Tuesday, November 20, 2012

Lots of change, but I don't see much hope

 We've been discussing what Obamacare is going to do to the temporary attorney industry. I'm here to tell you, I don't see how it could possibly be good. Temp agencies historically have offered few benefits, in large part because their margins -- particularly in recent years -- are so thin.  Every agency I am familiar with has been cutting back on paid holidays, paid time off, hours-based bonuses and the like to the point where those sorts of extras are simply a fond memory. There is no reason to think the temp agencies will be willing to pay for health insurance that meets Obamacare standards -- which is, by the way, much more expensive than the less-generous health insurance that the agencies have previously not offered.  While some agencies contribute toward a minimalist health insurance policy while you're working for them, it is a benefit they don't make widely known and it is, of course, contingent upon you actually working for that agency. Not exactly something you can count on. And if they don't want to pay for insurance, rest assured agencies won't want to pay the penalties for not offering insurance, either.

So what can they do? Previous posts have established that the temp agencies  have only one option that totally avoids the costs of either penalties or offering insurance policies, and that is to turn temps into independent contractors and give us all 1099 forms instead of W2s. The problem is, that probably won't work.

A review of IRS rules on what distinguishes an independent contractor from an employee is not encouraging, at least if you are a temp employment agency hoping to avoid paying for health care (or the penalties for not doing so). From the IRS, these are among the determining factors as to whether you are an employee or an independent contractor:

The courts have considered many facts in deciding
whether a worker is an independent contractor or an employee. These relevant facts fall into three main categories:
behavioral control; financial control; and relationship of
the parties. In each case, it is very important to consider
all the facts – no single fact provides the answer. Carefully
review the following definitions.

Behavioral Control
These facts show whether there is a right to direct or
control how the worker does the work. A worker is an
employee when the business has the right to direct and
control the worker. The business does not have to actually
direct or control the way the work is done – as long as the
employer has the right to direct and control the work. For
Instructions – if you receive extensive instructions
on how work is to be done, this suggests that you are
an employee. Instructions can cover a wide range of
topics, for example:
• how, when, or where to do the work
• what tools or equipment to use
• what assistants to hire to help with the work
• where to purchase supplies and services
If you receive less extensive instructions about what
should be done, but not how it should be done, you
may be an independent contractor. For instance,
instructions about time and place may be less important
than directions on how the work is performed.
Training – if the business provides you with training
about required procedures and methods, this indicates
that the business wants the work done in a certain way,
and this suggests that you may be an employee.

Financial Control
These facts show whether there is a right to direct or
control the business part of the work. For example:
Significant Investment – if you have a significant
investment in your work, you may be an independent
contractor. While there is no precise dollar test, the
investment must have substance. However, a significant investment is not necessary to be an independent
Expenses – if you are not reimbursed for some or all
business expenses, then you may be an independent
contractor, especially if your unreimbursed business
expenses are high.
Opportunity for Profit or Loss – if you can
realize a profit or incur a loss, this suggests that you
are in business for yourself and that you may be an
independent contractor.

Relationship of the Parties
These are facts that illustrate how the business and the
worker perceive their relationship. For example:
Employee Benefits – if you receive benefits, such as
insurance, pension, or paid leave, this is an indication that
you may be an employee. If you do not receive benefits,
however, you could be either an employee or an independent contractor.
Written Contracts – a written contract may show what
both you and the business intend. This may be very
significant if it is difficult, if not impossible, to determine
status based on other facts.

Seriously, it looks to me like behavioral control alone sinks any effort to make temps 1099 contractors. The agencies and firms control everything we do. One of the overriding themes of temp work is that the firms don't trust us to make decisions on our own. I don't see how anyone can claim that we are "independent" under those circumstances. Frankly, this looks like a loser for agencies, as well.

I don't know what this means for our industry. I don't know if there is a way out for the agencies. I do know that their margins are too thin to simply absorb the costs of either policies or penalties.There is a very real possibility that the firms will start to skip the agencies altogether and go with direct hire -- a path a number of firms already are taking -- but make the temps 1099 contractors. They probably can pull that off more easily than the temp agencies can. That will make your taxes more complicated, but it also will dramatically increase the number of parties a temp needs to engage with in order to secure employment. You'll have to go to every firm around to find out who's hiring. Right now, the agencies to that for us. That could easily change.

The short answer here is, I don't know what's going to happen, and neither do you. But things are going to change. They are going to change a lot, and I don't think they are going to change in a way that is good for temps. At a minimum, I believe it will require a lot more effort on our part to secure employment. The irony remains, most temps voted for this. Well, elections have consequences. I believe these consequences are going to hit pretty close to home for Temp Town.

No comments: