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©2013 Warner Norcross & Judd LLP. All rights reserved. 1
©2013 Warner Norcross & Judd LLP. All rights reserved. WNJ.com
You have questions. We have answers.
Lou Rabaut
April Goff
Norbert Kugele
George Whitfield
Temporary Workers: Employment and Employee
Benefits Issues
©2013 Warner Norcross & Judd LLP. All rights reserved. WNJ.com
You have questions. We have answers.
EMPLOYMENT RELATED ISSUES
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Distinguishing PEO and Temporary Staffing Agencies
• PEOs
• Regulated and defined under MCLA 338.3721
• PEOs are not temporary staffing agencies
• PEOs establish joint employment
• NOT what we are discussing today
• Temporary Staffing Agency
• Defined under MCLA 421.29(1)(l)
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Why Do Companies Utilize Temporary Workers?
• Deal with fluctuations in demand
• Seasonal
• Market upswing/downswings
• Cheaper Wages; No Benefits
• Administrative Ease
• Attraction of Key Skills
• “Try Before You Buy”
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Immigration Issues
• I-9; Who Completes?
• Potential Liability • Knew or should have known
that worker was unauthorized.
• Willful blindness is not an excuse.
• Staffing Agency Contract • “Only authorized workers”
provision.
• Indemnification provision for loss or damages
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Workers’ Compensation
• “Joint Employees” • Both Temporary Staffing Agency and Recipient Employer receive
exclusive remedy protection under Michigan’s Workers’ Disability Compensation Act
• Both entities shielded from large damage awards, including pain and suffering
• Employee’s recovery limited to economic damages
• Exception – Intentional Torts
• Injured worker carries burden of proof
• Must be deliberate act
• Intent or Substantial Certainty
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Unemployment Compensation
• Temporary Employees placed through a Temporary Staffing Agency are deemed employees of the temporary employment agency.
• Agency responsible for paying unemployment compensation taxes.
• Varies by state, but many take this approach
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Civil Rights Issues
• EEOC Position: Both Temporary Staffing Agency and Recipient Employer may be jointly liable for civil rights claims
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Occupational Safety and Hazard Administration
• OSHA recently launched initiative to protect temporary workers from workplace hazards
• Inspectors are to review records and interview temporary workers regarding training
• Training must be understandable
• Language requirements
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FMLA
• If a Temporary Employee on assignment takes FMLA leave, does the Recipient Employer have to take the worker back once he or she returns from leave?
• Yes, if the temporary employee meets the FMLA eligibility criteria, and if the Temporary Staffing Agency and the Recipient Employer both employ at least 50 employees.
• Joint obligation; both entities have FMLA responsibilities
• Both must count temporary employees in determining whether subject to FMLA
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FMLA (Continued)
• Temporary Staffing Agency is “Primary Employer”
• Responsible for providing all notices;
• Provide FMLA;
• Maintain employee’s health benefits;
• Job restoration
• Recipient Employer is “Secondary Employer”
• Must accept temporary employee returning from FMLA leave in place of the replacement if continuing to use a temporary staffing employee
• May not interfere with temporary employee’s attempt to exercise FMLA rights or discharge or discriminate against employees for opposing practices prohibited by the FMLA – even if the FMLA does not otherwise apply to it
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ADA -Disability Related Inquiries and Medical Examinations
• Offer = an assignment with a specific Recipient Employer
• After Offer, Temporary Staffing Agency or Recipient Employer can ask disability-related questions
• All applicants for same job
• Caution when withdrawing offer
• Prove: (1) cannot perform essential functions of job with reasonable accommodation; or (2) pose a direct threat
• During Assignment: ask questions or require exam only where reasonable belief that worker unable to do job or direct threat
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ADA – Reasonable Accommodation and Undue Hardship
• Temporary Staffing Agency has to provide accommodations for application process
• Joint Employers – Both entities responsible for accommodations on the job
• Who is responsible? Who will pay?
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ADA – Qualification Standards, Employment Tests and Other Selection Criteria
• Temporary Staffing Agency job standards must be job-related and consistent with business necessity
• If not, Staffing Agency is liable for violation unless Recipient Employer requested Agency to use its standard or applied standard itself
• Is reasonable accommodation available?
• Test results may not be used to screen out individuals from employment on basis of disability, unless job-related and consistent with business necessity.
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Important to Vet the Temporary Staffing Agency
• Cheapest is not always best.
• Wages and Benefits?
