In a co-employment agreement, the business maintains responsibilities for the employee's job duties and day-to-day functions while the co-employer manages personnel-related functions such as payroll. In this way, the worker is technically employed by both the business and the co-employer.
Some businesses may use co-employment as a mechanism to engage the services of independent contractors without taking on the additional responsibilities of personnel issues such as wages and tax responsibility. This arrangement would seemingly also offer the benefit of minimizing independent contractor engagement risks such as misclassification.
Co-employment can free organizations from the burden of payroll, tax reporting and collection, workers' compensation coverage and claim management and benefits, but it is imperative for businesses to understand that simply having the structural arrangement does not eliminate risks.
The use of independent contractors has become an integral part of the workforce and it is more important than ever for enterprises to understand independent contractor compliance. Compliance is not a static issue, and can evolve with a change in scope of work or circumstances. Even if you have an independent contractor engagement program, it is imperative to ensure that your deployment and management of this talent segment minimizes the risk of misclassification and class action lawsuits.
A rose by any other name. All independent contractors are not created equal. Some independent contractors will easily pass a compliance review. They are operating as a business, have multiple clients, possess the requisite business insurances and are "independent minded." Others may have accepted an independent contractor label due to an economic circumstance, but are employee-minded. Believe it or not, even having the mindset of a traditional worker can put you at risk. A worker who is begrudgingly working as an independent, even in a co-employment arrangement, is a red flag that could expose you to risks. An independent contractor that would prefer to be an employee may raise issues about pay and benefits as compared to your traditional W-2 employees.
Who's in control? Control is an important factor when determining the independent status of a worker. Co-employment agreements do not protect you from unsafe management of independent contractors. Unlike a statutory employee, an independent worker has freedom in how they meet the obligations of your project contract. For example, unless the work requires them to be on site, you should not require them to work from your offices or complete timesheets like your W-2 employees. Independent contractors should not be counseled about attendance or punctuality, as their work hours and schedule are not under your control. An independent contractor is a business and should be treated as such.
Avoid all appearances of employment. In a co-employment agreement, the co-employer is responsible for payroll, benefits and personnel related issues. It is crucial that you do not discuss these issues with the worker but directly with the co-employer. If an independent contractor approaches you about pay rates or full-time employment, they should be referred back to the co-employer. The termination or end of an assignment should also be addressed directly with the co-employer. You and your team may develop good working relationships with independent contractors, but it is important to maintain the lines of responsibility and not place yourself at risk of an employer-employee relationship. As much as you may value the services of an independent contractor, they are not your employee.
A co-employment agreement relieves companies of some of the administrative burdens of independent contractor engagement but does not eliminate the inherent risks. Independent contractors are a vital source of talent for enterprise, but companies must be prepared with a vetted solution that leverages the benefits of this workforce segment while minimizing reclassification and other risks.
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