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Most companies have a workforce made up of traditional (or regular) employees. However, the use of alternative workers has become an increasingly popular option for many employers for a variety of reasons. Utilizing contingent workers offers many benefits for companies in terms of flexibility and cost savings, but it also requires diligent adherence to and awareness of applicable workplace laws and regulations.
Most companies have a workforce made up of traditional (or regular) employees. However, the use of alternative workers has become an increasingly popular option for many employers for a variety of reasons. When conducting a job analysis, companies may want to consider if alternative staffing options would be a good fit for their needs.
The terms “contingent workforce” and “contingent worker” refer to non-permanent, or provisional employees. Examples of contingent workers include:
The contingent workforce is a large and growing segment of the overall U.S. workforce. Employers are turning to contingent workers as the economy slows and hiring traditional workers becomes more challenging. Many of today’s workers enjoy the flexibility and independence of contingent employment, often preferring it to permanent employment.
Although using a contingent workforce offers employers advantages in terms of flexibility, just-in-time project staffing, and employment cost savings, using contingent workers can also expose employers to unique risks. To minimize liability, companies must thoroughly understand the rules and regulations regarding temporary employees and familiarize themselves with the distinctions between traditional employees, common-law employees, and contingent workers.
Depending on the classification of the worker and a variety of other factors (such as who supervises the worker on a daily basis, etc.), there are numerous laws and regulations that companies must consider.
Employment contracts specify the terms and conditions of an employment relationship. The main function of an employment contract is to lay out important elements of the employment relationship. Many employers also have policies or handbooks that communicate the terms and conditions of employment.
Written contracts are important tools for prescribing responsibilities and potentially limiting liabilities for the employer. It is important to remember that a contract employee is still an employee of the organization, subject to all applicable state and federal employment laws — including tax laws. The mere existence of a contract does not create an independent contractor relationship.
Common elements of employment contracts may include the following:
Pros and cons
There are arguments both for and against the use of employment contracts. When considering whether the use of employment contracts would be beneficial, employers need to consider the particular needs of all the parties involved. Some of the benefits of employment contracts include the following:
On the other hand, there are circumstances in which an organization would not benefit from the increased control that employment contracts can offer. The reasons may vary, but often include the following potential cons of using employment contracts:
Implied contracts
On occasion, a company representative may say something to a prospective or current employee that may lead them to believe something regarding their employment that isn’t necessarily true. In these instances, the company may still be bound to what was previously said because the speaker was acting as a representative of the company’s management.
For example, a recruiter may tell a candidate that the company has never experienced a layoff and does not expect to experience one. The candidate may then believe that they will never be laid off. If a layoff subsequently occurs, the employee may argue that there was an implied contract regarding layoffs and could attempt to sue the company — alleging that they broke an implied contract. Even if these lawsuits are unsuccessful, they can be costly and time-consuming for an employer to deal with.
Employers need to be careful that their representatives do not make any promises that the company cannot keep or does not intend to keep. This includes assurances about stock prices, pay increases, job security, specific duties of a position, or other terms and conditions of employment.
Companies should include statements in their employment applications, job offers, policy manuals, and employment contracts clearly stating that employment is at-will and can be terminated at any time for any lawful reason.
Employment agreements: Full-time, part-time, etc.
The Fair Labor Standards Act (along with most state laws), defines an employee as someone who is “employed by an employer.” In other words, if someone works for an employer, that person is usually considered their employee. Laws do recognize a few non-employee classifications, such as volunteers for civic or non-profit organizations, independent contractors (who are often self-employed), and interns who come to the workplace for their own educational benefit. If an individual does not fall into a non-employee category, however, that worker should almost certainly be classified as an employee.
Employers commonly use classifications to define employment relationships. Such classifications might include categories to define pay ranges and promotions (Technician 1, Technician 2, etc.), or they may describe the expected working relationship (full time, part time, seasonal, etc.). These terms are commonly adopted to help determine a worker’s eligibility for various benefits. For example, part time employees may have to pay a higher group health insurance premium or may not be eligible to participate at all. Another example could be that seasonal employees may not be eligible for earned vacation.
Despite the common use of terms such as “full time” and “part time,” there is no legal definition for these categories. Employers may define these terms however they choose, and do not need to list a specified number of hours. Employers might define “full time” as 40 or more hours, 35 or more hours, or even define it solely based on the job description. For example, if the listed job expectations include eight hours per day, five days per week, the position is full time. If a position only requires six hours per day, or four days per week, it might be classified as part time.
This has caused many employers to question when an employee’s status must be changed. If a part-time employee is working 40 or more hours, at what point should their status be changed to full time? Since there isn’t a legal definition dictating this status, there isn’t a specific obligation for employers to change a worker’s status after a specified time period. Alternatively, a full time employee might be working reduced hours for several months due to lack of business but could still be considered full time during that period. It’s all up to the company to decide how they want to define these classifications.
Part time employees commonly work longer hours during certain periods, which may last weeks or months, but if the overall expectations have not changed, they can remain classified as part time. For instance, if the job expectations specify that extra work is temporary, and the expected hours over the course of a year will support a part time classification, the employee can remain part time even while working 40 or more hours per week. However, if the employer expects the longer hours to continue for a substantial amount of time (up to a year or more), the organization should consider changing the employee’s classification to offer them full time benefits.