• Basic employment policies?
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Well Drafted Agreement Critical
• Hiring, discrimination and harassment compliance provisions?
• Conversion or Placement Fee?
• Commitment to a Certain Number of Temporary Employees?
• Is arrangement exclusive?
• Terms and conditions of termination?
• Is Temporary Staffing Agency taking on training? Who is responsible for failures?
• Agency fee or mark-up?
• Agreed-upon performance standards?
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You have questions. We have answers.
PATIENT PROTECTION AND AFFORDABLE CARE ACT
ISSUES
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PPACATemporary Employees from Staffing Agencies
• Who is the common law employer?
• Who has right to direct and control the individual?• Result to be accomplished and details and means by
which result is accomplished
• Day to day management and direction?
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Who is the Common Law Employer?
• There is regulatory ambiguity in how this will be determined.
• Significant lobbying going on.
• Anti-abuse regulations being drafted.
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PPACA Employer Responsibility Requirements
• Large employers (50+ FTEs) are potentially subject to penalties if they fail to offer group health plan coverage at af fordable rates and with minimum value beginning January 1, 2014.
• Takes into account all common law employees, controlled groups and affiliated service groups.
• Full-time employees (at least 30 hours per week or 130 hours per month) must be offered affordable coverage.
• Every hour for which an employee is paid or entitled to pay must be counted.
• Coverage for dependents must be available.
• Children must be covered, but not spouses
• Affordability requirement does not apply to dependent coverage
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PPACA Employer Responsibility Requirements
• Variable hour employees may be tracked using optional look-back determination periods.
• Full-time employees (regardless of employee classification such as interns, part-time, temporary workers, seasonal workers, etc.) must be offered coverage
• New employees must be offered within 90 days from initial date of hire.
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Potential PPACA Penalties
• If 95% of full-time population does not receive coverage: ($2,000 annually per full-time employee x (number of full-time employees –first 30 employees).
• Even if some or nearly all employees are receiving coverage.
• At least one employee must receive a premium tax credit or tax subsidy to trigger the penalty.
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Potential PPACA Penalties
• If coverage is offered but is not affordable or does not provide minimum value: ($3,000 annual per full-time employee) x (number of employees who go to exchange and receive a tax credit or premium subsidy).
• One but not both penalties can be imposed. • Capped at amount of first penalty.
• Taxes are non-deductible excise taxes.
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PPACA: Affordable Coverage
• Two prongs: • Affordability : Cannot exceed 9.5% of employee’s household income.
• W-2 test;
• Stated rate of pay; or
• Federal Poverty Line.
• $88.42 monthly contribution is affordable.
• Minimum Value: Employer must cover no less than 60% of the actuarial value of total allowed benefit costs.
• Only one plan option must meet both of these require ments.
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Reducing the Risk
• If the Temporary Staffing Agency provides healthcare, will this be sufficient to avoid penalties?• Is coverage good enough,
affordable and provided within appropriate timeframes?
• What impact will lobbying of these groups have on existing and planned regulations?
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Lower Risk Does Not Equal No Risk
• Crunch the Numbers• More than 5% of your
population?
• Roll the Dice• Business decision
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Welfare Plan Unknowns
• What overall impact will PPACA have in increased cost for temporary employees?
• What will be the impact on operations?
• Lowering temporary employees below 30 hours per week is a solution, but is it a workable solution?
• What entity will report the employees to the IRS?
• What will be the impact, if any, to other welfare benefit plans?
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You have questions. We have answers.
WELFARE PLAN NONDISCRIMINATION
TESTING ISSUES
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Nondiscrimination Tests
• Multiple nondiscrimination requirements:
• Group term life insurance (section 79)
• Health plans (section 105)
• Cafeteria plans (section 125)
• Dependent care assistance plans (section 129)
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Eligibility Testing Problems
• Tests look at whether the plan benefits enough non-highly compensated employees.
• If temporary workers are common law employees, must count.
• May cause plan to fail the eligibility tests
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Benefits Testing Problems
• Tests look at whether the same benefits are available to everyone
• If temps are common law employees:
• Is anybody providing benefits?
• Are the benefits at least as good as what highly-compensated employees receive?
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If temps are not common law employees?
Is the worker a “leased employee”?
� A worker who is not a common law employee of the recipient organization if he or she works:
• Pursuant to agreement between recipient organization and leasing organization
• On substantially full-time basis for at least one year
• Under recipient organization’s primary direction or control
� Can create the same problems as common law employees.
