Governance & Compliance

What it is: Co-employment occurs when both the staffing firm and the client exercise sufficient control over a worker to be considered joint employers.

Why it matters: Both parties can be held liable for wages, benefits, discrimination claims, workplace safety violations, and labor law compliance.

How to mitigate:

• Clear MSA language defining employer responsibilities
• Staffing firm handles all HR functions (hiring, firing, discipline, pay)
• Client doesn't include contingent workers in benefits or company events
• Separate badging, email domains, and org chart treatment
• Regular compliance audits and tenure policies (typically 18-24 month limits)

What it is: The legal determination of whether a worker is an employee (W-2) or independent contractor (1099). Different tests apply at federal, state, and local levels.

Key tests:

• IRS 20-Factor Test: Evaluates behavioral control, financial control, and relationship type
• ABC Test (CA AB5): Worker is employee unless free from control (A), work is outside usual business (B), and worker has independent business (C)
• Economic Reality Test (DOL): Focuses on economic dependence

Penalties for misclassification: Back taxes + penalties (up to 100%), back wages and benefits, state fines ($5K-$25K per worker), potential criminal charges.

What it is: Federal law requiring Applicable Large Employers (50+ FTE) to offer affordable health insurance to full-time employees (30+ hours/week).

Impact on staffing: Staffing firms must track variable-hour employees using lookback measurement periods (typically 12 months) to determine eligibility. This is one of the largest components of the burden rate for longer-term assignments.

Key provisions:

• Employer Shared Responsibility Payment: $2,970/employee if coverage not offered
• Lookback measurement method for variable-hour workers
• IRS Form 1094-C/1095-C reporting requirements
• Coverage must be "affordable" (employee cost <9.12% of household income)

What it is: Sarbanes-Oxley Act requires public companies to maintain accurate financial records and internal controls over financial reporting.

Impact on staffing: Contingent labor spend must be properly tracked, approved, auditable, and reported. This drives the need for VMS systems and purchase order requirements.

Key requirements:

• All spend must have proper approvals and documentation
• Segregation of duties (requestor ≠ approver)
• Audit trail for all transactions
• Timely invoice processing and accrual reporting

What it is: The Office of Federal Contract Compliance Programs enforces equal opportunity and affirmative action for federal contractors. Diversity requirements extend to supplier selection in staffing programs.

Key requirements:

• Affirmative Action Plans (AAP) for federal contractors
• EEO-1 reporting requirements
• Supplier diversity targets (typically 15-30% diverse spend)
• Diversity certifications: MBE, WBE, VBE, SDVOB, LGBTBE, DOBE
• Tracking and reporting diverse candidate slates

What it is: Staffing firms handle sensitive PII (Social Security numbers, background checks, medical information). Multiple regulations apply.

Key regulations:

• CCPA/CPRA (California): Right to know, delete, and opt-out of data sale
• GDPR (EU workers): Consent-based processing, data portability, right to erasure
• FCRA: Fair Credit Reporting Act governs background checks
• HIPAA: Protects medical information for healthcare staffing
• SOC 2: Security controls certification (required by many enterprise clients)