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In November 2015, the U.S. Occupational Safety and Health Administration (OSHA) announced increases to federal penalties for workplace safety violations. It’s the first escalation in OSHA penalties in 25 years.

The increased penalties, which were buried in the Bipartisan Budget Act of 2015, took effect Aug. 1, 2016, in all states regulated by federal OSHA. The move allows OSHA to raise fines in step with inflation, with an expected initial increase—or “catch-up” adjustment—of approximately 80 percent. The potential impact on businesses is huge, particularly for companies that employ temporary or leased workers. There are large labor law liabilities associated with the use of temporary, leased and borrowed employees. Under the revised OSHA penalty scale, companies could face fines ranging from $12,600 for serious violations to $126,000 for willful or repeat violations.

The increase in fines, along with OSHA’s longstanding multi-employer citation policy and newer Temporary Employee Initiative, raise concerns for construction companies that use temporary and leased employees. Assurex's Global Construction Practice Group report, “Risk Management Considerations for Temporary Workers,” flags risks for companies that hire temporary workers.

Employee Types

There are four primary types of employees.

  • Direct employees are individuals companies hire. Companies withhold payroll taxes. Direct employees receive W-2s and, if eligible, participate in employee benefit plans. Their payroll counts toward the calculation of the company’s workers’ compensation insurance premium.
  • Temporary employees are used on a short-term basis when a firm needs to temporarily fill a position due to seasonal demands or the extended absence of an otherwise permanent employee. These employees are paid by the temporary help agency.
  • Leased employees are provided by Professional Employer Organizations (PEOs) and used on a non-temporary basis. PEOs supply all or the vast majority of a company’s workforce on a permanent basis.
  • Borrowed employees, also called loaned employees, are borrowed for a short time period from another company, which may or may not be a temporary help agency (but not a PEO).
The distinctions may seem simple, but companies often grapple with how to classify employees. The challenge arises, in part, due to differing standards for determining whether someone is an employee. Standards vary in federal tax, wage and hour, benefits and anti-discrimination laws. They also vary from state to state, with individual states often applying multiple tests depending on whether the analysis is for purposes of employment law, workers’ compensation law, wage and hour law, or other state employment statutes.

There are a handful of tests that state and federal agencies—and companies themselves—use to determine employee types, including the following.

  • IRS “20 Questions.” The IRS offers a list of 20 questions to help companies decide whether they have sufficient control over a worker to be considered an employer. The questions cover everything from work hours to instructions and reports.
  • Common Law Rules. The IRS encourages businesses to weigh three factors:
    • Behavioral: Does the company control or have the right to control what the business aspects of the worker’s job controlled by the payer? This includes things such as how the worker does and how the worker does his/her job?
    • Financial: Are the business aspects of the worker’s job controlled by the payer? This includes things such as how the worker is paid and whether expenses are reimbursed.
    • Type of relationship: Are there written contracts or employee-type benefits? Will the relationship continue?
  • Economic Realities. The DOL asserts that a number of “economic realities” serve as guides for employee status. The list includes the extent to which the work performed is integral to the employer’s business, whether the worker’s managerial skills affect his/her opportunity for profit and loss, and the worker’s skill and initiative.
  • The “ABC” Test. Used by almost two-thirds of U.S. states, this test proclaims a worker an independent contractor if he/she meets two or all three of the following criteria, depending on the state:
    • the worker is free from control or direction in the performance of the work;
    • the work is done outside the usual course of the company’s business and is done off the premises of the business; or
    • the worker is customarily engaged in an independent trade, occupation, profession or business.

What Triggers an Audit?

Certain actions or documents may spark a knock on the door from a state or federal agency and lead to an audit. Here are some common triggers:

  • a workers’ compensation claim;
  • an unemployment insurance claim;
  • high 1099 volume;
  • a claim for unpaid overtime;;
  • both 1099s and W-2s issued;
  • a single 1099; and
  • a claim of wrongful discharge.

The Temporary Worker Initiative

OSHA began paying closer attention to temporary workers when it launched the Temporary Worker Initiative (TWI) on April 29, 2013. The initiative is designed to help prevent work-related injuries and illnesses among temporary workers. OSHA sites three primary reasons for launching the TWI:

  • increased risk on work-related injury and illness among temporary workers compared to employees;
  • lack of training for temporary workers; and
  • overall rise in the use of temporary workers in today’s economy.
OSHA defines temporary workers as “workers hired and paid by a staffing agency and supplied to a host employer to perform work on a temporary basis.” Perhaps the most noteworthy part of OSHA’s explanation of temporary workers—and the one that can affect construction companies who use temps—follows that initial definition: “In general, OSHA will consider the staffing agency and host employer to be ‘joint employers’ of the worker in this situation.”

During a TWI inspection, OSHA may request the following:

  • form 300 Log that records work-related injuries and illnesses;
  • HazCom program for all chemicals used on the worksite; and
  • hazard assessment to determine what hazards are present or likely to be present and what type of personal protective equipment employees must use.

Multi-Employer Citation Policy

Aside from the TWI, another long-maintained OSHA policy affects construction companies that hire temporary workers. Under the Multi-Employer Citation Policy, CPL 2-0.124, “more than one employer may be citable for a hazardous condition that violates an OSHA standard.” OSHA uses a two-step process to decide whether more than one employer may be cited for violations:

  • The first step is to determine whether the employer is a creating, exposing, correcting or controlling employer.
  • If the employer falls into one of those four categories, it’s obligated to meet OSHA requirements. The second step determines if the employer’s actions were sufficient to meet those obligations.
OSHA defines the four types of employers in its Multi-Employer Citation Policy:

  • A creating employer causes the hazardous condition that violates an OSHA standard.
  • An exposing employer's employees are exposed to the hazard.
  • A correcting employer is engaged in a common undertaking, on the same worksite as the exposing employer, and is responsible for correcting a hazard.
  • A controlling employer has general supervisory authority over the worksite, including the power to correct safety and health violations or require others to correct them.

Avoiding Citations and Mitigating Risk

Advice for construction companies that rely on temporary and borrowed employees  includes:

  • review contracts to ensure OSHA compliance is the responsibility of the party with whom the company is contracting and that the company is indemnified and held harmless from any OSHA violations;
  • ensure that contracts with staffing firms provide the maximum protection possible for the construction company;
  • ensure that insurance coverage for the construction company protects the company from losses arising out of the use of leased or temporary workers;
  • review work practices and management relationships to ensure that a joint employment relationship is not established;
  • modify the safety policy to establish procedures for the following:
    • reviewing safety records during the selection process and removal of unsafe employees or contractors;
    • ensuring training on company safety rules and programs, PPE utilization, exposure monitoring and medical surveillance;
    • ensuring company conducts onsite safety inspections and suspends work until safety violations are corrected; and
    • completing or reviewing required documentation for temporary employees.
  • maintain an effective OSHA compliance and audit program in order to detect and correct violations at company facilities and worksites, thereby reducing the risk of exposure to contractor employees; and
  • designate expert subcontractors, and require them to observe all safety rules and OSHA regulations.

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