Question 59: What is the current legal status of PEOs and other leasing organizations being regarded as a "co-employer" with their clients for retirement plan purposes?
Answer: Murky, at best. I've written a detailed article on the subject for the fall issue of the Journal of Pension Benefits, and of course, a detailed analysis appears in Chapter 4 of the second edition of my book, Who's the Employer?. But rather than spell out all the points here, let me hit the key issues:

Courts now are unanimous that the status of employer-employee between a worker and a staffing firm or the firm's client is determined under standard common law principles.

There is a line of tort cases (the basis of those common law principles) which recognizes that a worker can have two employers simultaneously.

None of those has been found to be applicable to staffing firm situations.

Case after case has found that the recipient of the worker's services (the staffing firm's client) is THE common law employer.

The Microsoft case in the summer of 1999 recognized the possibility that both the staffing firm and the client can be the employer of a worker, but did not find that such a dual employer arrangement existed in that case.

A recent General Counsel Memorandum went as far as saying that while a dual employer arrangement might be possible, "The concept of a 'co-employer' is not recognized in Subtitle C of the Internal Revenue Code."

How a contract defines an employer relationship has remarkably little to do with whether that relationship exists. Calling yourself an employer doesn't make you one. Employer status is rather determined essentially by control, most or all of which typically rests with the staffing firm's client, and not with the staffing firm.

In other words, it is indeed possible that a staffing firm might be a common law employer of its workers, even if its client is also a common law employer of those same workers. However, based on what I've seen in the case law, that will have to come because the staffing firm has an active role as an employer, beyond simply writing payroll checks and filing tax returns.

This is clearly an area on which we will see further action in the coming months. Stay tuned!

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.