"Temporary Worker" Loopholes?
Looking for a way to limit your unemployment insurance rates or your payroll taxes? Hiring workers as "temps" won't help you any. August 13, 2007
I am in the process of interviewing prospective employees. I am considering hiring as temporaries in hopes of avoiding unemployment rate hikes due to letting undesirables go. I am in Texas. Are there any rules governing this type of employment? Hours they can work? Months they can work? Is there a better alternative?
(Business and Management Forum)
From contributor L:
If you are going to hire temps in Texas, then you will have to hire them through a temp agency which will pay the unemployment taxes. Guess what I'm trying to say is that there is no magic number (hours worked) in which you can hire someone in Texas and avoid paying payroll taxes. If they work, then you or someone (temp agency) has to pay the unemployment tax. That's just the way it is. The upside to temps is that they are not your employee. The downside (there are many) is that the temp may or may not have the skills you desire. They aren't required to show up everyday. If the temp doesn't feel like you are going to offer permanent employment, they won't put any effort into your company. The list goes on and on. Oh, you will also pay a higher hourly rate to the temp agency than what the temp will actually make. Last year, I hired 5 through a temp agency. I paid the temp agency $28/hour. The employee got $8/hour. Needless to say, I got a real "quality" employee. (smirk)
From contributor J:
You do not have to hire through a temp agency. You can hire a temp as a temp by telling them the position is for a certain time or a certain project only at which time the job automatically ends. They are essentially 1099 workers, but your accountant can advise as to the best procedure. The first respondent is correct in that temp workers will likely have little or no skill and will cost you plenty in mistakes made or poor productivity.
From contributor L:
As the questioner mentioned in his post, the purpose for hiring temps was to avoid rate hikes with his unemployment insurance. The Texas Workforce Commission governs employer/employee rights. They have tons of information available on their site, of which I have excerpted a piece here:
"Employers and job seekers alike sometimes have questions about laws relating to temporary work. TWC offers the following information about seasonal staffing:
• Temporary employees are subject to the same laws as regular full- or part-time employees. Even if a worker’s job is scheduled to end at a specific time, temporary staff members are not contract labor. They are entitled to the same protections under the law as regular employees.
• The Texas Payday Law requires that both temporary and regular employees receive their wages in full and in a timely manner. Employers cannot withhold any amount of a paycheck without prior written authorization from the employee, or unless authorized by state or federal law, or by court order. Additionally, current minimum wage laws apply to wages earned.
• Employers must pay Unemployment Insurance taxes on their temporary employees. The wages earned must be reported and are subject to taxes. This law applies even though a temporary employee knows from the outset that the job will end at a set time and the employee doesn’t plan to seek another job after that assignment has ended.
• Federal and Texas child labor laws ensure that children are not employed in an occupation or manner that is detrimental to their safety, health or well-being. Any individual under 18 years of age is defined as a child. Youths age 16 and 17 may perform any job not declared hazardous by the U.S. Department of Labor (DOL) for unlimited hours. Youths age 14 and 15 may work outside school hours in various nonmanufacturing, nonmining, nonhazardous jobs under the following conditions: no more than three hours on a school day, 18 hours in a school week, eight hours on a nonschool day or 40 hours in a nonschool week. Except during the summer, 14- and 15-year-old employees may not begin work before 7 a.m. or work after 7 p.m."
With that said, the only way to avoid unemployment taxes on an employee is to hire contract labor, use a temp agency, or use an employee leasing firm.
From contributor S:
Hiring through a temp agency is very expensive - I've done it enough to know so. And you are getting an unskilled person that may be replaced by another one a few days later.
I suggest hiring with a longer-than-normal probationary period. Normally it is 90 days, but you can make it whatever you want, as long it can be reasonably defended. 120, 150, or even 180 days would be reasonable. If someone asks why, just tell them you have been burned in the past and want to be cautious.
From the original questioner:
Thanks for all your posts. I need to clarify my question. I'm not trying to avoid withholding payroll taxes, but attempting to avoid paying higher than normal unemployment rates due to a former employee receiving unemployment benefits. If a former employee applies and receives benefits, the former employer is charged for these (essentially paying an employee he now does not get any work from), and I know local Home Depot/Lowes stores hire people under temp agreement, not through an agency, and I suspect this is their strategy.
From contributor N:
Contributor J is mistaken. The length of time that a person does work for you has nothing to do with reporting income on a 1099. It's highly unlikely that any temp that you hire to do work for you meets the rules that would qualify him as an independent contractor. I know what you are facing regarding avoiding higher unemployment rates because I have already fought that battle with the state - there's nothing you can do to avoid that problem.
From contributor E:
Temps should never be fired or let go. They should always quit. There are plenty of ways to go about helping this process. However, if you should find one that just won't quit no matter how bad you make the job, document everything. 1 minute late is a writeup. Within a few weeks you should have enough information to terminate with just cause. Check Texas state laws for when you can fire and not have a hit on your unemployment.