Flexible Staffing Arrangements
A Report on Temporary Help, On-Call, Direct-Hire
Temporary, Leased, Contract Company, and Independent Contractor Employment in
the United States
Susan N. Houseman
August 1999
All states also have unemployment insurance programs financed through a
payroll tax on employers. Many in flexible staffing arrangements are ineligible
to receive unemployment insurance because of the qualifying requirements, which
specify that an employee work a minimum number of weeks and/or earn a certain
minimum amount within a base period. The purpose of these requirements is to
prevent those with insufficient attachment to the workforce from receiving
benefits. Effectively, the requirements preclude many in temporary positions
from being covered.
Even if temporary workers fulfill the minimum earnings or work time
requirements to qualify for unemployment compensation, they may be disqualified
on other grounds. For instance, if workers separate from a temporary job with a
predetermined expiration date, they might be disqualified from UI on the
grounds that they voluntarily accepted a job with an ending date, and so the
unemployment is voluntary. Several states have passed laws precluding
disqualification for this reason. Workers employed through a temporary help
agency also might be disqualified from receiving UI benefits if they fail to
report to the temporary help agency for a new assignment when their current
assignment ends. From the temporary help agency's perspective, it does not want
to raise its UI tax rate, which is experienced-rated, by covering workers whom
it could place in other assignments. From the temporary workers' perspective,
they may need time off with UI coverage to look for permanent employment and
not covering these workers may relegate them to a cycle of short-term, dead-end
jobs. Ambiguity also exists as to whether an agency temporary who quits in the
middle of an assignment for "good cause", such as hazardous working
conditions, must accept another offer of employment through the same temporary
help agency (National Employment Law Project 1997).
A related issue is whether temporary agency workers can refuse an assignment
without jeopardizing their UI benefits. This issue is particularly pertinent
when state employment agencies refer UI recipients to temporary services. In
the absence of state requirements, federal law stipulates that if an assignment
offers "wages or other conditions of employment [that] are substantially
less favorable than those prevailing for similar work in the locality, or are
such as tend to depress wages or working conditions," the assignment is
unsuitable. However, specific factors vary from state to state and may be
decided on a case by case basis (National Law Project 1997).
Independent contractors are not covered by unemployment insurance. As was
the case with workers' compensation, it is believed that many businesses avoid
paying unemployment insurance or pay rates that are too low by misclassifying
workers as independent contractors or by establishing low experience rates in
shell companies before transferring leased or temporary agency employees to
their payrolls. One study found substantial evidence of UI rate manipulation
among leasing companies (KRA Corporation 1996).
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