Temporary workers are hired by companies for a limited period of time, usually to fill in for a permanent employee or to help out on an assignment with a defined end date. Employers who hire temporary workers don't pay health insurance and retirement benefits, and they generally pay temporary employees less wages than permanent employees performing similar jobs. Since temporary employees cost companies less to employ, there are now laws in place to prevent employment abuse.
Temporary employees cannot work for a company indefinitely: A temporary worker on assignment with the same company for two or more years can become a common-law employee. A common-law employee is eligible for the same benefits as those received by permanent employees, including job protection.
Companies can prevent a temporary worker from becoming a common-law employee by negotiating a contract with the worker at the time of hire. For the contract to be effective, it must clearly state an end date to a particular assignment. Limit the term of the contract to 12 or 18 months to prevent confusion.
Companies usually use a staffing service for hiring temporary workers. The staffing service is responsible for paying temporary workers, not the company. However, when a company assumes the role of providing payroll and/or provides the temporary worker with compensation of any type, the temporary worker would then be considered a common-law employee. The company is subject to paying payroll taxes under guidelines established by the IRS.
The IRS and Department of Justice advise companies against using temporary workers long-term to avoid paying health insurance and retirement benefits.
Cycling a temporary worker from assignment to assignment within the same company to prevent permanent hiring puts a company at risk for allegations of employment abuse. There must be permanent breaks between a temp worker's assignments for a company to avoid violating employment laws.
Companies are responsible for classifying employees correctly to ensure they're meeting their payroll tax obligations. There have been class-action lawsuits filed against employers who have misclassified employees as temporary workers to avoid paying higher payroll taxes. The IRS now looks more closely at companies that rely heavily on temporary workers and informs companies that they may be required to pay payroll taxes on temporary workers if classifications are suspect.