Employee vs. Independent contractor legal loophole?

I figure this is a good place to ask since so many of you actually own and run businesses and some of you are probably also top management in some companies.

I have two friends one in particular who has been working for a company over the past 2 years (very large well known energy company) that hires Desktop computer guys as well as administrative IT folks for their IT needs. They go to a company looking for people to hire and this company gets paid to find them people and the person they send is then labeled an independent contractor even though the person going through this (what appears to be a temp agency in my opinion) is held to all the same rules/policies as a full time employee. They have to agree to work "X" amount of hours per week and show up at certain times and have to full quotas and dress as the company asks them to.

This particular friend gets no employee benefits and actually works 12-14 hour days sometimes.

Now he lost his job recently because this huge company just did a ton of layoffs and this temp type agency has found him a possible job with another big company but they have said flat out that they give no paid days off (including holidays) and again he will be called a contractor with no benefits.

I guess I am just confused. I thought there were very specific differences in a real contractor and an employee. He hasn't signed any paper work saying he works as a contractor. From what I am reading online there seems to be a loopy hole of some type on this issue for these companies to get away with not paying people employee benefits. So basically they get a full time employee without having to apply the "contractor" rules?

Here is one site I was reading on the definitions: http://www.legalzoom.com/everyday-la...or-differences

Also this site: http://loopholelewy.com/loopholelewy...ractors-01.htm

Some one please explain this to me. How do they get away with doing this?

My heart goes out to this guy because he works so damned hard and over the past 8 years has not been able to get employee benefits from any company he has worked for because the way they set this up. In addition he said this (temp agency) gets big money from whatever company hires him.

It has been a long long time since I have been in the civil working world but when I was I remember using a temp agency but after 6 months or so I was hired as a full time employee and given benefits. It seems he never gets a chance at that with these companies. They keep him on indefinite contractor status for years.

Edit: the company supplies the desk the phone determine the hours he must work, he is there from Mond-Friday and they pay a salary to him. The last two companies he has worked at dictate the attire (this last company required he wear their company polo shirt)

Update: So here is what I understand about this so far. He is hired by a Tech Agency Company (as an employee), who sends him and others out to bigger companies for IT services yet this Tech agency calls them contractors. My confusion is, when he goes to work for one of these companies he works the defined hours, they supply the desk/phone/ equipment etc. They tell him what to wear and when to work and so on. So is the Tech Agency getting out of paying him the employee benefits doing it this way?

All of this seems to be legal loopholing to avoid paying taxes by these companies. I am so confused on this.

He needs to call his state Department of Labor. Sounds like an employee to me. I used to be an attorney, and have never played one on TV.

Well I am really confused. Because he is telling me that this is a huge tech IT company that sends people out to other companies (much like a regular temp agency) and then this company hires him through them but with the "contractor" status. Yet he is never permanently hired and never gets benefits. He is the first among others to be let go when the company has to make cut backs. I am having a hard time wrapping my head around this because he is saying the Tech agency is who he is employed with and they do job placement.. ugh still confused by what he is saying. Somehow that means he is a contractor yet he hasn't signed anything that he has told me about being a contractor. What it seems to me is he is going through and IT Tech company for job placement. They get money if that company decides to hire, they also get paid or negotiate a rate and they get paid a certain amount of money above what he actually gets. His paycheck from my understanding comes through the Tech Agency. He never gets hired permanently, and is deemed a contractor through this agency. Again, it looks like a great way to avoid paying employee benefits if he is termed a contractor even though technically he is not.

I guess maybe the laws have changed since I last went through a temp agency. I remember years ago the temp agency lined up interviews and the company that hired me temporarily had an agreement to hire me within a specified time or else I was place somewhere else. Nine times out of ten I was hired after 3 months and the temp agency got a big fee when the company hired me. Then after a certain period of time as working for said company I legally became eligible for certain employee benefits.

Is it different in the IT business?

I am still researching found this..http://www.dol.gov/compliance/guide/sca.htm

Please somebody enlighten this goofy blonde on this..lol

Ugh nevermind.. these benefits were never offered except his last job he lost. I feel like a numnut.

Still trying to wrap my head around the contractor / employee thing. Oh well..