Working with independent contractors involves a number of responsibilities for the host employer. These range from ensuring the safety of both parties’ employees to verifying the employment relationship for purposes of taxes and benefits. State laws often govern and enforce independent contractor classification issues.
Employee vs. independent contractor
When hiring an independent contractor, the employer should define the nature of the employment relationship under the regulations of several agencies. These include:
Each agency has different criteria for distinguishing between “employees” and “independent contractors.” This distinction is important because the classification determines a host employer’s rights and responsibilities. Employers must handle independent contractors differently than other employees. Independent contractors, for example, are not subject to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).
Employers should note that different agencies might use different criteria when defining employment relationships. Thus, what one agency defines as an independent contractor relationship could be defined by another agency as an employer/employee relationship.
The Department of Labor
FLSA: Employee vs. independent contractor
A worker’s classification as an employee or an independent contractor makes a significant difference when it comes to their rights under the FSLA.
The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and provide overtime pay at no less than one-and-one-half times their regular rate of pay for every hour over 40 worked in a workweek. FLSA protections do not apply to independent contractors.
The Internal Revenue Service
Employers do not generally have to withhold or pay any taxes on payments to independent contractors. Instead, the company must issue an IRS Form 1099 to the contractor at the end of the calendar year. If an employee is incorrectly classified as an independent contractor, however, the company can be held liable as an employer for taxes, plus any interest or penalties. In determining whether the person providing services is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
State unemployment compensation
Employers are not required to pay for unemployment insurance for independent contractors. As noted above, however, different agencies use different criteria to define an employment relationship. For example, the IRS might define a business arrangement as an independent contractor relationship, while the state unemployment insurance agency may define it as an employer/employee relationship. The same workers can be considered “independent contractors” by one agency (such as the IRS) and considered “employees” by another agency.
Employers should always consult their state unemployment insurance agency or their lawyers to ensure proper compliance. Employers must understand precisely how the relationship is defined before hiring an independent contractor. Clarifying the relationship avoids situations like an ineligible independent contractor mistakenly applying for unemployment compensation, thus inviting an audit by the unemployment agency.
State workers’ compensation
Employers are not required to purchase workers’ compensation insurance to cover independent contractors. However, most employers must provide workers’ compensation insurance for “employees” as defined by the applicable worker’s compensation laws — even if those workers are considered independent contractors by other agencies.
State workers’ compensation agencies may consider factors that are not accounted for under the IRS criteria. These may include an expectation for the alleged contractor to have one or more bank accounts in a business name, to be paid in a business name, or to have a Federal Employer Identification Number (FEIN) rather than simply a Social Security number.
Employers should always consult their state workers’ compensation agency or their lawyers to ensure proper compliance. Employers must understand precisely how the relationship is defined before hiring an independent contractor. Employers should keep in mind that individuals covered by workers’ compensation normally may not sue their employer for injuries that occur on the job, but that is not always the case for independent contractors.
State tax agency
Employers do not need to withhold state income tax from payments made to independent contractors. State tax agencies may use different tests to define the employment relationship, so employers should always consult the state tax board or their lawyers to ensure proper compliance.
Unpaid internships in the public sector and for non-profit charitable organizations (where the intern volunteers without expectation of compensation), are generally permissible. The Fair Labor Standards Act (FLSA) makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency or for individuals who volunteer their services for religious, charitable, civic, or humanitarian purposes to non-profit organizations.
Internships in the private (for-profit) sector can sometimes be more challenging to navigate because if an individual performs services which benefit the company, the intern may have an employment relationship with the organization.
An intern is not free labor — even if the intern is observing or learning while at the workplace. Fundamentally, the issue at hand when it comes to interns is whether or not the individual is considered an “employee” under the FLSA.
The FLSA defines the term “employ” very broadly as including to “suffer or permit to work.” Internships in the “for-profit” private sector will most often be viewed as employment, unless the intern can be considered the primary beneficiary of the internship. The determination of whether an internship or training program meets this exclusion depends on the relevant facts and circumstances of each such program.
The U.S. Department of Labor (DOL) continually issues new guidance to help employers determine whether workers in internship programs can be unpaid.
Seven-factor “primary beneficiary” test
In an effort to consider the primary beneficiary and economic reality of the working arrangement, the DOL uses a seven-factor test to consider who is the primary beneficiary of an intern’s work, and, therefore, whether the intern must be paid.
The seven factors of this test are as follows:
While employers were previously required to meet the criteria of all six factors, they may now evaluate each factor individually. As a result, the new test allows more flexibility when assessing the intern-employer relationship. Note that each case must be evaluated individually on its unique circumstances.
Whether an intern or trainee is an employee under the FLSA necessarily depends on the unique circumstances of each case. Each of the seven factors in the DOL’s test must be weighed along with the others to determine whether the intern or the employer is the primary beneficiary of an intern’s work. If it is determined that the intern is the primary beneficiary, they may be unpaid. On the other hand, if the employer is the primary beneficiary, the intern would need to be paid for their work.
