Permatemping: A Co-Employment Time Bomb for Manufacturers

May 2, 2019
Permatemping: A Co-Employment Time Bomb for Manufacturers

According to a recent Staffing Industry Analysts (SIA) report, there are approximately 1.5 million temp manufacturing workers. Plant managers have relied on temp agencies and the temp-to-hire model to help deal with labor shortages.

This reliance on temps has caused three main problems:

  • Despite using multiple temp agencies in each plant, manufacturers are still chronically short of labor because of 100-400% temp turnover rates
  • Only a small portion of all temps used are eventually hired – the term “permatemping” was coined for those temp employees that work for the same staffing client for an extended period and the Department of Labor is starting to scrutinize this practice more
  • States are increasingly filing lawsuits against employers using permatemping and applying the “ABC” test – this puts employers at risk of fines and having to provide healthcare and benefits to independent contractors, freelancers and temps

Department of Labor Fires a Warning Shot

Temp employees working at the same job for more than 90 days that haven’t yet transitioned to the customer as an employer put the plant at risk of a co-employment, as covered by Lydia DePillis in her recent Washington Post article, Department of Labor sends warning shot to clients of temp staffing agencies:

“Subcontracting, outsourcing, and the use of staffing agencies allows businesses to inexpensively scale up and scale down their labor needs, without the extra hassle and liability of adding payroll. But it also adds another layer between workers and the bosses who call the shots, shielding managers from responsibility when the labor provider doesn’t follow the law.

“Department of Labor Wage and Hour Division director David Weil, a former business school professor, calls this trend ‘fissuring.’ He thinks lots of those client companies should really be considered ‘joint employers,’ together with the contractors that sign the checks, making them liable for violations. And Wednesday, his department issued detailed guidance drawing the categories in black and white, sending a message to employers that they had better fall on the right side.

“‘I think the majority of noncompliance that we see is people just not getting what the law is, and what their responsibilities are under it,’ Weil said in an interview. ‘We also find cases of people who are clearly playing games, and clearly trying to shift out responsibility, and often have structured things in a way that lead towards more noncompliance.'”

And while some temps are made permanent, most are not.

California Establishes the “ABC” Rule, Though Is Late to the Game

In April 2018, the California Supreme Court issued its much anticipated opinion in Dynamex Operations West, Inc. v. Superior Court:

“…We conclude that in determining whether… a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the ‘ABC’ test… Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes [a temp is only a contractor if you meet all three criteria A, B and C criteria]:

“(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; [temps are directed and supervised by you]

“(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and [temps only work at your plant]

“(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.” [temps only work at your plant]

From our experience, temps do not meet any of the ABC test criteria, are misclassified as independent contractors and should thus be considered your employees, commonly referred to as “co-employment” and “joint employment.”

While many employers are concerned about this development in California, many other states already have them in place: Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia.

Temps a Myth?

In his article, The Myth of “Temporary Workers”, Todd Lebowitz said, “What is a ‘temporary employee’? I have practiced employment law for 20 years and I can’t tell you. It’s a state secret. All lawyers have been sworn to secrecy forever.

“Either that or that term has no legal significance. Usually the term is used to mean one of two things:

  1. Your employee, hired on a trial basis with some sort of probationary period; or
  2. A staffing agency worker, retained to augment staff levels on a temporary basis

“Under option 2, workers supplied by a staffing agency and integrated into your workforce are probably your joint employees. Usually these workers are subject to your supervision, work in your facility, and take direction from your managerial staff or team leads. Under most tests, those workers are likely to be considered your joint employees.”

Managed Labor: Zero Risk of Co-Employment

Managed labor staffing workers are employees of the provider. At LACOSTA, employees receive healthcare, 401(k) match, paid time off, and other employee support benefits. They are fully trained, cross-trained and incentivized to find additional ways to improve our operation and reduce cost to our customers. LACOSTA employees are happier and more productive than permatemps, correlating to a retention rate nearly 10x higher than temp agencies.

Most importantly, you’ll never have to worry about employee misclassification lawsuits or having to provide benefits to these workers – especially as more and more states crack down on employers in an effort to recoup payroll taxes, which are useful to pay for underfunded pension obligations.

Contact us to learn more about managed labor solutions