How Long Can You Keep a “Temp” on Assignment?
The Myths Surrounding “Length of Assignment” – How Long Can an Employer Keep an Employee on a Temporary Assignment?
In December 2000, the now infamous Microsoft settlement awarded 97 million dollars to temporary workers who were re-classified as core (common law) employees (instead of temps). That re-class ruling resulted in 8-12K MS “temps” immediately becoming “benefit eligible” – a hefty cost even for a company like Microsoft.
Unfortunately this settlement catapulted the issue of assignment length into a confusing period for companies who were large users of temporary employees. Based on a limited understanding of the MS settlement, many of these employers created internal policies that limited the length of time an employee could be a “temp” believing that by doing so they were minimizing their exposure to “re-classification” issues.
Even the American Staffing Association (ASA) weighed in on the issue by taking up the concerns of both the employer and their interim employees who were often negatively impacted by an arbitrary assignment ending. In a series of white papers, ASA challenged the employer community regarding their assignment limit policies claiming that “the length of a temporary assignment” is only one, of multiple factors, important to establishing the employee- employer status and does not in and of itself mitigate the risk of misclassification. They wisely noted that other components of the employee/employer relationship were, in fact, equally if not more important.
What is the status of the length of assignment issue today?
As the dust settled it became clear that the truth surrounding the MS settlement was far different than the headlines had initially portrayed. And even though the arguments of the ASA prevailed, the wake of the MS lawsuit still exists. We are still being asked by employers how long they can keep a temporary employee without putting themselves at risk. And our temporary employees are still asking how long their employer can keep them in a temporary role without breaking the law.
If “length of assignment” isn’t the only factor that determines if an employee is a core employee or a temp, what are employers doing to protect themselves from unexpected liabilities related to how they use and manage non core employees?
#1. Most employers are now obtaining all their non – core, interim, contract or temp employees thru third party employers – in most cases, thru companies traditionally employing and dispatching temporary or contract staff.
Some believe that had MS properly obtained all their temporary workers at the time of the lawsuit thru a third party employer, instead of hiring workers directly as 1099’s, it is possible that some of the mis-classification claims could have been avoided.
“Safe harbor” policies, requiring hiring managers to use a third party staffing company to on board and pay any worker not formally attached to their core workforce have become a best practice as a way to avoid the risks associated with the employee classification process – an iteration of the Microsoft law suit. If, for example, an employer classifies a worker as a 1099 – “self employed”- and the IRS refutes that claim under audit, the employer is subject to back taxes, fines, and penalties which has been a noticeable source of revenue for the IRS over the last decade. Employers want the peace of mind that comes from knowing that the applicable wages, payroll taxes and benefits costs are being calculated and paid by an employer other than themselves.
Many local staffing companies, PACE included, have created low cost “payroll service” packages for employers who have a need for third party employer services for interim workers they have recruited directly. (See PACE’s Employer of Record service option)
#2. It is now a best practice for employers to re write their key benefit plans to specifically exclude third party (i.e. staffing firm) employees.
In 1999 MS didn’t have that exclusion in their benefit contracts, and had to learn the hard way. Today, most benefit administrators will automatically exclude workers who are the employees of third party employers from formal benefit documents.
#3. Employers are including information about how to manage workers from third party employers as part of supervisory training.
The IRS now uses a 20 point test to determine the employer relationship – to decide who the employer is, really. To make sure that the employer responsibility stays with the staffing agency and doesn’t default back to the employer under audit, many employers are training their supervisors on temp management 101…
- To limit their communications with temporary employees on any issue related to pay, length of assignment, benefit eligibility, employment status or work schedules, etc.
- To allow, and in some cases require, representatives from their staffing vendors to be on site, working directly with their employees, as needed.
- To provide feedback on performance thru the employee’s staffing vendors, not directly.
If you are an employer and would like some training for your supervisors on how to legally and operationally optimize the employer services of a third party staffing agency, give us a call at 425-637-3312!
#4. Staffing agencies are now providing their clients with written agreements that spell out their duties as “employer”. These agreements typically include the staffing agencies responsibility to….
- Recruit, screen and evaluate employees to be placed on assignment
- Determine employee pay rates, benefits and expense reimbursements
- Hire, fire, and assign employees
- Handle employee complaints and concerns
- Pay worker, calculate and pay taxes, and distribute pay check
Getting these types of agreements or contracts in writing, makes it clear who is responsible to act as the “employer of record”. It also can protects employers from unexpected liabilities resulting from workplace accidents or claims of discrimination.
While the legal concerns regarding length of assignment have dissipated, there are situations where internal “length of assignment” policies business or operational sense. Here’s some examples…
To Protect a Company’s Intellectual Property…
In 2016, Microsoft established a new set of “assignment limit” rules, based not on the risk of mis- classification or co-employment, but on their concerns about the integrity and security of their intellectual property. Because they were uncomfortable allowing a temporary or contract worker to have long-term access to their proprietary information and systems, they decided to place limits on the number of months an employee could access their systems without a break in service. They decided that after 18 months a temporary or contract worker needed to be removed from their assignment, forcing an arbitrary lay off of any contractors reaching that benchmark.
We are yet to see if MS can effectively enforce this policy without exception as we know first hand the negative impact of losing a valued worker – even if the are not an employee hired directly.
To Optimize Workforce Productivity and/or Morale…
While higher wage temporary or contract workers often prefer “longer term project based assignments”, many lower wage temporary workers consider themselves negatively impacted when asked to remain as temporary employees for long periods without being converted to a regular hire. The impact to productivity and morale is of particular import when temporary workers work side by side core employees doing the same or similar work.
For similar reasons, in those situations where an employer regularly hires members of its temporary workforce, there is risk attached to keeping the temporary employee in the workforce once they know they will not be hired.
Most of our clients who regularly hire our temporary employees have rules whereby an employee will either be hired or removed from their assignment after a defined period.
To Avoid the Risk of Discrimination Claims…
Another factor that touches the “length of assignment” issue is the employer’s increased exposure to charges of discrimination when decisions about how long a temporary employee is kept on assignment is left up to individual supervisors. The longer a “temp” is in your workforce, and the fewer policies you have to guide those types of decisions, the more opportunity there is for a perception of disparate treatment to surface.
Making “length of assignment” a matter of company policy rather than a decision left up to the discretion of an individual manager or supervisor, mitigates the risk of an uninvited claim of disparate treatment. At the same time, an across the board “length of assignment” policy, can reduce the resources manager’s have available to them to achieve important business goals.
PACE Staffing Network provides employees for assignments intended to last as little as two days to multiple years and does so seamlessly, based on the employer’s internal policies and our assessment of our employee’s motivations for working.
While we will provide information on the operational risks an employer might face by either limiting or extending assignment lengths, in the end, it is a decision that is made by both the employer and the employee.
In reality, once the original agreement re: “length of assignment” has been satisfied, an employer can still offer an employee the opportunity to extend their assignment and the employee can then decide if they want to accept the employer’s offer. The law plays no role in those decisions for either party, although a company’s internal policies might.
If you’d like help with your next temporary staffing project or to learn more about how optimize your use of temporary employees, give us a call at 425-637-3312 or e mail us at firstname.lastname@example.org