Contingent Workers Training for Supervisors: Parts I, II & III Reviewed May 2013

1. Contingent Workers Training for Supervisors: Parts I, II & IIIReviewed May 2013

2. Introduction Employers use various types of workers to perform the services they require. Most of these workers are classified as employees. Other types of workers are non-employees or contingent workers, such as temporary staffing agency employees and independent contractors. Correct classification of workers as employees or contingent staff has always been an important employer responsibility. It was not until the landmark Microsoft class action lawsuit, however, over a decade ago that employers became acutely aware of the costs of misclassification and the tax, the Employee Retirement Income Security Act (ERISA), employment law, and civil lawsuit consequences. To avoid these costly errors, employers need to train new and retrain current supervisors on the use of contingent workers. These sample presentations on contingent workers are structured to be given in three sessions and are organized into six parts. The first session (Parts 1-3) includes the definition and types of contingent workers and covers leased employees, temporary staffing agency employees and co-employment. The second session (Part 4) pertains to independent contractors. The third session (Part 5) covers interns and includes Part 6 which is a Quiz. The sessions are intended for presentation to supervisors and other individuals who hire and manage workers. They are designed to be presented by an individual who has comprehensive knowledge of contingent workers and relevant employment laws. These sample presentations must be customized to include state laws and the employer’s own policies and practices.

3. Presentation Contents • This presentation contains Parts 1 through 3 of a five-part series of training presentations for supervisors on contingent workers. These first three parts include the definition and types of contingent workers and discusses leased employees, temporary staffing agency employees and co-employment. • Part 4 covers independent contractors. • Part 5 covers interns. • Part 6 is a Quiz.

4. Objectives At the close of this session, you will be able to: • State what contingent workers are • Name common types of contingent workers • Cite the reasons it is important to properly classify workers • Define leased employees and Professional Employer Organizations (PEO’s) • Define temporary staffing agency employees • Explain what co-employment is and its implications when using leased and temporary staffing employees

5. What are Contingent Workers? How Do You Define Contingent Workers? • Contingent workers are defined as non-traditional and non-employee workers. (Employees are defined under the Fair Labor Standards Act (FLSA) as persons whose activities are controlled or directed by an employer and who work necessarily and primarily for the employer's benefit.)

6. What are the Common Types of Contingent Workers? Common types of contingent workers are: • Leased employees – those who are employed and paid by a leasing firm (professional employer organization (PEO) which leases the workers to a company • Temporary staffing agency employees – workers who are employees of a temporary staffing agency but who perform services for the agency’s clients. The client retains management and responsibility for the work but the agency pays the worker.

7. What are the Common Types of Contingent Workers? (cont’d) • Interns – individuals (generally a college student receiving college credit for participating in an established internship program ) who are receiving training from the employer, who are performing no work that is of benefit to the employer, and who are unpaid. • Independent contractors - Self-employed individuals who performs services for employers under an express or implied agreement and who are not subject to the employer's control, or right to control, regarding the method and means in which the services are performed.

8. Why is it important to properly classify workers? It is important to classify workers properly because of the following: • Taxes • Benefits plans under the Employee Retirement Income Security Act (ERISA) • Employment laws • Civil lawsuits

9. Why is it important to properly classify workers? (cont’d) 1.Taxes • When an employer has leased employees, uses workers from a temporary staffing agency, or classifies workers as unpaid interns or as independent contractors, it is not required to withhold federal and state payroll taxes or pay unemployment and workers compensation taxes. These taxes include federal and state income taxes and Social Security and Medicare taxes (known as FICA taxes) and unemployment and workers compensation taxes. • An employer is required to withhold and pay all these taxes for employees, however.

10. Why is it important to properly classify workers? (cont’d) • If a governmental agency or a court determines that the employer has misclassified workers as non-employees, such as independent contractors instead of as employees and has not withheld and paid mandatory taxes, the employer faces significant financial and legal consequences. • The employer will be responsible for making up those taxes and also faces penalties for late tax payments.

