Employee Liability Benefits For Long Term Contracts Are An Ongoing Issue
The question of who is responsible for employee benefits
, the staffing agency that places them, or the company that temporarily employs them, can often cause uncertainty and confusion. Agency employees placed through staffing or payrolled companies began adopting specific, and often unnecessary, policies to avoid employee benefits liability.Staffing firm customers increasingly began to adopt policies that would limit the length of assignments for staffing firm and payrolled employees in order to avoid retro-benefits claims and employee liability. But many of these policies were likely misguided by the erroneous belief that employees are automatically entitled to company benefits, or to being hired by the customer, after working a certain length of time.
Companies using staffing firms and payrolling services should revisit their own policies to ensure that the imposed limits are truly necessary and not based on a common legal misperception. There are basic principles of law that apply to employee benefit plans, and ways that customers can effectively avoid retro-benefits exposure.
The principal law regulating employee benefits is the federal Employee Retirement Income Security Act (ERISA). This law sets rules governing the structure and administration of employer retirement and other benefit plans. However, it does not require employers to offer benefits, nor does it dictate the level of benefits that are offered.
ERISA encourages benefits plans as a tax-qualified plan
While ERISA generally regulates but does not require benefit plans, federal tax law encourages employers to offer benefits by allowing certain benefit costs under a tax-qualified plan. Under such a plan, the employer deducts the benefit costs and excludes those costs from the employee's income, so that the value of the benefits is non-taxable. To take advantage of a tax-qualified plan, companies need not necessarily cover all employees.
Misconceptions about ERISA and tax code rules are not uncommon. For example, some customers have terminated long term contract employees before they have completed 1,000 hours within one year, believing this to be the threshold that entitles the employees to company retirement benefits. ERISA regulations, in fact, do not apply to non-employees. Similarly, the federal tax code rules do not require customers to provide benefits to leased employees.
Without a clearly defined exclusion from customer benefit plans for contracted employees, assignment limits could be construed as an effort to deny benefits, and that inference could lead to charges of violating ERISA, which protects employees from such employer action.
One might propose that customers using staffing firms and payrolling companies amend their benefit plans to expressly exclude these employees from these organizations. As an added precaution, customers should consider executing employee waivers of company benefits. Although court decisions generally support such waivers, the plan must be carefully written to be consistent with, and expressly sanctioned by the customer's benefit plan.
Rather than terminating productive contract employees based on arbitrary assignment limits, companies should take decisive steps to ensure that benefit plans expressly exclude staffing firm and payrolled employees, and adopt employee waivers, while staffing firms and their customers should always consult with expert legal counsel regarding the implementation of such strategies.
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