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Implications
• Excluded from plan?
• Will you still pass non-discrimination tests?
• Employer responsibility (ACA) implications?
• Different benefit program (maybe through temp agency)?
• Would separate plans pass nondiscrimination tests?
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You have questions. We have answers.
RETIREMENT PLAN ISSUES
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Who’s an Employee?
• Common law employees
• Deemed employees:
• Self-employed persons
• Leased employees as defined
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Why do we care?
• Assume service recipient has retirement plan
• Exclusive benefit rule: Only employees may participate
• Leased employees not required to participate but must count as employees for other purposes
• If could exclude leased employees for all purposes, could have retirement plans only for owners, management and high paid employees
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Threshold Question
• Common law employee of service recipient?
• Employee of leasing organization?
• Both?
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ERISA Definition
• “Employee” means any individual employed by an employer
• No help! Useless
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Common Law Applies
• Common law definition of “employee” controls for ERISA purposes
• Nationwide Mutual Insurance Co. v. Darden (503 US 518, Sup. Ct. 1992)
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20 Factor Test (Rev. Rul. 87-41)
• Has to follow instructions
• Training = control
• Integrated into business
• No delegation
• Supervisor hires/sets pay
• Continuing relationship
• Employer sets hours
• Full-time services
• Employer’s premises
• Employer sets sequence
• Reports required
• Paid by hour, week, month
• Payment of expenses
• Furnishing tools/materials
• Lack of investment
• No share profit or loss
• Single recipient entity
• Service available to others
• Right to discharge
• Right to end services
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Control Determines
• Employer controls and directs employee
• What, when and how
• Independent contractor is told what but not when or how
• Leased Employee? Somewhere in between?
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Based on Entire Relationship
• Single factor not decisive
• Number of factors pro or con not decisive
• Impact of each factor must be weighed
• Reality trumps terms of written agreement
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PEO Compromise
• IRS solution 2002-2003
• Relates only to PEO plan
• Must be multiple employer plan (MEP)
• Doesn’t address plan of service recipient
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Code Definition of “Leased Employee”
• “Leased Employee” is any person who is not an employee of the service recipient and provides services to the Recipient Employer if –
• Pursuant to agreement between Recipient Employer and leasing organization,
• On substantially full-time basis for at least one year, and
• Under primary direction or control of the service recipient
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Code Definition of “Leased Employee”
• “Substantially full-time basis” means lesser of:
• 1,500 hours per year, or
• 75% of customary hours for position
• A person who meets the definition becomes the service recipient’s “employee” for retirement plan purposes
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Must Exclude
• “Leased Employees” become participants in plan unless excluded from participation by the plan; so first rule is to exclude from participation in all retirement plans
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What’s the Problem?
• If “Leased Employees” are excluded from participation in all retirement plans, what’s the problem?
• Here’s the rub: Even though excluded from participation, Internal Revenue Code requires “Leased Employees” must be treated as employees for certain other purposes
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Can’t Exclude
• OK to exclude from participation but can’t exclude them for the following tests:
• Minimum participation
• Minimum coverage
• General non-discrimination
• Minimum vesting
• Maximum contributions and benefits, and
• Other requirements
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Microsoft Lesson
• Excluded only “Leased Employees” and independent contractors
• Retirement plans generally now also exclude “misclassified” persons or other variations such as persons classified as Leased Employees or independent contractors
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May Allow Participation
• Plan may permit Leased Employees to participate
• Do this only after careful consideration of all of the implications
• Discretion: Plan may define Leased Employees by deleting or reducing requirement of one year of full-time service
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Common Failure: Service Crediting
• If a temporary employee becomes a “Leased Employee,” all prior service as a temporary employee must be credited for eligibility and vesting purposes
• If a temporary employee becomes a regular employee, all prior service as a temporary employee must be credited for eligibility and vesting purposes
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Must Have Information
• You must have service and compensation information about all temporary and leased employees
• Make sure your contract with leasing organization obligates the leasing organization to provide the recipient organization this information on a complete, accurate and timely basis
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QUESTIONS?
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Contact Information
Louis C. Rabaut Norbert F. Kugele(616) 752-2147 (616) 752-2186lrabaut@wnj.com nkugele@wnj.com
April A. Goff George L. Whitfield(616) 752-2154 (616) 752-2102agoff@wnj.com gwhitfield@wnj.com
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