When talking talking about compliance with the law (and we are) everything may be critical, but I would like to focus on six compliance issues of concern to staffing companies; OSHA, Withholding Taxes, Discrimination and Sexual Harassment, Affordable Care Act (ACA), Family Leave, and E-Verify.
We will briefly cover the legal requirements, penalties, the potential for related lawsuits, and the principle of “Joint Employer” which is common to many of these compliance issues.Sexual Harassment which says, in
1. Staffing Company Compliance with OSHA
In 2013 OSHA (Occupational Safety and Health Administration) began a policy called the Temporary Worker Initiative (TMI) basically linking both the temporary services and host companies as joint employers for purposes of responsibility in meeting OSHA requirements.
On paper, at least, the responsibility of the staffing company is clear, i.e., they have responsibility for the safety of their employees that they send to their clients. The host employer may have primary responsibility but the staffing company as a “joint employer” has a certain responsibility as well.
This policy came about because of injuries sustained on the job by temporary workers who were not given the necessary information (training) by either the host employer or the staffing company when both were aware of, or should have been aware of, safety and health hazards at a particular place of employment.
The following year (2014) a letter was sent from OSHA to all their Regional Offices with instructions to begin enforcement actions. Soon thereafter fines were being levied against staffing companies as well as host employers for non-compliance. And these were not simply token amounts.
Unfortunately, it does not stop there.
For example, OCHA fines a host company and a staffing company $50,000 and $25,000 respectively, for negligence in an accident that involved an arm amputation (Actual incident in 2015). The other “shoe” that is almost certain to “drop” is the lawsuit by the victim who will sue both “joint employers”. And, based upon the OSHA finding of negligence, the victim will very likely succeed with a sizable award.
The implications are clear; staffing companies need to protect themselves. They can do this by becoming aware of the conditions at the job site, informing their employees, providing training (and documenting it!), and, by making sure their client agreements have a clause that spells out the responsibilities of each.
2. Tax Compliance – Multiple Withholding Tax Jurisdictions & the Contractor VS. Employee issue
Because many staffing companies employ across several withholding tax jurisdictions, keeping track of them all and their requirements can get complicated and some (or several) local tax jurisdictions can be overlooked.
Years can go by and then you get a letter from a local tax department in a small city in Iowa that claims it has not received any filings for John Doe even though he filed a W2 for the last few years with the address of “our locality”.
This time passage may not absolve you of liabilities for the tax itself and any penalties and interest that may be due. Additionally, because you are not really contracting the payroll service with your client but providing it for your own employees, the responsibility is clearly yours and not your client.
This is an area where your staffing software can be of assistance and give you some piece of mind. Bridgeware’s staffing software, TempsPlus, covers all jurisdictions in all 50 states and Canada. It is a good idea to check with them or your own staffing software company. And don’t just ask them if their software covers all jurisdictions, tell them to put it in writing! Then, if anything happens you have a great defense.
Independent Contractor VS. Employee Issue
Here is an area where staffing companies (and others) have gotten themselves in trouble. By allowing someone to work for you as a private contractor when they should have been working as an employee, with normal payroll deductions, your company could end up with a large tax liability.
The IRS guidelines for determining who can be classified as a private contractor is based upon the degree of control the staffing company has over the worker. The more control, the more the person should probably be classified as an employee. IRS looks at three areas:
- Behavioral Control – Right of employer to direct or control
- Financial Control -Opportunity for profit or loss, method of payment.
- Relationship – Written contract, benefits, permanency, etc.
Because there does not seem to be any exact formula, and because the consequences are significant, you can have the IRS decide for you by submitting their form SS-8. Caution: It can take up to 6 months to get an answer.
For more details you can visit the IRS web page entitled “Understanding Employee vs. Contractor Designation”
3. Discrimination and Sexual Harassment
The basic law covering discrimination is Title VII of the Civil Rights act of 1964, as amended, and addresses discrimination in five basic areas:
- Sex (Pregnancy added in 1978)
- National Origin
Other federal laws followed covering:
- Equal Pay (1963)
- Age (1967)
- Disability (1990)
- Genetics (2008)
The Equal Employment Opportunity Commission (EEOC) puts out a very concise poster in PDF format that can be downloaded and posted in your office or used as a basic training tool to create staff awareness of the issues and potential liability.
Staffing Companies are in a unique position regarding discrimination in employment because their clients, or “host employers” are often, but certainly not always, the source of the problem.
A common discrimination issue may begin when a staffing company is asked by their client to provide, let’s say, a “blue eyed” receptionist (obvious code for “white”) and the agency complies. Mistake. If there is a complaint and investigation, the staffing company would, very likely, be held liable for the discrimination, together with their client, based on the same “Joint Employer” status that we saw with OSHA (See Above “OSHA”)
The chairwoman for the EEOC said recently that discrimination problems were getting worse, “Staffing agencies are refusing to place African American employees based on their race, and they are terminating employees when they complain about that . . . ”
So, what is a staffing agency to do when they are asked by a client to facilitate discrimination by not sending certain individuals protected by any one of the above statutes even though they are qualified?
The American Staffing Association (ASA) gives some positive guidance in their Code of Ethics & Good Practices which each member pledges to abide by.
The top two items in the code are about complying with all laws and regulations, and providing equal employment opportunities without regard to race, color, religion, etc., or any basis for discrimination prohibited by law. That seems to be clear.
But the Association does not seem to give any specific guidance on how members could handle such invitations to collude with a client’s discriminatory practices. It also might be helpful to have some guidance on how a staffing company might decline such an “invitation” while still having a good chance of holding the client’s account.