Employers should note that it is not always necessary for all seven factors to point in the same direction when making a determination about whether an intern should be paid or unpaid.
Similar to an education environment
In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely it is that the internship will be viewed as an extension of the individual’s educational experience (i.e., a college or university exercises oversight over the internship program and provides educational credit).
The more an internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills specific to one employer’s operation, the more likely it is that the intern would be viewed simply as receiving broad training. A schedule that corresponds with the intern’s academic schedule is also more likely to support a non-employee relationship.
Displacement and supervision
If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, it will likely be difficult to justify a claim that the interns are not employees. Additionally, if an employer would have hired additional employees or required existing staff to work more hours had interns not performed the work, the interns are more likely to be viewed as employees.
Job entitlement
Unpaid internships generally should not be used by the employer as a “trial period” for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that they will then be subsequently hired on a permanent basis, that individual would generally be considered an employee under the FLSA.
(a) To an employee having regular duties as a staff performer (including announcers), as an extra payment for services as a performer on a particular commercial program or a particular series of commercial programs (including commercial spot announcements) or for special services as a performer on a particular sustaining program or a particular series of sustaining programs;
(b) In pursuance of an applicable employment agreement or understanding or an applicable collective bargaining agreement in a specific amount agreed upon in advance of the performance of the services or special services for which the extra payment is made: Provided, however, That where services described in paragraph (a) of this section are performed on a program falling outside of the regular workday or workweek as established and scheduled in good faith in accordance with the provisions of the applicable employment agreement, the Administrator will not regard the Act as requiring additional compensation as a result of the time worked on the program if the parties agree in advance of such program that a special payment made therefor shall include any increased statutory compensation attributable to the additional worktime thereon and if such special payment, when made, is actually sufficient in amount to include the statutory straight time and overtime compensation (computed without regard to talent fees) for the additional time worked in the workweek resulting from the performer’s services on such program.
Temporary occupations range widely from secretary to computer systems analyst, and from general laborer to nurse. The employment services industry is generally defined by the following characteristics:
Temporary staffing agencies
Temporary staffing agencies provide employees to client companies to support or supplement their workforce in special situations such as employee absences and surging seasonal workloads, or to screen potential regular employees for possible hire after a period of time. Temporary workers are employed and paid by the staffing agency but are contracted out to the client company for either a prearranged fee or an agreed upon hourly wage. Some companies prefer to use temporary workers rather than employ regular staff who would typically receive greater salaries and benefits, require training, or otherwise be more costly to the employer in time, money, or resources.
Most temporary work assignments are of short duration, intended to replace a worker who is absent or to help with a short-term surge of work. However, assignments spanning several weeks or months may also be offered. There is no specific legal limit on how long a temporary worker can remain with the same host employer.
There are many advantages to using temporary workers. Some of the biggest include:
Alternatively, some potential problems with the use of temporary workers do exist. Some of these include:
Companies must communicate to their temporary staffing agency all pertinent workplace rules, health and safety protocols, and policies or programs. Companies should provide copies of all such written policies and programs as well as stipulate that compliance by workers is required.
Employers should note that temporary workers must be counted when determining employer coverage and employee eligibility under certain laws. For example, an employer with 15 employees from a temporary help agency and 40 permanent workers may be covered by the Family and Medical Leave Act, which applies to employers with 50 or more employees spanning 20 or more workweeks in the current or preceding calendar year.
Common types of temporary help often used by companies include:
Companies take advantage of these various temporary employment services to fill staffing and other business needs as well as using traditional temporary employees. Those needs may include obtaining specialized skills to complete a project, adding staff to meet production goals or deadlines, or utilizing flexible staffing to save in benefit costs. For an employer, additional advantages of using flexible staffing include a mutual understanding that the employment is limited in scope and term and also the option to terminate an employee without severance costs.
Safety of temporary employees
Temporary workers usually have a continuing relationship with their staffing agency as they move from job to job. The agency is aware of the type of work its employees are performing and should have a general idea of the hazards involved. The client company that utilizes the temporary worker generally provides the day-to-day job assignments and supervision and is aware of any worksite-specific hazards that should be communicated.
The client company, often called the “host employer,” has certain responsibilities, as does the temporary staffing agency. The host employer should have the same concern for the safety of its temporary employees as it does for the safety of its regular employees.
While temporary staffing agencies have a responsibility to keep their workers safe, OSHA places the primary responsibility for employee safety on the shoulders of the host employers. The reason for this distinction is because host employers generally create and control the hazards to which their temporary employees are exposed.
The extent to which a host employer is responsible for the safety of its temporary employees depends on these three things:
At a minimum, a host employer should confirm with the temporary staffing agency that temporary employees have been:
The temporary staffing agency should take responsibility for providing basic safety training to the extent possible without knowing the specific workplace hazards that may arise. This basic training will familiarize the worker with training requirements and prep them for more specialized training yet to come. Any agency-supplied training should be evaluated by the host employer to make sure it is effective and appropriate.
