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U.S. Department of Labor Futurework
  Trends and Challenges for Work in the 21st Century
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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

9.4 Unemployment Insurance

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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