If it looks like a duck and quacks like a duck, it's a duck.
The same goes for employees, even when they're leased from a
staffing company or professional employer organization (PEO). When
an employee is under your supervision and control, you can't
contract away your legal responsibility for payroll taxes,
workers' comp, and the like.
The employee leasing business has grown rapidly. The National Association of
Professional Employer Organizations (NAPEO) estimates that 2
million to 3 million Americans are co-employed in PEO arrangements.
The idea is to put personnel administration into the hands of
professionals so you can concentrate on your business.
The PEO handles workers' comp and other benefits-all for
what you were paying on your own, because the PEO can get volume
discounts. Indeed, many business owners sign on because they want
to offer benefits to their employees that they could never afford
on their own.
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"It can make a lot of sense," says J. Daniel Marr, an
attorney with Hamblett & Kerrigan in Nashua, New Hampshire.
"With a good company that has a good reputation, it can be an
excellent decision."
In the early days, employee leasing companies claimed they would
be the sole employer of the staff. Businesses would
"fire" their entire staff, the leasing company would hire
everyone, and they'd return to their jobs the next day as
leased employees. Indeed, some businesses looked to protect
themselves from liability, believing that in case of a lawsuit over
employment matters, the leasing company would stand up in court as
the sole employer.
A lawsuit against Merrill Lynch in 1984 eliminated that fantasy.
The company had leased an administrative assistant from a
temporary-help agency. After two weeks, the woman's boss at
Merrill Lynch dismissed her. She sued, alleging racial
discrimination. Merrill Lynch argued that it wasn't even her
employer and therefore wasn't liable under the federal Civil
Rights Act. The court disagreed and required Merrill Lynch to stand
trial. Even if the company wasn't her employer, it couldn't
limit her opportunities through racial discrimination.
In subsequent cases, courts have recognized that the PEO and the
client company are co-employers. Both are liable for payment of
payroll taxes and workers' comp, and compliance with government
regulations. "It's still your responsibility," Marr
says, noting that the key question in determining whether someone
is an employee is one of control: Who is directing what the worker
should do, and how? "You're delegating, but under the law,
it's nondelegable. If you discriminate, you're liable. If
the leasing company fails to pay workers' compensation,
there's that provision in state law."
If you partner with a PEO, Marr says, check its reputation to
make sure you're dealing with a responsible company. Draw up a
contract specifying who will take care of what. Include a clause
stating that if the PEO fails to pay workers' comp or payroll
taxes, it will indemnify your company.
Finally, Marr advises, don't assume you're not liable
for how you treat leased employees. "Treat them with the same
dignity you treat your other employees."
Jane Easter Bahls is a writer in Rock Island, Illinois,
specializing in business and legal topics.