Fundamentals of Human Resource Management 6th Edition by Raymond Noe, John Hollenbeck, Barry Gerhart,Patrick Wright

Exercise 21

Using Temporary Employees and Contractors
When a company lands a big order, needs to catch up on administrative work, or isn't sure demand will continue at present levels, contingent workers look like the ideal solution. The company can hire workers from a temp agency or negotiate contracts for short-term projects, and when the project ends or demand falls, the company doesn't have to figure out what to do with the workers. In addition, the company may be able to save money because it doesn't have to provide employee benefits or withhold taxes from contract workers' pay.
However, it is not up to the company to decide whether its workers are really independent contractors. The Internal Revenue Service has guidelines for what constitutes an employee and an independent contractor. Here are some tips for how to classify workers:
• Companies can specify what they want a contractor to accomplish. But if the employer tells the workers how to do the work and controls the workers' activities, then the workers are employees, not independent contractors.
• Providing the workers with supplies or tools and reimbursing the workers for the expenses associated with their work tend to be signs that the workers are employees.
• Providing the workers with benefits such as insurance and paid vacation time is a sign that the workers are employees. Usually, temporary workers receive these benefits from an agency that employs them, not from the company that pays the agency for the workers' services.
• If a company hires workers from a temp agency to do work for a long period of time, directly controls what these workers do, and uses them to perform key roles, the government may see the company as an employer or "joint employer" with the temp agency. A company that is a joint employer has to follow labor laws, including those against discrimination (see Chapter 3) and legal requirements for pay (see Chapter 12).
• If a company is not sure whether its workers are employees or independent contractors, it should get professional advice. Companies and workers may ask the IRS to decide. The way to do this is to file a Form SS-8 requesting a determination from the IRS. The form is available at the IRS website (http://www.irs.gov).
Suppose you work in the HR department of a company that wants to hire production workers as independent contractors. What advice would you give management about this idea