The host employer should have a clear idea of the jobs that will be assigned to the temporary employees and diligently identify any hazards involved. Once identified, these hazards will help indicate the particular training that is needed. If exposure monitoring or medical surveillance training is required, the host employer must ensure that it is provided.
Host employers must also ensure that temporary employees who claim to have prior training are, in fact, properly trained. For example, host employers that employ temporary forklift operators who claim prior training must evaluate the applicability and adequacy of their prior training to determine if all the OSHA-required training topics were covered. The host employer may use, but is not required to use, written documentation of the earlier training to determine if an individual has been properly trained. Additional training regarding circumstances specific to the host employer’s workplace is almost certain to be necessary in every case.
Employers should be aware that temporary workers — though hired through a staffing agency — may still affect the Family and Medical Leave Act (FMLA) responsibilities of their company. There are three areas of concern for employers when it comes to FMLA responsibilities:
Joint or co-employment
While the staffing agency is the primary employer for purposes of many laws, the host company is automatically a joint or “co-employer” for many situations. The term “co-employment” is often used interchangeably with “joint employment.” Employers must keep in mind that some obligations to “regular” employees under law must cover joint employees as well.
Many employers fear creating a co-employment relationship with a temporary worker who was hired through a staffing agency, even though it cannot be avoided in many cases (and does not necessarily impose additional obligations on the company). There is no single source for information on co-employment, in part because the concept applies differently depending on the relevant law and jurisdiction.
In most cases where a host company uses temporary workers from a staffing agency, certain co-employment obligations will automatically exist. Aside from FMLA considerations, a temporary worker is also protected by discrimination laws from actions by both the host company and staffing agency. A temporary worker could file a discrimination or harassment claim against the host employer for actions they take. Alternatively, a temporary worker could create liability if they are the offender, and the host employer fails to address misconduct (typically done by contacting the staffing agency to ask them to address the problem).
Additionally, the Fair Labor Standards Act (FLSA) addresses joint employment where an individual works to benefit more than one employer. For example, a host employer could be liable for recordkeeping violations or back pay if it asks a temporary worker to work without recording their hours or denies a lunch break while still deducting 30 minutes of pay for a meal period. Temporary workers should report such problems to their staffing agencies; and if a lawsuit arises, a host company could face liability.
As the employer of record, the staffing agency is responsible for tax deductions, completing a Form I-9 for new hires, and most other aspects of the employer/employee relationship. Even so, any relationship where the host employer exercises some control over the temporary worker (such as directing the day-to-day tasks) may create a joint or co-employment relationship under certain laws.
A question that often arises and has been addressed in multiple opinion letters by the federal Wage and Hour Division, is whether employees can “volunteer” to perform work for their employer without compensation. In almost every case, the answer is no.
While the law does recognize that individuals may choose to volunteer their time for civic or charitable organizations, the Wage and Hour Division (as well as the Supreme Court) have expressed concern over allowing an employee (even an employee of a non-profit organization) to perform work without compensation. Specifically, the concern is that an employee could be coerced or required to volunteer additional time without pay, which would violate the intent of the Fair Labor Standards Act (FLSA).
One of the best summaries of this concern appeared in an opinion letter (FLSA 2001-18), which responded to a question about nurses volunteering their time for various community services. The response from the Division included the following:
As the above letter suggests, an individual may perform unpaid volunteer activities for an organization or company if they are not an employee of that organization. For example, a non-profit organization can accept volunteer services from non-employees without compensating them for their time and labor.
However, if an employer/employee relationship exists in any way, an individual cannot volunteer additional unpaid time for their employer unless a number of conditions are met. Primarily, the volunteer work should take place outside of normal working hours and should be a distinctly different type of work than the employee normally performs. The opinion letter previously referenced describes this evaluation as follows:
If an individual who is already an employee of the organization chooses to volunteer for that organization, all of the above criteria should be satisfied. Another opinion letter (FLSA2005-33) clarifies that volunteer activities should be outside normal hours and should be of a different capacity than the usual job duties. As noted, the Department of Labor (DOL) will also consider the number of hours, whether the volunteer work displaces regular employees, and whether the services are typically associated with volunteer work. If all these criteria are met, an individual who is already an employee of an organization could perform unpaid volunteer services for that same employer.
For profit or non-profit
Obviously, volunteers are limited to charitable or civic organizations, since a “for profit” employer cannot have individuals performing duties to benefit the organization without compensation. As discussed in the Hours Worked topic, if a private company expects employees to perform volunteer services (even for a civic or charitable organization) then the time must be paid. As the name suggests, volunteer activities must be voluntary.
The Fair Labor Standards Act does address volunteers in the regulations at 29 CFR Part 553, which defines a volunteer as “an individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered.” The regulation goes on to say that while the Congress did not intend to discourage bona fide volunteers, it did want to prevent abuse or manipulation of the minimum wage and overtime requirements that might result if individuals were pressured or coerced into performing “volunteer” work.
Employment contracts specify the terms and conditions of an employment relationship. The main function of an employment contract is to lay out important elements of the employment relationship. Many employers also have policies or handbooks that communicate the terms and conditions of employment.
