- What kind of agreement should Thompson have in place with the PEO for transferring regular employees to contract labor?
It is the responsibility of an employer to state the tasks and prospects of both agencies when regular employees are moved to a PEO and leased back to the employer. The main transformation in Thompson`s case is that his employees will no longer belong to him. Instead, they will become Mayfield`s employees.
Montgomery needs to look carefully at PEOs in his area. He ought to ensure that the chosen provider is licensed to operate. The state should also recognize such a professional. After establishing the important details, the next step involves payment arrangements.
An excellent payment plan should be agreed upon by the parties. The PEO may charge a flat fee for each employee. Other charges may be based on a percentage of the employee`s payroll. The contract arrived at also needs to spell out each agency`s duties. This is because the leased employees are now being shared. Each agency maintains some amount of responsibility for their working conditions and employment. They spell out just how much money their employees will receive as compensation without having to consult each other.
The PEO will carry out all the human resource functions such as benefits, payroll, tax withholding, workers’ compensation insurance, disciplinary actions as well as performance appraisals. The professional ought to pay workers from his own accounts. He also needs to report, gather, collect and remit employment taxes to federal and state agencies. The PEO will also be responsible for informing the employees that they belong to him now.
Thompson should make sure that safety standards at his facility are upheld. Training needs to be specific to the work given to the leased workers. The PEO needs to be responsible for worker manuals. Still, Thompson needs to provide information about the company. Such information covers issues concerning parking, communication systems, building access, company policies and confidentiality. These issues have an effect on how well the employees work. Therefore, they should be addressed even before the agreement is made.
The PEO and Thompson will are free to decide on their own whether to hire or fire a worker. The responsibility of directing and controlling employees is shared between these two parties. In the arrangement, the PEO will handle matters regarding human resource management and compliance with employment regulations. On the other hand, Thompson will be responsible for managing contract employees. This is because his role relates to production and delivery of goods and services.
Although there is a couple of financial gains derived from Thompson`s decision of moving the engineering wing employees to a PEO, there are risks involved. The biggest risk is placing staff as independent contractors when they are employees. This confusion has an effect on staff productivity. This is because the misclassified workers may feel unimportant to the agency.
Every employer is obligated to categorize workers correctly. In some cases, there is no clear difference between an independent contractor and an employee. A person may be considered as an independent contractor at first but later gains the title of an employee due to increased levels of control from his employer.
- What risks are associated with the change in employee classification, and how can Thompson minimize and protect itself from those risks?
When an employer works with both independent contractors and employees, he needs to be very cautious so as not to misclassify these workers. Misclassification may lead to a lawsuit whereby the independent contractors demand the same benefit packages like the permanent employees. As a result, Thompson may face up to three years in prison. This scenario should be avoided in every possible way.
Thompson`s decision causes a stir because the engineers are being called independent contractors when in the real sense they are not. He needs to be clear because there will be some confusion when it comes to remittance of payroll taxes. This misclassification may attract a court case whereby he will be accused of failing to pay federal payroll taxes in case Mayfield has not accurately deposited the necessary employment taxes.
Thompson also risks losing control over the engineering wing. This loss occurred when his employees were leased and jointly managed by him and Mayfield. He loses the ability to control how much the employees are compensated for their work. This makes him feel disempowered in a way and, as a result he loses motivation to some extent.
Should Thompson start giving such benefits to leased workers, he must clearly define worker classifications as well as that ones are eligible for the benefits. He should explain the basis used for placing staff under each category. This move ensures that there is no confusion as far as this matter is concerned. In a bid to minimize risks, Montgomery should make sure that the contract between Mayfield and Thompson clearly states the responsibilities and expectations of each party.
Gusdorf, M. (2012, April 12). Thompson Technology: A Case Study in Controlling Labor Costs . Retrieved February 16, 2014, from SHRM website: http://www.shrm.org/education/hreducation/pages/thompsontechnologyacasestudyincontrollinglaborcosts.aspx
Robert, M., & Jackson, J. (2010). Human Resource Management. New York: Cengage Learning.