directly control the essential terms and conditions of employment of those employees alleged to be jointly employed with the other employer. Such “essential terms and conditions of employment” include hiring, firing, discipline, supervision, the number of workers supplied, scheduling, seniority, and overtime, among other things. However, under the new two-part standard, the National Labor Relations Board (NLRB) may find that two or more entities are joint employers of a single workforce if they are both employers within the meaning of the common law and if they share or codetermine the matters governing the essential terms and conditions of employment. It is irrelevant whether the employer actually used its ability to control the employees’ terms and conditions of employment. The ability to exercise control is sufficient (Browning-Ferris Industries of California, Inc., Case No. 32-RC-109684 (Aug. 27, 2015)).
The NLRB has ruled that temporary workers may not join the union at the site of employment unless both the staffing agency and the employer agree (H.S. CARE, LLC, d/b/a Oakwood Care Center, 343 N.L.R.B. 659 (2004)). The NLRB reasoned that unlike permanent employees, temporary workers are employed by both the staffing agency and the employer. Therefore, both employers must consent before temporary workers can join the bargaining unit at the employer’s site.
Please see the national Unions section.
An agency and the user-employer may be considered joint employers and be held liable for an employee's workers' compensation, discrimination, or OSH Act claims. The definition of “joint employer” varies from state to state, but the overall test is the amount of day-to-day supervision exercised by each employer. If found to be joint employers, both may be responsible for claims filed under:
Wage and hour laws. While the agency is usually held responsible for wage and hour issues, the FLSA imposes joint obligations if the employee works for two employers in 1 week.
Employment taxes. The agency is responsible for deducting taxes from employees' pay. Companies that fail to withhold from contingent workers who are actually employees may encounter problems with the Internal Revenue Service. Independent contractors are responsible for paying their own taxes.
FMLA. The FMLA specifically applies to temporary or leased employees, stating that joint employment will typically exist in those relationships. Employees in joint employment relationships must be counted by both entities for purposes of coverage under the FMLA. Generally, however, temporary agencies and leasing firms will be regarded as the primary employers and are responsible for notifying the employee, providing leave, maintaining health benefits during leave, and restoring employment following the leave. Please see the national Leave of Absence section.
ADA. Both the agency and user-employer are required to reasonably accommodate a worker with a disability. Please see the national Disabilities section.
Workers' compensation laws. Whether a contingent worker will be considered an employee for workers' compensation purposes, and is, therefore, eligible for workers' compensation, depends on state law. In a very general sense, the agency is usually the primary employer of a contingent worker and pays for and receives the benefits of workers' compensation. However, the user-employer may also be immune from civil lawsuits resulting from accidents, and thus the employee's remedy may be limited to workers' compensation.
Many workers' compensation insurance policies have an “alternate employer” endorsement that provides coverage for contingent workers, among others. Employers who make sure they are added to the agency's policy will avoid lawsuits from leased or temporary employees injured on the job.
Employers should interview several agencies before negotiating any contract(s) using these points to consider:
• Make sure that the agency is reputable. Ask around, or call the state Department of Labor.
• Make sure that the agency follows EEOC guidelines.
• Compare fees among agencies and ask about discounted fees for high-volume business.
• Find out what kind of training the agency provides or what tests they administer to guarantee competency.
• Find out if the agency will pretrain workers to company specifications.
• Find out if the agency does background checks. If background checks are not conducted on contingent workers, the company could be liable for negligent hiring.
• Ask about the termination process if the employee turns out to be unsatisfactory.
• Ask if there are any restrictions or fees associated with hiring the employee on a permanent basis.
• Ask about the size of the agency's pool of applicants, their availability, and the time frame associated with having them begin work.
Generally, the employer pays the agency a contracted fee for the work, and the agency pays the worker's wages, deducting taxes and paying workers' compensation, Social Security, and other charges. This means that if the employee is earning $10 an hour, the employer is probably paying the agency $15 to $20 per hour. Many employment agencies will charge employers a lower hourly rate if the employer can guarantee consistent business.
Employers may choose to hire contingent workers on a permanent basis after a period of time. However, employers who decide to hire the employee on a permanent basis should be aware that the agency may impose restrictions (e.g., requiring the employee to work for a certain length of time) or require a “finder's fee.” Finder's fees vary according to agency, and employers should negotiate this with the agency up front.
It is critical for employers to clarify the specifics of any agency agreement entered into. Employers can avoid legal problems if they obtain a written agreement specifying exactly what the agency, and not the employer, is required to do.
Contingent employees should receive the same orientation as regular full-time employees where applicable. There should be clear communication channels to convey company policies and performance standards to contingent staff and designated contact persons for them to go to with questions in both the worker's department and in Human Resources.
Last reviewed October 2015.
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