Why You Need to “Monitor” Full-time, Temporary Employees

By Jeff Chang

Due to budget restrictions and general hiring freezes, many California public agencies are forced to fill workforce gaps with temporary employees from staffing agencies. This practice, while quite common, is not well-understood — particularly when it comes to eligibility for CalPERS.

Misconception No. 1: Workers obtained from “temp” or staffing agencies are always the responsibility of those agencies

As I have previously discussed, participation in various employee benefits plans (including CalPERS and standalone plans maintained by the public agency) usually turns on whether a worker is a “common-law employee.” The California Supreme Court, in Metropolitan Water District. v. Superior Court, ruled that CalPERS participating employers, such as MWD, were required to enroll all common-law employees in CalPERS  — except those excluded under a specific statutory or contractual provision. Classifying workers as “consultants” or “agency temporary employees” was not a basis for excluding them from CalPERS or its other employee benefits.

The lesson is that proper worker classification for an employee benefit plan (and most withholding, Social Security and other payroll purposes) should not be based on “who pays them,” but on the various common-law factors, which focus primarily on whether you can control what will be done and how it will be done by the worker. If you have two workers sitting side-by-side performing the same tasks, for the same supervisor, and during the same hours, they are very likely both your common-law employees — even though one may be paid through a staffing agency.

Misconception No. 2: “Temporary-assignment” workers can be permanently excluded from CalPERS

Again, for the reasons mentioned above, many agencies hire workers from outside staffing agencies on a temporary basis. Whether these workers really are the staffing agencies’ employees or not depends on the application of the common-law tests. Regardless of how the common-law rules may apply, many public agencies feel comfortable about “excluding” such workers from CalPERS because they were hired on a “temporary” basis for less than 6 months.

According to the court in Metropolitan Water District, the Public Employees’ Retirement Law “contains no broad exclusion for long-term, full-time workers hired though private labor suppliers.” Why? Because, if it turns out the full-time workers are the employees of the public agency (not the labor supplier), there is no general exclusion from CalPERS for such workers. Instead there are two basic rules:

  • Employees hired to work full-time for more than six months must be enrolled on the date of hire.
  • Full-time employees initially hired for less than 6 months become eligible (as of the first day of the first pay period of the seventh month) if their full-time employment continues for more than 6 months.

There are a number of other eligibility rules and potential exclusions for irregular, seasonal, on-call or part-time employees, which will be addressed in later blogs. For now, it is important to remember:

  1. employment status is based on the substance of the arrangement, not the form,
  2. if a staffing agency worker is really your employee, you may be required to retroactively reinstate that worker in CalPERS (and your agency’s other benefits) — perhaps back to their date of hire and
  3. keep track of those full-time, temporary workers who have stayed in their positions for more than half a year.

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at jeff.chang@bbklaw.com or (916) 329-3685.

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