1) It depends on the state

2) Regardless of the industry, he works for the temp agency. The temp agency offers no benefits. He could likely apply for a job with the larger company directly, but if they only use temp agencies and that is what he wants to do he is out of luck.

3) No one is avoiding taxes versus a normal 1099 situation. Likely the temp agency is paying his payroll taxes. IF he is getting a 1099 from the temp agency the you likely (again, depends on the state) have a complaint.

Thanks for the info boltfan

In the last 20 years, many of these "Temp Companies" have developed a cottage industry that is only possible because of intense lobbying and payola. Some are called "leasing companies" and lease the business's own former "employees" right back to them as "temps" to sidestep higher insurance premiums, required benefits and to take advantage of other loopholes and incentives.

Let's say a company has a horrible safety record trimming trees and that employees are always falling and getting killed or seriously injured. Their premiums go sky-high because of their accident and claims history. They simply lay off those workers and hire them right back with a "leasing company" in between. The leasing company basically starts with a clean insurance record and thereby lowers the heavy insurance burden along with providing protection to the former employer for all sorts of other employee/employer "stickiness". It has variations from state to state but is essentially a way to shift certain compliance issues away from the former employer.

In the old days, the temp agencies were not very specialized. Today, they have reached a point where you "could theoretically" lease a staff of brain surgeons to skirt higher medical malpractice rates. I doubt there is a market for that particular specialty but skilled workers and technicians are now often hired as "contract workers" complete with a layer of "corporate personhood" between the so-called "independent" contractor and the company that really uses those services.

Ahhh.. ok so the fog lifts a bit. Yea the whole "contractor" terminology was really throwing me off. Now I understand.

I see this all the time although not so much in a professional services context, as with your IT friend. Usually, temp or staff leasing is utilized for unskilled or semi-skilled labor. Companies pay the temp/staff leasing agency to provide workers and they are treated as contractors, not employees. This allows the company to avoid providing any kind of benefits, they don't have to handle payroll, they don't have to pay for health insurance, workers' compensation insurance, they don't have to withold taxes, ss, medicare, etc. They make a lump sum payment to the temp/staff leasing agency and they're done with it. One of the primary reasons you see it in Texas, especially with unskilled labor, is that the tem/staff leasing agency provides workers compensation benefits. The law here insulates an employer who provides comp benefits from any sort of injury claim against an employer who provides comp. There is a statute in Texas that extends that protection to companies that lease their employees from a temp agency.

I don't know that the companies who do this really save much money. I suspect that the costs are about the same because they are just passed on by the temp agency. What the companies do save is time. They don't have screw around with the administrative issues that are involved with having dozens or hundreds of people as employees. The temp/staff leasing agency does that for them.

Make sense?

The IRS has some guidelines:

http://www.irs.gov/businesses/small/...=99921,00.html

This area is a fairly hot field for class actions these days. Employers frequently deliberately misclassify employees to save money. But you can bring a class action on behalf of those who were improperly classified and get substantial relief depending upon the facts. Let me know if your friend wants to seriously follow up on this.

I work for a large IT org that is constantly offshoring/contracting out staff. At one time we had to fire or hire any contractor that had been working two uninterrupted years for us. We hired quite a few; some we let go and then hired back 6 months later. We got around this years later by having the vendor companies embedded with us controlling whole functions.

The IRS has some guidelines:

http://www.irs.gov/businesses/small/...=99921,00.html

This area is a fairly hot field for class actions these days. Employers frequently deliberately misclassify employees to save money. But you can bring a class action on behalf of those who were improperly classified and get substantial relief depending upon the facts. Let me know if your friend wants to seriously follow up on this. Originally Posted by TexTushHog

Go Fuck Your self LAWYER.

Go Fuck Your self LAWYER. Originally Posted by IIFFOFRDB

Totally inappropriate.

The response by TexTushHog was a good one. My understanding there are a lot of lawsuits pending on this type of issue. Companies try to escape having to provide benefits, etc. by calling people independent contractors. The IRS has some pretty good definitions.

With ObamaCare coming to our rescue, the employers trying to escape paying the healthcare penalty by clasifying employees as independent contractors will sky rocket.