Small Business

Legal Issues Facing Staffing Firms

Posted by Factor Funding Co. on February 23, 2016

Legal Issues Facing Staffing Firms

Clients rely on staffing agencies to bring in the extra manpower needed for their businesses. Employees rely on the staffing agencies to represent their interests in finding employment and receiving compensation. These two business relationships bring forward legal issues that staffing agencies must be aware of and on constant alert about.

Here are some common legal issues staffing firms face.

Employee Misclassification

Anyone who does work for a company must be classified for reporting and wage purposes. Companies can hire workers directly as salary or hourly workers. However, employees that work directly for a company are always considered when the business needs to meet certain federal mandates, like the ACA. The ACA (aka "Obamacare") requires employers with 50 or more employees to provide healthcare insurance to their employees.

To get around these mandates, many employers try to classify some employees as independent contractors. They are also approaching staffing agencies with this same intent. This kind of activity is illegal in most circumstances and can bring penalties down on both the client and the agency.

Staffing agencies can get in as much trouble as other companies in misclassifying workers. The agency needs to always be aware of its legal responsibilities and potential pitfalls when trying to meet client requests.

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Discrimination and Background Checks

Many clients want agencies to put all potential staff members through hiring tests and background checks. The intent, in most cases, is to make sure the client is not bringing someone in who is unqualified or who might become a liability. However, some clients use these hiring tests and background checks as a way to filter out people from protected classes.

For example, an employer may require a credit check on potential staff. If that credit check is used as an excuse to discriminate against minorities who have a poor credit history, it is discrimination.

Staffing agencies must always be aware of this possibility and resist efforts by clients to implement discrimination filters via testing or background checks.

Wage and Hours

Many employers struggle with classifying employees as exempt or non-exempt. Exempt employees are those paid a fixed salary and who receive no overtime pay for work done beyond 40 hours per week. Non-exempt employees are hourly workers who do get overtime for working more than 40 hours a week.

The exempt classification is supposed to be used only for staff members who are in management, certain technical positions, or administrative jobs. It is not supposed to be used to avoid overtime pay for someone who should be classified as an hourly worker.

Staffing agencies can face stiff penalties if they hire workers as exempt employees, while putting them into positions where they are doing work normally classified as non-exempt.

Immigration Issues

Most staffing agencies work exclusively with employees who are U.S citizens or permanent residents. However, some staffing agencies choose to hire non-permanent, non-citizen workers who have various kinds of visas. Those agencies must take great care to meet federal immigration employment requirements exactly. Any small violation, even unintentional ones, can come with severe fines and penalties.

Contracts With Clients

Every time you bring on a new client, you are signing a contract with that company. Disputes can arise around just about any contract. The staffing agency needs to have legal counsel available to make sure all contracts are enforceable and that any potential violations are handled in a proper manner.

Knowing the potential legal traps is essential for anyone running a staffing agency. That knowledge can prevent expensive violations and keep clients and employees safe as well. Take the proper precautions to keep your agency safe from these legal issues.

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