11. Why is it important to properly classify workers? (cont’d) • Benefits plans under the Employee Retirement Income Security Act (ERISA) • ERISA applies to all employer-provided benefit plans if the employer is engaged in interstate commerce and union-provided plans if the union represents employees in interstate commerce or joint employer-union plans. (Government and church pension plans and plans maintained to comply with workers' compensation, unemployment and disability insurance laws are exempt from ERISA coverage.)

12. Why is it important to properly classify workers? (cont’d) • Covered plans include, but are not limited to, medical, surgical or hospital benefits, sickness and disability benefits, apprenticeship or other training programs, day care centers and pension plans. • When an employer classifies workers as non-employees, it is not required to provide these workers with benefit plans regulated by ERISA.

13. Why is it important to properly classify workers? (cont’d) • If a governmental agency or a court determines that the employer has misclassified workers as non-employees, such as independent contractors instead of as employees and has not provided the contractors with benefits plans its employees are eligible for and which are regulated by ERISA, the employer faces significant financial and legal consequences. • The employer will be responsible for retroactively providing the benefits and also faces significant penalties for ERISA violations.

14. Why is it important to properly classify workers? (cont’d) 3.Employment Laws • Numerous employment laws cover only employees. Misclassification of workers as non-employees denies the protections of these laws. If a governmental agency or a court determines that an employer has misclassified workers as a non-employees, the employer faces penalties for violations. The major laws and regulations and examples of violations follow.

15. Why is it important to properly classify workers? (cont’d) • Fair Labor Standards Act (FLSA) – Two important requirements of the FLSA are for employers to pay minimum wage and overtime rates for employees. If a governmental agency or a court determines that the employer has misclassified workers as unpaid interns instead of as employees, the employer may face violations under the FLSA for not paying minimum wage and overtime rates.

16. Why is it important to properly classify workers? (cont’d) • Workers’ Compensation - Workers’ compensation is a system of state laws that provide medical care and compensation to injured workers on a no-fault basis. Many states only mandate coverage for employees. An example of a possible violation is the misclassification of workers as independent contractors instead of as employees and failure to provide paid medical care and compensation for work-related injuries or conditions as required by workers’ compensation laws.

17. Why is it important to properly classify workers? (cont’d) • Immigration Reform and Control Act (IRCA) - The IRCA requires employers to complete Forms I-9 for all employees hired on or after November 7, 1986 as documentation to work legally in the U.S. If a governmental agency or a court determines that the employer has misclassified workers as independent contractors instead of as employees, it may face violations under the IRCA for not having Forms 1-9 completed and possibly for employing individuals who are not eligible to work in the U.S.

18. Why is it important to properly classify workers? (cont’d) • Family and Medical Leave Act (FMLA) – FMLA is the federal law which requires employers to grant leave for family and medical circumstances, reinstate the employee to the same or an equivalent position upon conclusion of the FMLA leave, and requires employers to continue health benefits at the same level as prior to the start of FMLA leave. An example of a possible violation is the misclassification of workers as unpaid interns or as independent contractors instead of as employees and failure to provide FMLA leave, job reinstatement, and continuation of health benefits as required by the FMLA.

19. Why is it important to properly classify workers? (cont’d) • In addition to violations of employment laws, employers face possible civil lawsuits for misclassifying workers. It is becoming common for independent contractors to sue previous employees for denial of benefits, stock options and other compensation based on the assertion that they were misclassified as contractors instead of as employees eligible for these benefits and compensation. A well-known case is the Vizcaino vs. Microsoft class action suit involving 10,000 workers that resulted in a $97 million settlement in favor of the misclassified workers.

20. Questions ? Comments ?

21. Part ll – Leased Employees and Professional Employer Organizations (PEO/s) • A common type of contingent workers are leased employees. Leased employees are workers who are officially employed by a leasing company, generally a Professional Employer Organization (PEO), which is responsible for overseeing all HR-related functions for the business owner. • Employee leasing is a contractual arrangement in which the leasing company, the PEO, is the official employer. The PEO handles all aspects of employee administration, such as providing benefits and workers compensation, and maintaining payroll. The PEO then “leases” the workers back to the business owner using the workers whose main responsibility is writing a check to the leasing company to cover the payroll, taxes, benefits and administrative fees.

