When you hire people to work for your company, you want the authority to make decisions about compensation, promotion, termination, and other matters that are traditionally part of the employer role. Even so, you may want to relieve yourself of certain tasks. When making these decisions, you should factor in emerging law on shared responsibilities.
PEOs
A professional employer organization (PEO) is a third party to which a company outsources workers’ compensation, risk management, payroll obligations, benefits plans, and other employer tasks. The company retains the right to hire and fire, determine compensation, and handle various employer responsibilities. There are an estimated 700 PEOs operating in the United States, and they oversee as many as three million employees. This arrangement is particularly favored by companies with professional staff, such as engineering firms. PEOs and the companies that use them are called co-employers.
PEOs are treated as the employer for purposes of payroll taxes, so they file under their employer identification number (EIN). However, for purposes of counting the number of employees in a company — essential for the employer mandate under the Affordable Care Act (ACA) — only workers at the company, excluding those who are employed by PEO, are taken into account. However, the PEO has a contractual obligation to make sure that the company is following ACA rules.
For more information, go to the National Association of Professional Employer Organizations.
Payroll service providers
Whether you have 1 or 100 employees, you may want to shift the chore of withholding and depositing taxes, as well as employer tax returns, to an outside payroll company. In tax parlance, these organizations are called payroll service providers. From a tax perspective, you (the employer) remain liable for taxes and filings, even though you delegated this task to an outsider. This means that if the company you have engaged for payroll services absconds with your money and fails to deposit it with the Treasury to cover your payroll taxes, you’re still on the hook for the money, including interest and penalties. (You would also have a legal action against the payroll company, assuming you can find them and they have the money there to reimburse you.)
Make sure you work with a reliable payroll company. Before hiring one, check to see if the payroll agent has passed the IRS’s Assurance Testing System.
Franchises
Franchisees, the units that are part of a nationwide parent franchisor, are independent businesses. Most franchisees are small businesses, where owners (the franchisees) hire, fire, and manage their staff. This autonomy in running their businesses is one reason many franchisees find this business arrangement appealing.
In December 2014, the National Labor Relations Board (NLRB) has taken the position in a case involving McDonalds that the franchisor and franchisee are joint employers. Various labor violations were lodged against franchisees; the NLRB decided to go after the franchisor as well, apparently on the theory that it controls to some extent what its franchisees do. However, the courts continue to respect the well-established view of franchisees as the sole employer of their staff (see Vann v. Massage Envy Franchising LLC).
The concept of a joint employer will likely remain an issue as disgruntled consumers and employees seek deep pockets against which to wage their grievances.
Conclusion
To paraphrase Alice in Wonderland, the role of employers is getting curiouser and curiouser. When in doubt, seek legal counsel.
