WHITEPAPER Complying with regulations for temporary workersNo Worries:Complying WithRegulations RegardingTemporary Workers...
© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912COMPL...
COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERSDo’s & Don’ts When Using Independent ContractorsWHITEPAPERHave the Purchas...
© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912WHITE...
© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912Bewar...
© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912WHITE...
© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912WHITE...
© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912Techn...
© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912Techn...
Smart Track Vendor Management SoftwareSmart Track, DCR’s innovative Cloud-based suite of workforce supply chain management...
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White Paper: Complying With Regulations Regarding Temporary Workers

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The use of temporary workers is growing in the United States, now representing 22% of the total workforce. Temporary workers are referred to as freelancers, non-employees, indirect workers, agency contractors, consultants, interns, independent contractors, and many other terms.

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White Paper: Complying With Regulations Regarding Temporary Workers

  1. 1. WHITEPAPER Complying with regulations for temporary workersNo Worries:Complying WithRegulations RegardingTemporary Workers© 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912
  2. 2. © 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERSThe use of temporary workers is growing in the United States, now representing 22% of the total workforce. Temporary workers arereferred to as freelancers, non-employees, indirect workers, agency contractors, consultants, interns, independent contractors, andmany other terms. They include all Individuals who take on an assignment bounded by time or by completion of a deliverable, and aretypically utilized to fill gaps in a company’s skill set or to cover for temporary vacancies. Temporary workers may be hired as self-employedfreelancers or as individuals placed through a staffing agency, but they are not employees of the client company that uses their services.These individuals may work part or full-time, and assignments may last from one day to several months.The Department of Labor (DOL) administers and enforces more than 180 federal laws that govern employment in the U.S., and nearlyall of these apply in some manner to temporary workers. Employment laws regulate hiring, wages, hours and salary, discrimination,harassment, employee benefits, paid time off, job applicant and employee testing, health and safety, privacy and other workplace andemployee rights issues.Unfortunately, many federal and state employment laws were passed during a time when the predominant working relationship was onein which a worker was a full-time, ‘permanent’ employee of a company. The applicability of sections of each of these laws to temporaryworkers is often unclear, challenging companies to properly interpret the law as it pertains to all of their workers.The first challenge is to determine whether an individual is viewed by the government as a temporary worker or as a permanentemployee.The IRS and many individual States specify criteria to be used to make this determination. If the independent contractor tends towork under minimal supervision, using tools and expertise applicable to other organizations, invoicing for goods or services rather thanstraight hours of work, and providing a function extraneous to the organization’s core operations, the contracting company is less likelyto be viewed as an employer.The government’s focus on this issue has never been greater, and companies found to have misclassified workers face severe penal-ties. Why? A great deal of the tax revenue that funds ongoing state and federal government functions comes from employer collectedincome taxes. The government has an ongoing interest in increasing and speeding up the income tax collection process. Self-employedworkers (i.e., freelancers or independent contractors) are required to pay taxes quarterly rather than during each pay period, slowingthe government’s receipt of funds. In addition, independent contractors do not contribute to unemployment, workers’ compensationand state-funded disability programs. Chronic and high unemployment has reduced the overall tax base, and has largely drained stateunemployment insurance (UI) funds and most states are borrowing from the federal government to meet benefit needs.As a result, during the past few years the U.S. Department of Labor’s Wage and Hour Division (WHD) has spearheaded anemployee misclassification initiative, partnering with other Federal and State agencies to bolster its enforcement of independentcontractor compliance. Hundreds of additional inspectors have been hired to uncover misclassified workers and recover taxes, fees andfines. To date, 14 states have joined the misclassification initiative.If a court decides that an individual designated as an independent contractor is really a regular employee, the worker must receive thebenefits he would have received had he been classified correctly. This could include health insurance, life insurance, retirement benefits,eligibility for leaves of absence, and stock options. In addition, the employer faces heavy fines.The Compliance ChallengeWhat constitutes a ‘permanent’ employee vs. temporary worker?WHITEPAPERThe 50 Employee RuleCompanies that reduce their permanent headcount below 50 while increasing the number of contractors may be targeted by the DOL. Auditsare used to determine whether the reduction is to avoid compliance with the Family and Medical Leave Act (FMLA) and Patient Protection andAffordable Care Act (PPACA).]