Written contracts are important tools for prescribing responsibilities and potentially limiting liabilities for the employer. It is important to remember that a contract employee is still an employee of the organization, subject to all applicable state and federal employment laws — including tax laws. The mere existence of a contract does not create an independent contractor relationship.
Common elements of employment contracts may include the following:
Pros and cons
There are arguments both for and against the use of employment contracts. When considering whether the use of employment contracts would be beneficial, employers need to consider the particular needs of all the parties involved. Some of the benefits of employment contracts include the following:
On the other hand, there are circumstances in which an organization would not benefit from the increased control that employment contracts can offer. The reasons may vary, but often include the following potential cons of using employment contracts:
Implied contracts
On occasion, a company representative may say something to a prospective or current employee that may lead them to believe something regarding their employment that isn’t necessarily true. In these instances, the company may still be bound to what was previously said because the speaker was acting as a representative of the company’s management.
For example, a recruiter may tell a candidate that the company has never experienced a layoff and does not expect to experience one. The candidate may then believe that they will never be laid off. If a layoff subsequently occurs, the employee may argue that there was an implied contract regarding layoffs and could attempt to sue the company — alleging that they broke an implied contract. Even if these lawsuits are unsuccessful, they can be costly and time-consuming for an employer to deal with.
Employers need to be careful that their representatives do not make any promises that the company cannot keep or does not intend to keep. This includes assurances about stock prices, pay increases, job security, specific duties of a position, or other terms and conditions of employment.
Companies should include statements in their employment applications, job offers, policy manuals, and employment contracts clearly stating that employment is at-will and can be terminated at any time for any lawful reason.
Employment agreements: Full-time, part-time, etc.
The Fair Labor Standards Act (along with most state laws), defines an employee as someone who is “employed by an employer.” In other words, if someone works for an employer, that person is usually considered their employee. Laws do recognize a few non-employee classifications, such as volunteers for civic or non-profit organizations, independent contractors (who are often self-employed), and interns who come to the workplace for their own educational benefit. If an individual does not fall into a non-employee category, however, that worker should almost certainly be classified as an employee.
Employers commonly use classifications to define employment relationships. Such classifications might include categories to define pay ranges and promotions (Technician 1, Technician 2, etc.), or they may describe the expected working relationship (full time, part time, seasonal, etc.). These terms are commonly adopted to help determine a worker’s eligibility for various benefits. For example, part time employees may have to pay a higher group health insurance premium or may not be eligible to participate at all. Another example could be that seasonal employees may not be eligible for earned vacation.
Despite the common use of terms such as “full time” and “part time,” there is no legal definition for these categories. Employers may define these terms however they choose, and do not need to list a specified number of hours. Employers might define “full time” as 40 or more hours, 35 or more hours, or even define it solely based on the job description. For example, if the listed job expectations include eight hours per day, five days per week, the position is full time. If a position only requires six hours per day, or four days per week, it might be classified as part time.
This has caused many employers to question when an employee’s status must be changed. If a part-time employee is working 40 or more hours, at what point should their status be changed to full time? Since there isn’t a legal definition dictating this status, there isn’t a specific obligation for employers to change a worker’s status after a specified time period. Alternatively, a full time employee might be working reduced hours for several months due to lack of business but could still be considered full time during that period. It’s all up to the company to decide how they want to define these classifications.
Part time employees commonly work longer hours during certain periods, which may last weeks or months, but if the overall expectations have not changed, they can remain classified as part time. For instance, if the job expectations specify that extra work is temporary, and the expected hours over the course of a year will support a part time classification, the employee can remain part time even while working 40 or more hours per week. However, if the employer expects the longer hours to continue for a substantial amount of time (up to a year or more), the organization should consider changing the employee’s classification to offer them full time benefits.
Working with independent contractors involves a number of responsibilities for the host employer. These range from ensuring the safety of both parties’ employees to verifying the employment relationship for purposes of taxes and benefits. State laws often govern and enforce independent contractor classification issues.
Employee vs. independent contractor
When hiring an independent contractor, the employer should define the nature of the employment relationship under the regulations of several agencies. These include:
Each agency has different criteria for distinguishing between “employees” and “independent contractors.” This distinction is important because the classification determines a host employer’s rights and responsibilities. Employers must handle independent contractors differently than other employees. Independent contractors, for example, are not subject to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).
Employers should note that different agencies might use different criteria when defining employment relationships. Thus, what one agency defines as an independent contractor relationship could be defined by another agency as an employer/employee relationship.
The Department of Labor
FLSA: Employee vs. independent contractor
A worker’s classification as an employee or an independent contractor makes a significant difference when it comes to their rights under the FSLA.
The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and provide overtime pay at no less than one-and-one-half times their regular rate of pay for every hour over 40 worked in a workweek. FLSA protections do not apply to independent contractors.
The Internal Revenue Service
Employers do not generally have to withhold or pay any taxes on payments to independent contractors. Instead, the company must issue an IRS Form 1099 to the contractor at the end of the calendar year. If an employee is incorrectly classified as an independent contractor, however, the company can be held liable as an employer for taxes, plus any interest or penalties. In determining whether the person providing services is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
State unemployment compensation
Employers are not required to pay for unemployment insurance for independent contractors. As noted above, however, different agencies use different criteria to define an employment relationship. For example, the IRS might define a business arrangement as an independent contractor relationship, while the state unemployment insurance agency may define it as an employer/employee relationship. The same workers can be considered “independent contractors” by one agency (such as the IRS) and considered “employees” by another agency.
