Hiring New Workers? Consider These Hiring Options

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Hiring Options

This article was prepared by employment law attorney Denise M. Blommel.  Denise is admitted to practice in the state and federal courts of Arizona and Nevada. 

Her practice centers on the employer-employee relationship. For more information about her expertise and employment services, check out her website at www.azlaborlaw.com.

Now that the Great Recovery is replacing the Great Recession, it is time for businesses to think about hiring people!  An Arizona business has numerous options for engaging workers including:

1.  The business can hire the workers directly as employees.  Labor, tax, and employment laws apply to these “W-2” employees.  Usually, the number of employees determines if a particular employment law is applicable to the business.  For example – If a business has 15 or more employees, then Title VII of the federal Civil Rights Act applies.  If an employer has 50 or more employees, then the federal Family Medical Leave Act applies.  Sometimes, however, the amount of the business’s gross receipts determines which employment laws impact the business.  For example, if a business produces $500,000 annually, then the federal Fair Labor Standards Act [“FLSA”] applies.  Remember, too, that what employees do can determine coverage (e.g. even if the business grosses under $500,000 annually, the employees are covered by the FLSA if they engage in interstate commerce by using the telephone or Internet).

2.  The business can outsource the work to other companies who can do the work offsite.  Arrangements should be by written contract and caution needs to be exercised so that the offsite workers are not considered employees of the business.

3.  The business can outsource the work to other companies who provide employees to work onsite.  These workers can come from temporary agencies, “job shops,” and staff augmentation firms.  The question is whether these employees are also employees of the business.  The answer lies in whether the business tells these employees what to do and how to do it.  If the employees are doing the work of the business, they are obeying the orders of the business management and management can control the methodology of the work, the business and the outsourcing agency are co-employers.   This has advantages (the business cannot be sued by the employee for an on-the-job injury if there is worker compensation insurance) and disadvantages (the business must comply with labor and tax laws).  Again, arrangements should be by written contract as to which entity is responsible for compliance with which law.

4,  The business can place its employees with a Professional Employer Organization (PEO).  The business and the PEO then jointly employ the workers by law.  The PEO provides “outsourced human resources” for the business as well as insurance and other employee benefits.  Arizona law requires PEOs to use particular written contracts with specific provisions.

5.  The business can engage independent contractors.  An independent contractor should have its own separate business while an employee works for the employer.  The major consideration related to an independent contractor (a “1099”) and an employee (a “W-2) is that employers do not pay taxes for the independent contractor’s services.  If employers do not collect taxes from payrolls, the state and federal governments have very little revenue in this category.  Therefore, every taxing authority (e.g. federal Internal Revenue Service [IRS], Arizona Department of Revenue, Arizona Department of Economic Security [DES]) presumes that every worker is an employee.  The U.S. Congress is considering legislation to crack down on businesses that use independent contractors, primarily because of the loss of payroll tax revenue.

While businesses have many options, it is important to review the options and make sure that the type of worker selected for the position has been appropriately classified to avoid legal problems related to misclassifications.  Part II of this series will discuss how to appropriately classify workers as employees or independent contractors.  Misclassification of workers is a hot issue right now that is being carefully reviewed by many government agencies and strictly enforced.

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