I would suggest a frank discussion with your client that diplomatically informs how much of your service is geared to protecting them against liabilities like fines,compensatory damages, and lawsuits while also protecting your own staffing company.
You need not preach the moral or ethical consideration (although that may come up) but be prepared to deliver sound, professional, and practical arguments on why discrimination is not a good idea.
Besides fines, compensatory damages, and even punitive damages in cases where the discrimination intent was clear, the government action may be followed by private lawsuits. can follow. And finally, there is also the serious potential for a “loss of reputation” and consequent loss of income which can be especially significant in a local market.
Although Sexual Harassment is included under Title VII of the Civil Rights Act of 1964 as a form of sex discrimination, I thought it differed enough from that general topic and was often confusing to many people that I want to make some brief note on it separately.
A concise definition of what constitutes sexual harassment comes from a web page of the EEOC titled Facts about Sexual Harassment which says, in part: Fact Sheet: Sexual Harassment Discrimination
“Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitutes sexual harassment when this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating, hostile, or offensive work environment”. (my emphasis)
4. The Affordable Care Act
Staffing companies have been struggling to find their way through the basics of the ACA since its passage in March of 2010.
Key in the history of the Act was the Supreme Court’s basic decision that the ACA’s “Individual mandate” was constitutional (2012). But this decision was rolled back somewhat by congressional legislation that outlawed the penalties for non-participation, (2017) thus, effectively, eliminating the mandate itself. (my emphasis)
Like mandatory auto insurance that enlarged the insurance pool and reduced overall auto insurance costs, the ACA mandated participation was intended to do the same for health insurance. Even with the mandate in effect, this did not seem to be happening.
It has been a concern to many that almost from its start-up, ACA premiums were rising steadily. And, even though premiums were just starting to come down in 2017-18, without the mandate, costs will certainly increase again. The increased costs will also increase the amount of subsidy that the government pays to make premiums affordable to those with lower incomes. The issue of “affordability” is also one that many middle income people seriously question!
The elimination of penalties for non-participation becomes effective in the 2019 tax year, and therefore, the inevitable shrinking of the insurance pool will continue the trend of increasing premium costs. That is, for everyone except those receiving a subsidy which is based upon a fixed percentage of their income.
Although the individual mandate may be gone, the business mandate (the staffing company) remains. That mandate applies to all companies of 50 or more full-time employees with “full-time defined as 30 hrs. a week or 130 hrs. a month. The American Staffing Association says that most staffing companies are in this category.
The mandate is enforced via excise taxes imposed for every qualified employee who is not enrolled in the employer’s plan, either because it is not affordable or does not provide the ACA “minimum essential coverage”. The excise tax “penalty” amounts to $312.50 per month per employee. In a 50+ employee company that amounts to a minimum of $187,500 annually.
The American Staffing Association’s 2015 survey of their membership indicated that nearly 85% will participate (“Play” rather than “Pay”) and they intend to pass on all or some of the costs to their clients.
5. Compliance with the Family and Medical Leave Act
This federal law (FMLA) requires employers, with 50 or more employees, to provide their covered employees with up to 12 weeks of unpaid leave time, during a 12 month period, for a covered family and/or medical situation.
A covered employee is one who has worked for the company for a total of one year during the past seven years and has worked 1,250 hours during the 12 months prior to the actual leave.
Staffing companies note: Part-time employees can be eligible for leave!
A covered family or medical situation can be in four general categories of need
- Pending or post childbirth or the arrival of a newly adopted child (Bonding is a qualified need)
- To care for a parent, spouse, or child with a serious medical situation
- The employee has a serious medical conditions
- Any serious medical or family need related to a family member serving on active duty in the U.S.military
The covered employee does not need to provide medical records of any covered situation but would need to provide the employer with some letter that certifies a qualified need.
There are some very frustrating situations where an employer is liable to make a mistake and incur penalties for violations of the law.
This most usually occurs when a qualified employee uses leave time in a combination of short and unexpected periods, being off a day or two at a time and frustrating the company schedule.
Be careful. Keep records. Take notes. It may well be that this situation, although difficult, has a qualifying medical basis. A hasty decision or even firing a person could result in fines and an ultimate lawsuit.
For more information, including an FMLA Employer Guide, visit the United States Dept. of Labor
Required Poster Display “All covered employers are required to display and keep displayed a poster prepared by the U.S. Department of Labor summarizing the major provisions of the Family and Medical Leave Act (FMLA) and telling employees how to file a complaint. The poster must be displayed in a conspicuous place where employees and applicants for employment can see it.”
Download a copy of this FMLA poster.
E-Verify is a US government program that enables (and increasingly requires) employers to “Verify” the legal status of newly hired workers for eligibility to work in the US.
This is accomplished by accessing the huge government databases to search for matches with known US citizens and other legal residents.
Many staffing software companies (Including our own @ Bridgeware Systems Inc.) have seamlessly integrated this verification process within their software so that, with just “one click”, your new- hire information is automatically sent, via the internet, to the appropriate Department of Homeland Security office with a request to verify work eligibility.
So compliance here is usually quite easy. “One Click” and your company is now compliant with federal law and all related regulations, and, . . .. . so are your clients!
Oops almost forgot an important compliance requirement.
“Participating employers must display the E-Verify Participation and Department of Justice, Immigrant and Employee Rights Section (IER) Right to work posters to inform their current and prospective employees of their legal rights and protections”.
Download the Employer Resources poster.