  3. 3. COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERSDo’s & Don’ts When Using Independent ContractorsWHITEPAPERHave the Purchasing department drive the selectionprocessIssue a Request for Quote (RFQ) and have potentialindependent contractors submit bidsRequire copy of business or professional license, copyof insurance certificates, copies of the independentcontractor’s advertising, and copy of the contractor’sbusiness card and stationeryRequire the contractor to complete a W-9Establish a written Statement of Work specifying scopeof work for a specific duration. Include appropriateindemnity, attorneys’ fees, and liability clausesPay pre-negotiated fees for tasks or projectsRequire the contractor to supply his or her own workers’compensation insuranceRetain records of all transactions with the contractor, suchas contractor’s invoices for billingRequire the contractor to supply his or her own equipmentand toolsProvide training specific to job or company proceduresPeriodically review contract complianceRequire independent contractors to show evidence thatthey are serving other clientsRetain W-9 for four years for future reference in case of anyquestions from the worker or the IRSHave Human Resources or Line Managers drive theselection processAsk the independent contractor to complete anemployment applicationAllow independent contractors to enroll in anycompany-sponsored benefit plansRequire the contractor to complete a I-9Have contractors perform similar work of employeesor perform routine workPay by the hour, week or month unless a flat fee isagreed to be paid at regular intervalsPay independent contractors from a payroll accountPay contractors for any company holidayPay contractor expensesProvide an employee handbook or offer continuingeducation trainingConduct performance evaluations similar toemployee evaluationsTransition employees to independent contractors,especially if the work remains largely the sameRetain unneeded records that have met the four-yearretention requirement unless parties are involved in adispute that has not yet been reconciledDO’S DONT’S
  4. 4. © 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912WHITEPAPERThe risk of misclassifying a worker as an independent contractor can be reduced by hiring temporary workers through a staffingagency, where the agency is the worker’s employer of record. However, under many laws the employees are treated as having twoemployers – the staffing agency and the client that utilizes their services – and both companies can be liable under Federal and Stateequal employment opportunity laws.Courts will consider who exercises the most control over the employee(s), examining who has authority to hire and fire, make jobassignments or placements, make payroll, and provide benefits. The primary employer is responsible for communicating required notices tothe employee, providing leave, maintaining benefits, and restoring the employee to employment after leave, while the secondary employer isresponsible only for refraining from discriminating, retaliating, or otherwise interfering with an employee’s FMLA rights.The courts have seen a surge in the number of temporary workers filing litigation against companies, claiming to have been‘permanent’ employees rather than contingent workers. Federal laws state that employees who log over 1,000 hours in a 12-monthperiod are entitled to participate in the employer’s pension or retirement program. By reaching that “time served” threshold, work-ers may also be entitled to medical or other benefits. In response, many companies believe that by setting tenure limits they are pro-tected from co-employment claims. While this action may help in defending against such a claim, it is not sufficient to prove a temporaryworker status.Who is the Employer of Record, and is there a secondary employer?Safeguard Against Co-Employment ClaimsDocument all agreementsEstablish effective policies andprocessesTrain your staff employeesConsider using a managed servicesproviderEstablish clear contractual terms with suppliers which indemnify you in the event of any worker violation.Make sure that the supplier can be held responsible for failing to meet the various employer obligations, likeworker’s compensation insurance and the misclassification of workersHave suppliers acknowledge their understanding of roles and responsibilitiesEnsure that suppliers provide signed acknowledgement of the company’s non-discrimination policy,affirmative action plan, and sexual harassment policy, and that they in turn have all contractors sign theirversions of these documentsAs a condition of assignment commencement, suppliers should have workers acknowledge in writing thatthe supplier is the sole employer of record and that the non-employee is not entitled to and will not seek thebenefits of the companySpecify that the supplier is solely responsible for candidate screening, negotiating the offer, onboarding andoffboarding the worker, and dealing with any performance issuesEstablish an issue resolution process in which the supplier solely addresses contractor performance issuesAudit supplier’s screening, offer negotiation, onboarding and offboarding procedures to verify compliancewith your processesDo not include contract workers in standard company reward and recognition programs. Have the suppliershost separate events for themCreate a detailed process that delegates which parties within the company are responsible for which tasks.Appoint a single individual responsible for touching base with the staffing agency regarding contract details.Assign a single individual to train managers and internal employees on appropriate business relationshipswith non-employeesHighlight the types of interactions and conversations that are appropriate to have with contract employeesand those that open up the company to co-employment risksHaving a single point of contact for vendor management, processes and procedures will help keepcommunications clear and provide an additional level of visibility and risk mitigation. A managed servicesprovider can also monitor compliance, quality and vendor performanceCOMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS
  5. 5. © 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912Beware of the Shades of GreyWHITEPAPEROnce your workforce has been properly classified as independent contractors, agency contractors or permanent employees, what other issuesmust be addressed to minimize risk of legislative non-compliance? Consideration must be given to each major regulation to determine potentialareas of liability. To further confuse matters, employment litigation case history is also inconsistent, as the outcome of many legal challenges hasbeen based on the interpretation of how companies interact with temporary workers and their suppliers.The vast popularity of web technology and social media provides companies with unprecedented levels of publicly available and readilyaccessible information about a prospect or employee. While this enables companies to better screen applicants, track employeeproductivity, and create online corporate communities, companies are at increased risk of running afoul of international, federal and state privacyand information security regulations.To avoid lawsuits alleging discrimination or violation of the Fair Credit Reporting Act or State laws prohibiting actions that can result in failedconfidentiality measures and alleged discrimination, companies should take the following steps:The Occupational Safety and Health Act (OSHA) is intended to make companies take the right precautions and provide a satisfactory workingenvironment to prevent people from being harmed at work or becoming ill.Who is covered under OSHA? The government interprets the term employee to include supervisors, partners, corporate officers, formeremployees, applicants for employment and employees of other employers. In essence, it applies to everyone who has conducted, is conductingor may conduct work at each facility.Who is held responsible? The Occupational Safety and Health Review Commission (OSHRC) stated that “an employer remains accountablefor the health and safety of its employees, wherever they work, and cannot divest itself of its obligations under the Act by contracting itsresponsibility to another employer.” As the Employer of Record, a staffing supplier is jointly liable for the safety of its contract employeeswhen they are assigned to a client site.To minimize this liability, many staffing agencies – particularly those that place light industrial workers – will conduct a safety walk-through ofeach hiring location prior to submitting a bid to source workers.Safety training, conducted by the contract workers’ employer of record and/or company safety officer, should be a mandatory component of anyonboarding process prior to the commencement of the engagement.Areas providing the greatest pitfalls include:• Complying with safety requirements• Protecting worker privacy• Avoiding discrimination• Downsizing initiatives1. Provide copies of your discrimination, harassment, and confidentiality policies to suppliers and independent contractors.2. Develop policies that clearly identify the information sources that will be used in the application screening process, thestandards for evaluating that information and the procedures that will be followed for obtaining the information.3. Have all suppliers and independent contractors acknowledge in writing their understanding of your policies and theircommitment to adhere to the stated processes.4. When using VMS technology, select systems that provide role-based information access and that serve as a repositoryfor needed documentation but only provide required levels of information (e.g., drug tests should be “pass/fail”, withno specifics provided).5. Make certain that the company does not receive any unnecessary information about contingent workers.6. Maintain worker information for the required period of time, and then purge data.OSHA Safety Standards Apply to ALL WorkersProtect Worker PrivacyCOMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS
  6. 6. © 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912WHITEPAPERTemporary workers will offer some protection from discrimination liability to the extent that hiring, firing, salary determinations, discipline, anddischarge are made by the staffing agency. In fact, current EEOC guidance recognizes that a staffing company is responsible for compliance withthe Americans with Disabilities Act (ADA) since the employee is completely under the control of a staffing company.All companies should have a company-wide antidiscrimination policy. However, requiring that suppliers and their contract workers comply witha company’s anti-discrimination or harassment policy may increase the likelihood that the company can be viewed as a joint employer with thestaffing agency.When entering into contractual arrangements for contingent labor, avoid co-employment claims while ensuring compliance with discriminationpolicies by following these guidelines:The approaches used to downsize permanent staff can violate the Federal Worker Adjustment and Retraining Notification Act (WARN). This Actrequires 60 days prior notice (some States require 90 days’ notice) if a site terminates a certain number of employees. While on the surface thisAct would not appear to impact the temporary workforce, risks occur whenWhen the DOL issued its WARN regulations, it stipulated that advance notice is required when a company subcontracts part of its operationsto a service provider, transfers employment of employees from itself to the service provider, even though the employees involved do not losea day’s work (they just change employers, and