Many companies are enjoying the flexibility of employing contractors from staffing agencies. If your business is one of them, there are some important things you should know.


There are a lot of advantages to hiring contractors through staffing agencies. It can be especially handy if you are in an industry (such as construction or healthcare) where you need to call on competent workers with specific skills for temporary work, occasionally with little notice.


You can hire the employees you need for a specific project and retain them for as long as you need, but you won’t need to keep them on staff when the project is done. There’s no hiring or firing hassles to worry about, you’ll just have a talented pool of contractors to draw upon whenever needed. The contractors will be expected to perform like a regular employee – showing up at the appointed time and adhering to the dress code and rules of the workplace.


Plus, using a staffing firm reduces the need for benefits administration and saves a lot of time and money related to payroll. You’ll simply pay the staffing firm, then they will take care of paying the employees.


Also, there is no need to go through the time consuming process of advertising the available position, interviewing applications, etc. The staffing firm has already taken care of all of this for you – including undergoing background screening of all employees. Staffing firms are used in many industries, including nurse staffing, medical staffing, construction, engineering, office work and much more.


If this sounds like a good fit for your company, hiring contractors from a staffing firm might be ideal for you. First of all, one of the most important things to determine is whether or not you are working with a reputable staffing firm. The staffing company should be financially sound, should be up to date with all of their workers compensation and should be knowledgeable about the industry.


Secondly, it’s crucial to understand how hiring talent from a staffing company works – as the responsibilities and guidelines are different than traditional forms of hiring.


The Role of the Staffing Company and the Client

Generally, in this arrangement, the staffing firm is viewed as the “primary employer” and they will bear most of the responsibility for the employee. However, since the contractor has contact with both the staffing firm and the client, they are both viewed as employers.


The staffing company will be responsible for paying the employee, withholding any payroll taxes and making pay calculations, providing workers compensation, managing timesheets, supervising overtime work hours, providing benefits and pension plans and ensuring civil rights compliance. They also have the right to hire and fire the employee and they will be the ones to act on any complaints from employees about working conditions.


The responsibility of the client is to supervise and direct the day to day work of the contractor. The client will also control the working conditions at the office or work site, determine the length of the assignment and ensure a safe work environment. This is particularly important for healthcare companies such as home health or hospice agencies that provide clinical care and serve a fragile patient population. Being very clear about how care plans are managed can be essential to setting your traveling nurse or contract clinicians up for success.


The Common Law Test

It is important for these roles to be clear. You don’t want there to be any confusion over whether or not you are responsible for providing a benefit for an employee or whether that responsibility lies with the staffing firm.


Issues can arise when the client company extends control over the employee beyond the division of tasks and starts to take on the role of the primary employer. If this happens, the contractor can become their “common law employee” and the client can be responsible for greater liability for that contractor.


This is determined by the “Common Law Test” which is a checklist of 20 criteria that are used by the IRS to determine the employment status. For example, according to the IRS when you use a contractor you may only direct the end result of the work, not how the work is performed. So, if you set out an order in which work must be done, the employee is not able to follow their own pattern of work and this means they are a common law employee and not a contractor. (see point 10).


So, if you hire a contractor and then exert too much control over their work and financial compensation, you are at risk for being liable for such things as taxes, insurance coverage and more. Take a look at the Common Law Test with the help of a legal advisor, to make sure that your company isn’t overstepping any of these boundaries.


Vizcaino vs Microsoft: A Case Study

One of the most well known examples of this issue was the case of Vizcaino vs Microsoft. The court case involved several people who performed work for Microsoft between 1987 and 2000. Most of these employees were long term contractors – employees of staffing firms. However, they performed the same job duties as Microsoft employees and they met many of the criteria outlined in the Common Law Test checklist.


These workers filed a suit against Microsoft, claiming that they were really common law employees of Microsoft. This meant that they should have been able to participate in Microsoft’s stock purchase plan, it’s 401K plan and other employee benefits.


When the case concluded, the Court of Appeals in San Francisco sided with the employees. Microsoft paid $97 million to settle the lawsuit, an amount that was based on what would have been the worker’s benefits under the company’s package.


This lawsuit sparked many other court cases involving the classification of contracted employees. It shows that the penalties for misclassification can be severe and it is crucial to make sure that the boundary between employee and contractor is clearly drawn.


Tips for Managing Contractors from Staffing Agencies

  • Only work with reputable staffing firms that understand employment law.


  • Be very clear about your needs. A good staffing firm will help you to find the best workers for your organization, but in order for them to do that they need to know exactly what you need. Communicate clearly about the type of person you want for the job and let the staffing firm know a bit about your company culture, so that they can decide which employees would succeed in your workplace.


  • Make sure that boundaries are established and all of your legal bases are covered. Have an expert review all agreements with the staffing agency and the contractor to establish the responsibilities and liabilities of the relationship. The division of responsibility between the staffing agency and your company must be made very clear.


  • Have your contract workers sign contracts and waivers stating that they are employees of the staffing firm and they waive any claim to compensation or benefits from you, the client. Be sure to consult legal advice when drafting these contracts as they need to be specific.


  • Make sure your company benefit plan explicitly excludes contract workers. Again, this wording should be reviewed by a legal advisor.


  • Hiring a large number of contractors for a long term project? Consider having the staffing firm provide a supervisor or project manager on site to supervise all contract workers. This makes the supervisory lines of control more clear and makes the entire group of employees easier to manage as there is one supervisor to work with rather than many.


  • Once you have found a good quality staffing firm to work with that provides you with high quality employees, maintain a good relationship with them. You can make sure that all legal responsibilities are squared away, then rely on them year after year to provide you with talented employees whenever you need them.


Lastly, be sure to work with the staffing agency to implement good time tracking processes for the contractors. Using a product that has mobile timesheets capabilities, such as Boomr, can help keep all parties on the same page about productivity and performance.