The legal issues that arise for staffing firms (e.g. employment agencies, employee leasing organizations) or employers using staffing firms come down to answering these questions:

1. Are the workers employees of the temp agency, the recipient organization (e.g. the employer they perform services for), or both?
2. If they are employees, are they common-law employees, Code §414(n) leased employees, or both (and with respect to which entity)?

The answers depend upon facts and circumstances, and the conclusions are fact specific. The implications (e.g. employment taxes, eligibility to participate in group health plans) depend on the conclusions. For example, most health insurance contracts limit coverage to common-law employees of the employer. If a staffing firm’s health coverage is offered pursuant to a group insurance contract, then an extension of coverage to individuals who are not common-law employees may violate the contract. Stop-loss insurance contracts offered pursuant to a self-insured or partially self-insured health coverage arrangement typically contain similar eligibility limitations. Moreover, if the staffing firm’s group health plan is self-insured, the extension of health benefit coverage by the staffing firm to individuals who are not common-law employees could cause the staffing firm’s group health plan to be a MEWA under ERISA.

The Employer Shared Responsibility Provision must also be taken into consideration when using temp workers and who is responsible for making an offer of affordable coverage.

Whenever two or more businesses (such as a staffing agency and a recipient organization) exercise control over an employee’s work or working conditions, the businesses may be considered to be joint employers. So for example determining whom is responsible for FMLA may come up too.

In general, the use of staffing agencies raise special issues under ERISA, COBRA, HIPAA, EEOC and Other Group Health Plan Mandates therefore it’s always best to consult with qualified counsel.