Employers should always consult their state unemployment insurance agency or their lawyers to ensure proper compliance. Employers must understand precisely how the relationship is defined before hiring an independent contractor. Clarifying the relationship avoids situations like an ineligible independent contractor mistakenly applying for unemployment compensation, thus inviting an audit by the unemployment agency.
State workers’ compensation
Employers are not required to purchase workers’ compensation insurance to cover independent contractors. However, most employers must provide workers’ compensation insurance for “employees” as defined by the applicable worker’s compensation laws — even if those workers are considered independent contractors by other agencies.
State workers’ compensation agencies may consider factors that are not accounted for under the IRS criteria. These may include an expectation for the alleged contractor to have one or more bank accounts in a business name, to be paid in a business name, or to have a Federal Employer Identification Number (FEIN) rather than simply a Social Security number.
Employers should always consult their state workers’ compensation agency or their lawyers to ensure proper compliance. Employers must understand precisely how the relationship is defined before hiring an independent contractor. Employers should keep in mind that individuals covered by workers’ compensation normally may not sue their employer for injuries that occur on the job, but that is not always the case for independent contractors.
State tax agency
Employers do not need to withhold state income tax from payments made to independent contractors. State tax agencies may use different tests to define the employment relationship, so employers should always consult the state tax board or their lawyers to ensure proper compliance.
Unpaid internships in the public sector and for non-profit charitable organizations (where the intern volunteers without expectation of compensation), are generally permissible. The Fair Labor Standards Act (FLSA) makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency or for individuals who volunteer their services for religious, charitable, civic, or humanitarian purposes to non-profit organizations.
Internships in the private (for-profit) sector can sometimes be more challenging to navigate because if an individual performs services which benefit the company, the intern may have an employment relationship with the organization.
An intern is not free labor — even if the intern is observing or learning while at the workplace. Fundamentally, the issue at hand when it comes to interns is whether or not the individual is considered an “employee” under the FLSA.
The FLSA defines the term “employ” very broadly as including to “suffer or permit to work.” Internships in the “for-profit” private sector will most often be viewed as employment, unless the intern can be considered the primary beneficiary of the internship. The determination of whether an internship or training program meets this exclusion depends on the relevant facts and circumstances of each such program.
The U.S. Department of Labor (DOL) continually issues new guidance to help employers determine whether workers in internship programs can be unpaid.
Seven-factor “primary beneficiary” test
In an effort to consider the primary beneficiary and economic reality of the working arrangement, the DOL uses a seven-factor test to consider who is the primary beneficiary of an intern’s work, and, therefore, whether the intern must be paid.
The seven factors of this test are as follows:
While employers were previously required to meet the criteria of all six factors, they may now evaluate each factor individually. As a result, the new test allows more flexibility when assessing the intern-employer relationship. Note that each case must be evaluated individually on its unique circumstances.
Whether an intern or trainee is an employee under the FLSA necessarily depends on the unique circumstances of each case. Each of the seven factors in the DOL’s test must be weighed along with the others to determine whether the intern or the employer is the primary beneficiary of an intern’s work. If it is determined that the intern is the primary beneficiary, they may be unpaid. On the other hand, if the employer is the primary beneficiary, the intern would need to be paid for their work.
Employers should note that it is not always necessary for all seven factors to point in the same direction when making a determination about whether an intern should be paid or unpaid.
Similar to an education environment
In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely it is that the internship will be viewed as an extension of the individual’s educational experience (i.e., a college or university exercises oversight over the internship program and provides educational credit).
The more an internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills specific to one employer’s operation, the more likely it is that the intern would be viewed simply as receiving broad training. A schedule that corresponds with the intern’s academic schedule is also more likely to support a non-employee relationship.
Displacement and supervision
If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, it will likely be difficult to justify a claim that the interns are not employees. Additionally, if an employer would have hired additional employees or required existing staff to work more hours had interns not performed the work, the interns are more likely to be viewed as employees.
Job entitlement
Unpaid internships generally should not be used by the employer as a “trial period” for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that they will then be subsequently hired on a permanent basis, that individual would generally be considered an employee under the FLSA.
(a) To an employee having regular duties as a staff performer (including announcers), as an extra payment for services as a performer on a particular commercial program or a particular series of commercial programs (including commercial spot announcements) or for special services as a performer on a particular sustaining program or a particular series of sustaining programs;
(b) In pursuance of an applicable employment agreement or understanding or an applicable collective bargaining agreement in a specific amount agreed upon in advance of the performance of the services or special services for which the extra payment is made: Provided, however, That where services described in paragraph (a) of this section are performed on a program falling outside of the regular workday or workweek as established and scheduled in good faith in accordance with the provisions of the applicable employment agreement, the Administrator will not regard the Act as requiring additional compensation as a result of the time worked on the program if the parties agree in advance of such program that a special payment made therefor shall include any increased statutory compensation attributable to the additional worktime thereon and if such special payment, when made, is actually sufficient in amount to include the statutory straight time and overtime compensation (computed without regard to talent fees) for the additional time worked in the workweek resulting from the performer’s services on such program.
