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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



EMPLOYMENT RELATED ISSUES


©2013 Warner Norcross & Judd LLP. All rights reserved. Page 3

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)


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”



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


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



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


Civil Rights Issues

• EEOC Position: Both Temporary Staffing Agency and Recipient Employer may be jointly liable for civil rights claims



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


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



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


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



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?


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.



Important to Vet the Temporary Staffing Agency

• Cheapest is not always best.

• Wages and Benefits?

• Basic employment policies?


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?




PATIENT PROTECTION AND AFFORDABLE CARE ACT

ISSUES


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?



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.


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



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.


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.



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.


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.



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?


Lower Risk Does Not Equal No Risk

• Crunch the Numbers• More than 5% of your

population?

• Roll the Dice• Business decision



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?



WELFARE PLAN NONDISCRIMINATION

TESTING ISSUES



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)


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



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?


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.



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?



RETIREMENT PLAN ISSUES



Who’s an Employee?

• Common law employees

• Deemed employees:

• Self-employed persons

• Leased employees as defined


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



Threshold Question

• Common law employee of service recipient?

• Employee of leasing organization?

• Both?


ERISA Definition

• “Employee” means any individual employed by an employer

• No help! Useless



Common Law Applies

• Common law definition of “employee” controls for ERISA purposes

• Nationwide Mutual Insurance Co. v. Darden (503 US 518, Sup. Ct. 1992)


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



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?


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



PEO Compromise

• IRS solution 2002-2003

• Relates only to PEO plan

• Must be multiple employer plan (MEP)

• Doesn’t address plan of service recipient


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



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


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



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


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



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


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



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


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



QUESTIONS?


Contact Information

Louis C. Rabaut Norbert F. Kugele(616) 752-2147 (616) [email protected] [email protected]

April A. Goff George L. Whitfield(616) 752-2154 (616) [email protected] [email protected]

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