When recruiting needs to be ramped up, companies will often add contract recruiters to the talent acquisition team. However, if businesses don’t take the proper steps, or don’t ask the contract recruiter or company they’re working with the right questions, they can open themselves to worker misclassification risk and/or co-employment risk.
Worker misclassification risk occurs when a company pays a contract recruiter as a 1099. In other words, they do not pay the contract recruiter through payroll, as they do with their full-time employees. There is a strict set of IRS guidelines on what constitutes a true 1099 entity, and it is extremely rare that a contract recruiter would pass that test. Here are the important criteria that relegates almost all contract recruiters to non-1099 status:
There are other tests, but these are the most obvious reasons why a contract recruiter would not be a true 1099. The reality is that they are classified by the Department of Labor as an employee, and therefore not paying them as a W2, through payroll, constitutes worker misclassification.
If the Department of Labor rules that you misclassified a contract recruiter, the penalties can be substantial. If they rule that it was not intentional, an employer may be subject to:
And if the DOL finds that the misclassification was intentional, then this what an employer may face:
Regardless of whether the misclassification was intentional or not, a misclassified contract recruiter who files a complaint may be eligible for benefits owed to them, including, but not limited to:
So then how can you hire a contract recruiter neither as a 1099 nor an employee? That’s a tricky question, but fortunately comes with an easy answer: hire them through a staffing agency. However, it is imperative that the staffing agency pays the contract recruiter as a W2 employee. Why you ask? Let’s discuss the risk that goes hand-in-hand with worker misclassification; it’s called Co-Employment Risk.
What is co-employment risk? It happens when a contract recruiter has employment relationships with two or more employers for one work situation. In this case, when a contract recruiter is assigned to a client through a staffing firm. If there is uncertainty as to whether the staffing firm or the client company should take responsibility for the contract recruiters employment, that’s where a co-employment claim could occur.
Understanding the basic principles of the law, and what type of processes any staffing firm you’re considering working with should have to avoid these risks is a great place to start.
Microsoft learned the hard way that co-employment disputes can be costly. A lost co-employment lawsuit resulted in the software giant paying a $97 million settlement related to unpaid benefits during a 13-year period. This raised the profile of co-employment issues nationally.
Here’s how “shared legal responsibility” typically works in co-employment. The staffing agency:
The result for clients is that they must cover their legal bases when engaging a staffing agency in the recruitment and hiring of a temporary worker like a contract recruiter. Best practices include:
It’s true that legal issues can arise from co-employment disputes, but it’s also important to understand that the vast majority of staffing agencies, clients and contract recruiters work together harmoniously. The best strategy for managing misclassification and co-employment successfully is to partner with a recruiting firmthat understands employment law and the responsibilities that come with it.
ContractRecruiter takes the time to find the highest quality contract recruiters for our team, and provides benefits and pays them as W2 classified employees so that there is no risk of misclassification or co-employment claims.
For more information on misclassification and co-employment or to schedule a consultation, please contact ContractRecruiter today.
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