Businesses hire temporary workers, also called temps, on a non-permanent basis to fill in for a permanent employee or as extra help on an assignment or project. Their role should have a defined end date. The business that hires temps doesn't pay them directly – they usually receive payment from a staffing agency. They can be full-time or part-time employees.
Since temp employees cost businesses less to hire in terms of wages and benefits, federal and state employment laws are in place to prevent labor abuses against them. Some agencies offer health insurance and other benefits. However, companies that retain temps for too long can face misclassification lawsuits and stiff penalties.
What Is a Temporary Employee?
Temporary employees work in various industries and positions, including administrative, clerical, IT and healthcare, among others. A company can hire a temp on their own, but usually does so through an employment agency through which the temp is "on lease." They are employees of the agency, not of the client who uses the agency to staff their business and receive W-2s. Some temps ultimately become permanent employees, and in that case, the agency may charge the client a fee when they relinquish the temp to the client. Usually, however, businesses hire temps for a specific project or length of time to avoid the cost of hiring permanent staff.
The term temp sometimes applies to independent contractors. Unlike those who accept jobs through staffing agencies, independent contractors are IRS 1099 employees, which means they work for themselves and pay employee and employer self-employment. taxes. They are not eligible for benefits offered to W-2 employees, such as health insurance, sick leave or overtime. Workers misclassified as independent contractors can sue for denial of employee benefits. The Internal Revenue Service (IRS) decides by considering three factors:
- Can the employer control what, where, how and when the independent contractor carries out their job?
- Is the worker paid by salary or flat rate?
- Does the worker get benefits from the employer?
- What is the relationship length and term through a contract, employment agreement or other documentation?
Why Do Companies Hire Temps?
Using temporary workers can benefit a company in several ways. During a project, they aid employees by taking on smaller tasks that lighten their workload. This helps with employee productivity allowing permanent workers to maintain energy and focus on more challenging duties. In addition, temps allow a company to find permanent candidates. By working with temporary employees for a period of time before hiring them, a business can decide if a temp is a good long-term fit. It allows the company to witness their skills and expertise before solidifying a more permanent relationship.
The hiring process for filling temporary positions is fairly straightforward. The business simply contacts a temporary staffing agency for their ideal candidate. Chances are the agency will have at least a few resumes on hand that fit the bill and can offer its best candidates for the interview process.
Downside of Temporary Employment Status
Temps are usually the first let go in times of economic downturn, so there isn't much in the way of job security as with regular employees. Temps are, by definition, temporary, and are usually on short-term assignments, hired for a few days, weeks or even months at a time. Depending on the workplace and its culture, temps sometimes feel isolated or not well-respected.
They may not earn as much as the permanent employees and have fewer benefits, if any. They may not qualify for unemployment benefits. Temps who don't get positive feedback from the clients who requested them may not get the future assignments they want from the staffing agency, or the agency may even refuse to work with them altogether.
The job a temp takes may be difficult; they may not have much training before starting or may find themselves tasked with mundane, repetitive tasks. Agencies can also pigeonhole workers into one type of temp job. For example, someone who has the skills to be an executive assistant keeps getting hired only as a receptionist. If the temp wants to move up the corporate ladder, they may never get the chance.
Length of Temporary Employment
Federal temp worker assignments should last no longer than a year and have a specific end date, according to USA Jobs. In the private sector, temp jobs can last longer with no specific time limit, according to the California Chamber of Commerce. However, if temps perform the same job as common law employees for an extended period but don't get the same benefits, the employer may face liability. According to OnContracting, most companies limit temps to 12 to 18 months at a job before requiring them to take a three- to six-month break to avoid liability.
According to the Internal Revenue Service, workers who work a minimum of 1,000 hours annually, or about 20 hours per week, are eligible to take part in employer-sponsored retirement plans. The Setting Every Community Up for Retirement Enhancement (SECURE) Act expanded this retirement plan coverage in 2019. Employees who work at least 500 hours for three consecutive years and are at least 21 are now eligible to participate. They don't need to contribute until 2024, but employers began tracking their hours after December 31, 2020.
Perma-temps and Company Liability
If a temp worker has been at a company for an extended period, they become perma-temps. This relationship violates Department of Labor laws, as well as those of the IRS. If a temp has been at one company long enough, they can become a common-law employee subject to wage and hour laws, workers' compensation, taxation, health insurance benefits and other employee rights. They may also qualify as permanent employees in the event of a class-action lawsuit.
A temp may be a perma-temp if any of these conditions apply:
- Seasonal worker becomes a year-round worker.
- Worker has the same responsibilities as an employee for less pay.
- Worker has the same amount of hours each week as employees do, with none of the benefits.
- A company employee supervises their work activities instead of the staffing agency.
Part-time temps can work full-time hours and may even work overtime if the company needs more help.
Microsoft's Class Action Lawsuit
A company may eventually face a class-action lawsuit if it keeps their temps for too long. For example, in the 1990s, Microsoft Corporation faced such a lawsuit by 8,000 former and current temp workers and independent contractors who had been at the company for over two years.
The court's decision in the case of Vizcaino v. Microsoft Corporation stated that these workers were misclassified employees, and as such, should have been allowed to participate in the company's stock purchase plan and other benefits as regular full-time employees did. The case centered on the company's Employee Stock Purchase Plan (ESPP), which stated that plan participants could be common law employees of Microsoft. The only workers who could not participate were those who were there for less than five months a year.
The court used a test to determine whether the workers provided by temp agencies and independent contractors were common-law employees, and decided that they were. Microsoft had to pay a $97 million settlement to the workers and has since changed how it hires temps. Starting on June 1, 2000, the company made perma-temps take a 100-day hiatus after working for one year to avoid being classified as common-law employees.
- Everlance: Temporary Employee Rules – What You Need to Know Before Hiring Temporary Employees
- Job-Hunt: The Advantages and Disadvantages of Temping
- Findlaw: Vizcaino v. Microsoft Corporation
- The Balance: What Is a Common-Law Employee?
- Computerworld: Microsoft to Pay $97 Million to Settle Permatemp Case
- IRS.gov: Issue Snapshot - 403(b) Universal Availability Requirement
- California Chamber of Commerce: When Should a ‘Temp’ Become a Regular Employee?
- Fundera: 1099 vs. W2 Employee: Which Is Better for Your Business?
- OnContracting: What you don't know about Contract Jobs
- Orba: SECURE Act: Changes to 401(k) Plan Eligibility and Vesting for Part-Time Employees
Michelle Nati is an associate editor and writer who has reported on legal, criminal and government news for PasadenaNow.com and Complex Media. She holds a B.A. in Communications and English from Niagara University.