essentially continue doing what they did before). However, there have been many challenges tothe DOL interpretation of the Act and the issue remains unsettled.Companies contemplating the transfer of a substantial part of its workforce to a service provider should build sufficient time into theprocess for giving a formal WARN notice.When a contract renewal period is approaching, and the service provider may receive less than 60-days’ notice of non-renewal before theend of the contract term, a conditional notice can be issued specifying the possible occurrence or nonoccurrence of the event. Becauseconditional notices often result in increased unplanned attrition, many suppliers insist on more than 60-days’ notice for a non-renewaldecision.WARN notification requirements can be virtually eliminated if it is clear that both the employment and the project for which the workersare engaged are temporary:Avoid DiscriminationWhy Is Downsizing a Temporary Workforce Issue?• Review the anti-discrimination, harassment, and equal opportunity policies of each staffing supplier. Verify that these policiesadequately address potential danger areas and are consistent with those of your company.• Incorporate anti-discrimination and anti-harassment language in contractual agreements with independent contractors.• Ensure that the agencies providing contract workers have established procedures in place to address ethics obligations andwhistleblowing protections.• Require that all contract workers provide written acknowledgement of receipt and understanding of these policies, and thatthe penalty for non-compliance is assignment termination.• Periodically audit each supplier’s onboarding procedures to ensure compliance.• The worker was initially sourced by a company and “payrolled” by the supplier• The worker does not have a previous history of having been placed by the supplier at different customers• The company has used the temporary worker for an extended period of time• A company transfers its own employees to a service provider• A company decides to change its suppliers, transferring workers on assignment to another supplier• Contracts between a company and its independent contractors and/or staffing suppliers must clearly state that the workassignment is temporary, and a temporary facility will be closed and assignment termination will be the result of thecompletion of a particular project.• Workers must clearly understand and acknowledge at the time of hire that their employment is temporary.Acknowledgement is determined by reference to employment contracts and collective bargaining agreements.COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS
  7. 7. © 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912WHITEPAPERMost companies believe that recordkeeping requirements when using temporary workers are significantly less than for ‘permanent’ employees.However, proper documentation is critical in successfully surviving an audit or defending against a co-employment or other employment law-suit. When working with independent contractors, the most critical document is the Statement of Work. For agency-supplied contractors, it’sthe job description. For staffing companies and service providers, it’s the Master Service Agreement. These documents establish the basis forthe relationship. These documents cure a number of ills by:Most employment legislation requires the employer to provide up to three years of detailed records, including source documents, reflectingevery step in the workforce procurement and management lifecycle. Supplier and worker credentials must be maintained. Information on ac-complishment of deliverables, payments, and hours worked must be captured and maintained. Information must be available on demand. Itmust also be compiled into a number of government-specified formats.Some regulations require even more rigorous recordkeeping and reporting. For example, for government workers under a McNamara-O’HaraService Contract Act (SCA) & Walsh-Healey Public Contracts Act (PCA), complex wage determination tables establish pay rates and benefits.These tables are updated annually. When a contract transfers to a different supplier, the successor supplier must ensure that wages, benefitsand vacation accruals of all workers continue uninterrupted and unchanged.Documentation is the Best Protection• The need to extensively document terminations may be reduced, as the work assignment was designed as temporary, withwith no expectation on anyone’s part of long-term employment.• Processing of fringe benefits, such as health insurance, retirement benefits and unemployment insurance shifts to thesuppliers and/or the individual workers.• Companies are not obligated to provide medical and personal leaves of absence to temporary workers.• Demonstrating that an engagement is temporary in nature• Establishing that the company is not offering employment, and will not serve as the employer of record• Helping organizations defend their sourcing, screening and testing practices under Title VII, the ADEA, and ADA• Establishing a basis and source of paymentCOMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS
  8. 8. © 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912Technology Enables ComplianceWHITEPAPERTraditional responses to emerging employment legislation – introducing new policies and training managers, then conducting periodic compli-ance checks – typically results in compliance systems that are initially effective, but erode over time. In order to keep pace with Federal employ-ment regulations, compliance practices and technology must continue to be inextricably interconnected.One of the most effective ways to deal with all these requirements and emerge unscathed is to have an effective Vendor Management System(VMS) to handle these matters. A VMS serves as a procurement and labor management system which automates critical compliance steps,issues non-compliance warnings and alerts, analyses performance, and coaches hiring managers, enabling companies to ensure ongoingregulatory compliance while realizing the benefits of a dynamic, blended workforce of regular and temporary employees.A Vendor Management System, optimized to ensure regulatory compliance, must include the following features:COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS
