NCPA - National Center for Policy Analysis

Who Employs Permatemps?

December 7, 1998

These are questions which courts are beginning to ponder, given the increasing popularity of hiring through temp agencies. The same questions also apply to self-employed independent contractors. Employers have found that hiring non-permanent workers provides them with greater flexibility and lower labor costs -- primarily because the temp needn't be furnished with pension and other benefits.

  • Some 29 percent of workers employed by temp agencies remain on the same job assignment for a year or more -- up from slightly less than 25 percent as recently as 1995.
  • Under the Employee Retirement Income Security Act of 1974, the federal pension law, long-term temps would be entitled to benefits that other employees get unless a company's benefit plan specifically excludes them.
  • While the legal issues are not entirely clear, judges have been siding with the permatemps -- who are increasingly bringing suits to obtain benefits.
  • The question as to who is the employer arose in the early 1990s, when the Internal Revenue Service said that many companies were misclassifying employees as independent contractors and not paying payroll taxes on their behalf.

If the courts find that permatemps are really employees, companies could find themselves liable for benefits going back several years -- as well as future benefits. The prospect could change the way many companies staff their businesses.


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