Man in a suit with text: "Co-Employment Part 3"

Reducing Co-Employment Risk

Pinnacle Group Blog

Over the past couple weeks, we have explained the basics of co-employment risk and some recent developments making this topic particularly relevant right now. This week the discussion will focus on how clients and staffing suppliers can work together to reduce the client’s co-employment risk. There are a lot of misconceptions among clients and staffing providers that particular activities will eliminate co-employment risk – this is simply not possible. There will always be some risk inherent in a staffing relationship. The best we can do is to mitigate the risk through intelligent choices and solid practices.

The greatest single thing clients can do to reduce co-employment risk is to work with responsible staffing providers to avoid creating the issues that cause the most co-employment risk. Responsible staffing providers comply with applicable employment laws, develop and follow strong internal policies and procedures, are responsive to their employees, and engage with their employees in a way that clearly communicates that they – and not their clients – are the employer. The most frequent and impactful issues employees encounter relate to pay, both during and after employment. Strong and timely payroll processes dramatically reduce co-employment risk, as does the appropriate handling of post-employment unemployment claims and verifications of employment. The fewer actual or perceived violations, the less risk the client has of being pursued in a civil action or by a regulator.

Clients can further reduce their risk by clearly defining their role and the staffing provider’s role in managing the client’s contingent workforce. This starts in the contracting process. Because clients generally engage multiple staffing providers, it’s worth the time investment to put together a solid contract and engage all staffing suppliers under a standard set of terms and conditions. We will follow up in a later posting about the standard clauses that should be included in all staffing contracts. As a general rule, the staffing company should be handling as many of the employer activities as possible. At a minimum, the staffing provider should provide these services: sourcing, recruitment, reference checking, background screening, negotiating compensation, issuing offer letters, onboarding new hires, handling all benefits and pay-related matters, and managing any offboarding process. We strongly advise against clients ever “firing” a contingent worker and recommend that the staffing provider lead any formal review process, disciplinary meeting, or termination action involving its employees.

Once the roles are clearly defined, the staffing company and the client must ensure the roles are performed as intended. This involves a degree of training and cooperation for both of them. Clients who implement these roles most successfully provide training for all managers using contingent workers to ensure they understand what not to do. Simple, straightforward guidance such as “don’t discuss compensation with your contingent workers, refer them to their employer’s HR department” and “never refer a contingent worker to [Client’s] internal HR department” goes a long way toward helping avoid situations that may cause issues later. The staffing provider must do its part by ensuring its HR and other departments are equipped to respond to employee concerns and that they do not shirk their responsibility by referring employees to client managers, for example.

The basic strategy we’ve laid out here may seem simple and obvious, and it is. The bottom line is that co-employment is significantly safer and less scary when the occurrence of underlying issues is reduced. This approach also has the added benefit of enhancing the client’s business operations. Strong compliance in this case means strong business outcomes, because client managers are focused on the work that drives their business forward instead of spending valuable time and other resources managing the administrative and HR needs of contingent workers. When the staffing company and client are each able to focus on what it does best, they both win.