22. Part ll – Leased Employees and Professional Employer Organizations (PEO/s) (cont’d) • Advantages of PEO’s are particularly significant for small business owners. The business owner no longer has to manage human resources issues directly. This frees up time for the owner to concentrate on growing his company. • Another advantage of PEO’s is that due to their size they are able to negotiate better contracts for health insurance and other benefits because of the volume of business they offer.

23. Part ll – Leased Employees and Professional Employer Organizations (PEO/s) (cont’d) • A disadvantage is that the business owner no longer has any employees. When the business transitions to a PEO, it legally terminates all its employees who are then rehired by the PEO. • By signing with a PEO, the business owner also loses a certain amount of flexibility in the compensation package the employees receive. The owner decides how much employees will be paid, but options regarding health insurance and other benefits may be extremely limited.

24. Questions ? Comments ?

25. Part lll – Temporary Staffing Agency Employees • Temporary staffing agency employees are another type of contingent workers. The temporary staffing agency recruits, screens, and hires individuals who are then placed with client companies on either a temporary or project-specific basis. • The temporary staffing agency trains the employees, sets the level of compensation and provides workers compensation coverage. The client company controls the employee’s work during the assignment and pays the agency the labor costs plus a fee for its services.

26. Part lll – Temporary Staffing Agency Employees (cont’d) • An advantage to using temporary staffing agency employees is the speed and ease which a business owner may obtain workers as well as the elimination of payroll and benefit administration. • A disadvantage is often that the temporary staffing agency employee may lack the skills, knowledge, and experience needed to perform the work as well as the additional cost above actual labor cost to the business owner.

27. Co-Employment Issues • Co-employment (also called joint employment) is a legal doctrine which applies when two businesses exert some control over an employee’s work or working conditions. • Relationships between employee leasing firms (PEO’s) and temporary staffing agencies are typically co-employment situations.

28. Co-Employment Issues (cont’d) • The major areas of concern in these co-employment relationships are compliance with the: • FLSA which governs worker wages, hours, overtime and minimum wage and related matters, and which provides specific protections involving co-employment and joint employment relationships. • Family and Medical Leave Act which provides for co-employer liability when temporary employees are involved. Temporary and leased employees are counted as employees for FMLA compliance.

29. Co-Employment Issues (cont’d) • Federal laws prohibiting employment discrimination, including the Americans with Disabilities Act (ADA), ADEA (Age Discrimination in Employment Act), Title VII of the Civil Rights Act of 1964 (Title VII), and Equal Pay Act (EPA), through regulations administered by the Equal Employment Opportunity Commission (EEOC). These laws incorporate and apply co-employment liability when leased and temporary staffing agency employees file discrimination claims.

30. Questions ? Comments ?

31. Summary • Contingent workers are defined as non-traditional and non-employee workers. • The most common types of contingent workers are leased employees, temporary staffing agency employees, interns, and independent contractors.

32. Summary (cont’d) • It is important to classify workers properly because of the following: • Taxes • Benefits plans under the Employee Retirement Income Security Act (ERISA) • Employment laws • Civil lawsuits

33. Summary (cont’d) • Leased employees are workers who are officially employed by a professional employer organization, which is responsible for overseeing all HR-related functions for the business owner. • The leasing company, generally a PEO, is the official employer. Employee leasing is a contractual arrangement between the business owner and the leasing company, the PEO.

34. Summary (cont’d) • Temporary staffing agency employees are workers employed by the agency which recruits, screens, and hires individuals who are then placed with client companies on either a temporary or project-specific basis. • Co-employment (also called joint employment) is a legal doctrine which applies when two businesses exert some control over an employee’s work or working conditions. Relationships between employee leasing firms (PEO’s) and temporary staffing agencies are typically co-employment situations.

35. Summary (cont’d) • The major areas of concern in these co-employment relationships are compliance with the FLSA, FMLA, and federal laws which prohibit discrimination in employment (the ADA, ADEA, Title VII of the Civil Rights Act, and the EPA). :

36. Questions ? Comments ?

37. Course Evaluation Please be sure to complete and leave the evaluation sheet you received with your handouts. Thank you for your attention and interest!