Temporary occupations range widely from secretary to computer systems analyst, and from general laborer to nurse. The employment services industry is generally defined by the following characteristics:
Temporary staffing agencies
Temporary staffing agencies provide employees to client companies to support or supplement their workforce in special situations such as employee absences and surging seasonal workloads, or to screen potential regular employees for possible hire after a period of time. Temporary workers are employed and paid by the staffing agency but are contracted out to the client company for either a prearranged fee or an agreed upon hourly wage. Some companies prefer to use temporary workers rather than employ regular staff who would typically receive greater salaries and benefits, require training, or otherwise be more costly to the employer in time, money, or resources.
Most temporary work assignments are of short duration, intended to replace a worker who is absent or to help with a short-term surge of work. However, assignments spanning several weeks or months may also be offered. There is no specific legal limit on how long a temporary worker can remain with the same host employer.
There are many advantages to using temporary workers. Some of the biggest include:
Alternatively, some potential problems with the use of temporary workers do exist. Some of these include:
Companies must communicate to their temporary staffing agency all pertinent workplace rules, health and safety protocols, and policies or programs. Companies should provide copies of all such written policies and programs as well as stipulate that compliance by workers is required.
Employers should note that temporary workers must be counted when determining employer coverage and employee eligibility under certain laws. For example, an employer with 15 employees from a temporary help agency and 40 permanent workers might be covered by the Family and Medical Leave Act, which applies to all public agencies and private employers with 50 or more employees who have worked 20 or more workweeks in the current or preceding calendar year.
Common types of temporary help often used by companies include:
Companies take advantage of these various temporary employment services to fill staffing and other business needs as well as using traditional temporary employees. Those needs may include obtaining specialized skills to complete a project, adding staff to meet production goals or deadlines, or utilizing flexible staffing to save in benefit costs. For an employer, additional advantages of using flexible staffing include a mutual understanding that the employment is limited in scope and term and also the option to terminate an employee without severance costs.
Safety of temporary employees
Temporary workers usually have a continuing relationship with their staffing agency as they move from job to job. The agency is aware of the type of work its employees are performing and should have a general idea of the hazards involved. The client company that utilizes the temporary worker generally provides the day-to-day job assignments and supervision and is aware of any worksite-specific hazards that should be communicated.
The client company, often called the “host employer,” has certain responsibilities, as does the temporary staffing agency. The host employer should have the same concern for the safety of its temporary employees as it does for the safety of its regular employees.
While temporary staffing agencies have a responsibility to keep their workers safe, OSHA places the primary responsibility for employee safety on the shoulders of the host employers. The reason for this distinction is because host employers generally create and control the hazards to which their temporary employees are exposed.
The extent to which a host employer is responsible for the safety of its temporary employees depends on these three things:
At a minimum, a host employer should confirm with the temporary staffing agency that temporary employees have been:
The temporary staffing agency should take responsibility for providing basic safety training to the extent possible without knowing the specific workplace hazards that may arise. This basic training will familiarize the worker with training requirements and prep them for more specialized training yet to come. Any agency-supplied training should be evaluated by the host employer to make sure it is effective and appropriate.
The host employer should have a clear idea of the jobs that will be assigned to the temporary employees and diligently identify any hazards involved. Once identified, these hazards will help indicate the particular training that is needed. If exposure monitoring or medical surveillance training is required, the host employer must ensure that it is provided.
Host employers must also ensure that temporary employees who claim to have prior training are, in fact, properly trained. For example, host employers that employ temporary forklift operators who claim prior training must evaluate the applicability and adequacy of their prior training to determine if all the OSHA-required training topics were covered. The host employer may use, but is not required to use, written documentation of the earlier training to determine if an individual has been properly trained. Additional training regarding circumstances specific to the host employer’s workplace is almost certain to be necessary in every case.
Employers should be aware that temporary workers — though hired through a staffing agency — may still affect the Family and Medical Leave Act (FMLA) responsibilities of their company. There are three areas of concern for employers when it comes to FMLA responsibilities:
Joint or co-employment
While the staffing agency is the primary employer for purposes of many laws, the host company is automatically a joint or “co-employer” for many situations. The term “co-employment” is often used interchangeably with “joint employment.” Employers must keep in mind that some obligations to “regular” employees under law must cover joint employees as well.
Many employers fear creating a co-employment relationship with a temporary worker who was hired through a staffing agency, even though it cannot be avoided in many cases (and does not necessarily impose additional obligations on the company). There is no single source for information on co-employment, in part because the concept applies differently depending on the relevant law and jurisdiction.
In most cases where a host company uses temporary workers from a staffing agency, certain co-employment obligations will automatically exist. Aside from FMLA considerations, a temporary worker is also protected by discrimination laws from actions by both the host company and staffing agency. A temporary worker could file a discrimination or harassment claim against the host employer for actions they take. Alternatively, a temporary worker could create liability if they are the offender, and the host employer fails to address misconduct (typically done by contacting the staffing agency to ask them to address the problem).
