As companies have a higher comfort level engaging alternative workers, it’s important to identify an experienced employer of record (EOR) to make your contingent workforce program a success. These success factors will vary depending on your organization’s objectives, but pricing, experience, and consultative solutions are typically high on the list. However, don’t overlook evaluating the EOR’s HR compliance program.

The laws protecting workers of all kinds have evolved over the years. Today, experience and extensive legal knowledge are required to develop an effective compliance management strategy for contingent (or temporary) workers. Unfortunately, some EORs don’t invest in these resources — choosing to cut corners instead of adequately managing co-employment risks.

There are seven critical compliance areas companies should ask an EOR partner about in order to ensure workforce compliance with employment law.


1. The Fair Credit Reporting Act (FCRA)

The EOR must understand its obligations when a potential adverse action occurs as a result of something reported by the background reporting agency. Ask the company what process it follows after learning negative information. What does the EOR do when something is found after the worker is on the job? The consequences of failing to adhere to employment law can result in sticky situations at best. At worst, companies can face significant legal fees and government fines.

We see this situation unfold frequently. Sometimes, clients request to start an employee before the background check has been cleared. Then, when a felony is reported, FCRA limits the actions we can take. Immediate termination is not recommended. Per FCRA, we must provide the employee with a pre-adverse action notice. This notice informs the employee that we’ve learned something that may negatively impact his or her employment status.

By law, we must do this to allow the employee to dispute the information should it be inaccurate. If the employee wants to dispute, we must pay him or her during a reasonable amount of time until a final decision is made.


2. Fair Labor Standards Act (FLSA) and State Minimum Wage

Minimum wages are no longer exclusively set by the federal government. Each state has the right to set its own minimum wage — and many do. Sometimes, the rules are straightforward, but in some places, like California, it’s a puzzle. In addition to state minimum wages, counties and cities are now joining in this effort to set minimum wages in their jurisdictions.

Minimums are often based on employer size, industry, or job title. The complexity increases when an employee travels. Think of an event coordinator who works 10 days in Phoenix, where the minimum wage is $12, then goes to work for three days in Los Angeles, where the minimum wage is $14.25 or $15, depending on the company’s size.

Ask about what resources the EOR has to determine minimum wages and how frequently it audits for increases. How does the EOR learn of upcoming minimum wage increases that may affect workers?


3. Immigration Reform and Control Act (IRCA)

Form I-9 is the Employment Eligibility Verification that workers complete during onboarding, which came out of the IRCA. A worker completes one section; then, the employer representative completes a section while physically viewing the person’s identification that proves authorization to work in the United States.

However, some contract workers live far away from their employers. In these cases, many employers think it’s OK to simply see a copy of the documentation or view the documentation via Skype, but these methods are not actually allowed. Ask the EOR how it “witnesses” the identification for purposes of the I-9 and how it ensures the form is completed within the required time frame. How does the agency make corrections when an I-9 form is incorrect?


4. Wage Notices

Many states require employers to send information to workers outlining the details of the job, including wage, job title, payday, and how to report an injury. These requirements vary state by state and require a strategy to ensure all information is sent promptly and, in some cases, signed by the worker. Find out how the staffing partner is administering this requirement.


5. The Affordable Care Act (ACA)

Contrary to popular belief, the ACA does not require an employer to offer medical insurance to its full-time workforce. Employers may decide that the tax penalties are less costly than offering health insurance.

However, the EOR must understand its obligations to report hours and eligibility to the federal government annually using the 1094 filing. The agency is also obligated to send employees a tax notice 1095. To do this, employers must still be tracking hours per ACA guidelines, which is a bit tricky. Ask the EOR how it complies with the ACA: How is employee eligibility tracked, and how does the agency comply with the annual IRS reporting requirements?


6. Americans With Disabilities Act (ADA)

When an applicant informs an employer that he or she has a disability, the employer must engage with that person to determine what accommodations are needed in order to perform the essential functions of the job. Communication from a medical professional may be requested, and if reasonable, accommodations must be provided.

Ask the EOR about previous experience with managing employee accommodations, and make sure the EOR is familiar with its duty to engage in dialogue with the employee.


7. Harassment and Discrimination Claims

When a worker files a complaint of harassment and discrimination, employers are obligated to investigate and take corrective action if warranted. They cannot retaliate against the person for making the claim. The EOR must have a plan to manage this process within its circle of influence; oftentimes, the agency doesn’t have access to the worker to conduct a thorough investigation. The EOR and the client will want to coordinate an investigation. Ask the agency what its procedure is for handling complaints. What successes has it had with other clients managing a claim?

Making sure an EOR has answers to these questions will help you find a compliant partner and can swiftly navigate evolving regulations. When you choose the right partner, you significantly reduce risk concerning workforce compliance and ensure the success of your contingent worker program.

If you would like to learn more about how an EOR like Innovative Employee Solutions (IES) can help your business, download our whitepaper, “Devour the Competition With the Help of a Payrolling Service.” Or contact us with any questions.


Article written by: Tania Fiero, Chief Human Resources Officer at IES

Tania Fiero, PHR is Chief Human Resources Officer at Innovative Employee Solutions, a leading global Employer of Record in more than 150 countries that specializes in contingent workforce solutions such as outsourced payrolling, independent contractor compliance, and contractor management services. Founded in 1974, IES has grown into one of San Diego’s largest women-owned businesses and has been named one of the city’s “Best Places to Work” for 10 years in a row.

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