staffing, MSP, independent contractorStaying on the right side of the law is something we all strive for in our personal lives as well as business dealings. The regulatory burden on businesses, small and large, is a hot topic of conversation these days, from the campaign trail to the boardroom. Whether or not current regulations are onerous, too lax or just right is not my concern today. What I want to discuss is the importance of knowing who you are doing business with and how that affects your own ability to stay in compliance.

A few weeks ago during the SIA’s monthly Staffing Industry Report Webinar, the issue of Independent Contractor (IC) misclassification was raised. This has been an ongoing concern within the business community and the staffing industry for years and periodically receives increased attention and discussion. Both state and federal governments believe they lose millions in taxes not collected on ICs and are stepping up enforcement looking for additional revenue from closing those loopholes and from the fines and penalties. Some see this increased attention as making ICs too scary for businesses and think many will “run from using them” or certainly become more concerned with compliance.

These developments may bring increased opportunity to the staffing industry. Some companies may choose to go the SOW route but the thought is many will turn to staffing firms to avoid the danger of running afoul of the law. I am all for new business opportunities, and I completely agree that working with a staffing agency can be huge boon to companies in managing their exposure, but you need to be careful and ensure that the staffing firm you choose is both reputable and knowledgeable. IC rules are complicated and state specific with California having some of the toughest rules of all. As the article Worker Misclassification Lawsuits discusses, simply turning things over to an agency doesn’t guarantee anything, and this is just one example of how it went wrong. If you aren’t working with a knowledgeable agency, you are at risk; whether they intend to or not, they may be leading you down a dangerous and expensive path. IC classification is only one issue; there are lots of potential pitfalls if your agency doesn’t know what it’s doing when it comes to illegal workers, health and safety issues, hiring practices, etc.

Unfortunately, knowledgeable isn’t enough. Reputable is just as, if not more, important. The articles below highlight some recent (all from Jan 2012) reports of various bad behaviors:

Minnesota Staffing Firm Owner Pleads Guilty (not paying employment taxes)

Massachusetts Staffing Firm Owner Pleads Guilty (Worker’s compensation fraud)

California Cites Warehouse Owner and Staffing Firm (unsafe working conditions)

Feds Penalize Park Concessionaire (improper fees charged to workers by the park’s employment agency)

Firms repay $3.3M in Recruitment Fees (workers overcharged in violation of Apple Inc.’s policies)

Hiring a firm that breaks the law is a bad deal all around. Regardless of the problem, you will also suffer through shared monetary punishment, monies lost intangibly in time and effort to find a new staffing firm, or the priceless, and harder to replace, loss of reputation and trust with your workers and customers. You simply can’t outsource all risk and responsibility. You need to choose carefully and work closely with your temporary staffing companies to make sure they know what they are doing on all legal fronts. Due diligence is critical when choosing a firm, but it also plays a role as your relationship progresses. Continue to ask questions to make sure that they continue to stay knowledgeable about new regulations or changes in the law. Ask to meet with senior leadership periodically and develop a relationship so that you know who you are working with and that you can trust them. Verify by talking to others in the industry about your partner vendors. Don’t just take their word for it. A small amount of extra effort will pay off tremendously if you can avoid mishaps like those described above.

Finally, don’t think that using an MSP will eliminate the need for any of the diligence or effort recommended above. An MSP can help you manage the process and administration of a contingent workforce but they can’t replace you. They can save you time and effort by winnowing the crowded field of staffing vendors using criteria that you provide. But final interviewing and selection should be your decision. Think of the MSP as akin to a dating service; you might value their help in selecting some good choices but do you want them to go on the date for you? Do you want your MSP to have a relationship with your vendors instead of you? Also, relying on an MSP to take care of everything is putting all your eggs in one basket – what happens if something goes wrong with them and you don’t know your vendors? There are ways that a good MSP can save your program time and money but replacing you in the relationship with your staffing firms isn’t one of them. In the end, there is just no real substitute for your own judgment.

There’s a lot of regulation out there with hundreds of ways to be tripped up and not all of them fair or sensible. By all means, spend your time and effort fighting to change the rules but until then, stay in compliance and understand that you are only as safe as your weakest link. Make sure it isn’t your staffing firm.

Jerry Brenholz
President and CEO


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