  9. 9. © 2013 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912Technology Enables ComplianceWHITEPAPERClassification Guidance – The determination of which workers fall under different Federal guidelines can be complicated, typically requiringan examination of the work, the individual and the location in which the work is to be performed. Embedded business rules should provideassistance in determining a position’s exempt status, evaluating conformity with independent contractor classification, and assessing job clas-sifications for wage determination.Compliance Firewall – An online repository of best practices, legislative updates and active guidance at each step of the workforce procurementand management process can form a “firewall” of protection against inadvertent actions that can result in non-compliance.Risk Calculation – In classifying employees, the VMS should evaluate each individual against a defined set of criteria to assess alignment withrequirements, providing scorecards that indicate areas of highest potential risk of non-compliance. The system should also quantify the level ofrisk by examining the degree of compliance with the requirements of each Act.Compliance Testing – An embedded compliance testing system should examine the individual profiles and compensation history of all affectedworkers as well as the company’s total workforce results to evaluate the compliance level. Evaluation must include reviews of all related busi-ness documents. Since government contractors are required to ensure complete compliance not only for their own workers, but also for theemployees of any sub-contractors that they may employ, a VMS system must provide regular visibility into the labor compensation practices andpolicies of each sub-contractor.Detailed Record Management –The VMS system should have the ability to track and store all data in the system, to retain that data forextensive periods of time, easily update dynamic data such as wage tables, and maintain an audit trail of all changes made to employmentrecords. A dependable VMS program will enable complex wage determination tables to be easily uploaded, will identify workers whose wagesare not within the required range, and simplify the schedule and process for wage adjustments.Profile Maintenance – A profile of all candidates and workers should be maintained, providing a detailed historical record of credentials, workhistory, screening activities, and compensation. By assigning a unique identifier to each worker, personnel records should accurately portraypolicy compliance throughout the individual’s tenure, including periods of breaks in service. Companies with a diversified portfolio and manydivisions must be able to transfer employees between the divisions, instantaneously changing applicable compensation to reflect shifts in workassignments that may suddenly cause the employee to be re-categorized.Tracking & Alerts – The system should automatically issue alerts to everyone in the approval chain when tenure limits approach, documentationrenewal is required, mandatory actions are not completed, and/or non-standard actions are taken.Reporting and Analytics – The VMS should include the ability to report on all data captured in the system, providing complete visibility at theindividual and enterprise level. The report generation capability embedded into the system should enable creation of custom reports withoutthe use of programming skills. Reports should be available in a variety of formats.COMPLYING WITH REGULATIONS FOR TEMPORARY WORKERS
  10. 10. Smart Track Vendor Management SoftwareSmart Track, DCR’s innovative Cloud-based suite of workforce supply chain management applications, redefines the role ofvendor management systems – expanding from conducting transactions to supporting critical interactions and decision-mak-ing. Through Smart Track, we forge networks of business managers, suppliers and indirect workers, creating an institutionalmemory of best practices, and a means of sharing them.• Unlimited Visibility into Workforce Lifecycles• Forecasting Tools and Wizards• “On demand” Reconfiguration Capabilities• Advanced Compliance Support• Automated Administrative Processing• Device-Independent Access• Pre-built Connectors• Robust Management Reporting• Embedded Business Analytics• Highly Reliable, Scalable, Cloud Computing Platform• “Always On” Technical SupportAbout UsDCR Workforce is an award winning, best-in-class service provider of vendor-neutral Managed Services Programs and VendorManagement Software to help clients maximize the contributions of their agency contractors, freelancers and project teams.Smart Track, our proprietary cloud-based talent management platform, supports Managed Services Programs to manage,procure and analyze your talent with complete transparency, real-time control, high performance and decision-enablingbusiness intelligence. In addition to MSP and VMS solutions, DCR offers workforce intelligence solutions, payroll services, andcompliance services.DCR is a certified woman-owned, minority owned company.For more information call +1-888-DCR-4VMSGSA Multiple Award Schedule Contract: GSA # GS-07F-0402Ywww.dcrworkforce.com | blog.dcrworkforce.comfacebook.com/DCRWorkforce linkedin.com/company/dcr-workforce twitter.com/DCRWorkforce© 2012 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912ABOUT DCR

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