Additionally, the Fair Labor Standards Act (FLSA) addresses joint employment where an individual works to benefit more than one employer. For example, a host employer could be liable for recordkeeping violations or back pay if it asks a temporary worker to work without recording their hours or denies a lunch break while still deducting 30 minutes of pay for a meal period. Temporary workers should report such problems to their staffing agencies; and if a lawsuit arises, a host company could face liability.
As the employer of record, the staffing agency is responsible for tax deductions, completing a Form I-9 for new hires, and most other aspects of the employer/employee relationship. Even so, any relationship where the host employer exercises some control over the temporary worker (such as directing the day-to-day tasks) may create a joint or co-employment relationship under certain laws.
Employers should be aware that temporary workers — though hired through a staffing agency — may still affect the Family and Medical Leave Act (FMLA) responsibilities of their company. There are three areas of concern for employers when it comes to FMLA responsibilities:
Joint or co-employment
While the staffing agency is the primary employer for purposes of many laws, the host company is automatically a joint or “co-employer” for many situations. The term “co-employment” is often used interchangeably with “joint employment.” Employers must keep in mind that some obligations to “regular” employees under law must cover joint employees as well.
Many employers fear creating a co-employment relationship with a temporary worker who was hired through a staffing agency, even though it cannot be avoided in many cases (and does not necessarily impose additional obligations on the company). There is no single source for information on co-employment, in part because the concept applies differently depending on the relevant law and jurisdiction.
In most cases where a host company uses temporary workers from a staffing agency, certain co-employment obligations will automatically exist. Aside from FMLA considerations, a temporary worker is also protected by discrimination laws from actions by both the host company and staffing agency. A temporary worker could file a discrimination or harassment claim against the host employer for actions they take. Alternatively, a temporary worker could create liability if they are the offender, and the host employer fails to address misconduct (typically done by contacting the staffing agency to ask them to address the problem).
Additionally, the Fair Labor Standards Act (FLSA) addresses joint employment where an individual works to benefit more than one employer. For example, a host employer could be liable for recordkeeping violations or back pay if it asks a temporary worker to work without recording their hours or denies a lunch break while still deducting 30 minutes of pay for a meal period. Temporary workers should report such problems to their staffing agencies; and if a lawsuit arises, a host company could face liability.
As the employer of record, the staffing agency is responsible for tax deductions, completing a Form I-9 for new hires, and most other aspects of the employer/employee relationship. Even so, any relationship where the host employer exercises some control over the temporary worker (such as directing the day-to-day tasks) may create a joint or co-employment relationship under certain laws.
A question that often arises and has been addressed in multiple opinion letters by the federal Wage and Hour Division, is whether employees can “volunteer” to perform work for their employer without compensation. In almost every case, the answer is no.
While the law does recognize that individuals may choose to volunteer their time for civic or charitable organizations, the Wage and Hour Division (as well as the Supreme Court) have expressed concern over allowing an employee (even an employee of a non-profit organization) to perform work without compensation. Specifically, the concern is that an employee could be coerced or required to volunteer additional time without pay, which would violate the intent of the Fair Labor Standards Act (FLSA).
One of the best summaries of this concern appeared in an opinion letter (FLSA 2001-18), which responded to a question about nurses volunteering their time for various community services. The response from the Division included the following:
As the above letter suggests, an individual may perform unpaid volunteer activities for an organization or company if they are not an employee of that organization. For example, a non-profit organization can accept volunteer services from non-employees without compensating them for their time and labor.
However, if an employer/employee relationship exists in any way, an individual cannot volunteer additional unpaid time for their employer unless a number of conditions are met. Primarily, the volunteer work should take place outside of normal working hours and should be a distinctly different type of work than the employee normally performs. The opinion letter previously referenced describes this evaluation as follows:
If an individual who is already an employee of the organization chooses to volunteer for that organization, all of the above criteria should be satisfied. Another opinion letter (FLSA2005-33) clarifies that volunteer activities should be outside normal hours and should be of a different capacity than the usual job duties. As noted, the Department of Labor (DOL) will also consider the number of hours, whether the volunteer work displaces regular employees, and whether the services are typically associated with volunteer work. If all these criteria are met, an individual who is already an employee of an organization could perform unpaid volunteer services for that same employer.
For profit or non-profit
Obviously, volunteers are limited to charitable or civic organizations, since a “for profit” employer cannot have individuals performing duties to benefit the organization without compensation. As discussed in the Hours Worked topic, if a private company expects employees to perform volunteer services (even for a civic or charitable organization) then the time must be paid. As the name suggests, volunteer activities must be voluntary.
The Fair Labor Standards Act does address volunteers in the regulations at 29 CFR Part 553, which defines a volunteer as “an individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered.” The regulation goes on to say that while the Congress did not intend to discourage bona fide volunteers, it did want to prevent abuse or manipulation of the minimum wage and overtime requirements that might result if individuals were pressured or coerced into performing “volunteer” work.