Who's the Employer?

Answer: Virtually every case and revenue ruling that has considered this issue, going all the way back to pre-ERISA cases, has held that the recipient is the true common law employer, and not the staffing firm. There are exceptions, but they are rare.

Most cases have been based on the 20-factor test of common law employee status. This test was developed to distinguish between an independent contractor and an employee. It is not terribly well suited to differentiating between two potential employers (the staffing firm or the recipient), one of whom is clearly the employer of the worker. Nonetheless, in decision after decision, courts have looked at the facts and circumstances in light of traditional common law factors and held that the recipient is the true employer. What does that make the staffing firm? It is a payroll agent, perhaps -- but certainly not the employer.

A recent case took a different approach but arrived at the same conclusion. In a 1998 district court decision involving Microsoft, the court noted:

No court and no regulation recognizes such an arrangement. It is true that for payroll tax purposes, a paymaster may be regarded as an employer, but that does not make the paymaster the common law employer for plan purposes.

If the staffing firm is the employer, then the staffing firm can set up a plan for the workers, and the workers could be leased employees of the recipient. If the recipient is the common law employer, then the staffing firm cannot set up a plan (other than a multiple employer plan, cosponsoring with the true employer). Moreover, the workers are not leased employees, and there is no basis for offsetting contributions to a plan maintained by the staffing firm.

These issues are discussed in more detail in Chapter 4 of my book, Who's the Employer?.

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