What is co-employment?

Co-employment happens when contractors are working at a Company through an external firm (a staffing firm). In this scenario, the one contractor is technically “hired” by two entities – creating a co-employment model.

In this model, the staffing firm and the company both have a relationship with the contractor, which can result in some confusion as to who is truly responsible for this individual worker or workers.

Below, we break down responsibilities of both the staffing firm and the company where the contractor is working:

Staffing Firm (primary employer):

• Negotiate wages
• Controls payroll
• Withholds taxes
• Right of hire and termination
• Provides feedback to contractor regarding performance
• Provides worker’s compensation (if contractor is working on a W2 basis)
• Provides benefits and retirement plans
• Ensures civil rights compliance
• Responsible for responding to any complaints about the contractor’s working conditions

Company (secondary employer):

• Supervises the day-to-day work of contractor
• Manages the schedule of the contractor
• Controls the working conditions on the job site, ensures a safe working environment
• Ensures civil rights compliance by employees at the company
• Determines the length of assignment (years/months/days of the contract duration)
• Co-employment can become a huge risk for any company looking to hire a contractor through a staffing firm. Many of our Fortune 500 and larger clients mitigate the risk of violating IRS co-employment laws by having a tenure limit (18-24 months) for their contractors. Is this really necessary? We’re here to explain this to you.

What does this mean for the Company?

As a hiring manager, you should maintain close regular contact with your staffing firm. Ensure that you have a sole point of contact to discuss regular performance reviews and updates with regarding your contractor(s). We recommend having calls and/or meetings every 4-6 weeks to discuss any updates and feedback regarding your contractor(s). This is important, as it is your Recruiter’s job to relay regular feedback to the contractor on your behalf.

How do I make sure I don’t violate co-employment laws?

If a hiring manager exerts too much control over a contractor (negotiates the contractors wages, hires/terminates contractors), you could be in violation of the IRS rules. Make sure to follow the above outline of your responsibilities and contact your On Cue Hire Talent Agent for clarification if needed.

Further explanation can be found on the IRS website:

• https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation
• https://www.irs.gov/businesses/small-businesses-self-employed/employee-common-law-employee
• https://www.irs.gov/pub/irs-utl/x-26-07.pdf