Temporary Agency Agreements: How to avoid becoming a joint employer with your temporary agency

March 29, 2007

Employers can take steps to minimize and/or manage their potential for "joint employer" status with a temporary agency. To avoid the creation of a joint employment relationship, the following is a list of some of the contractual and policy steps that should be undertaken:

  • Right to Direct and Control Work of Temps – The right to direct and control the activities or the temporary employees should rest exclusively with the temporary agency.
  • On Site Supervision – The temporary agency should have an on site supervisor to direct the work of the temps; otherwise, the default supervision will be the company’s supervisors
  • Disclaim Company Control – Company should not have the right to direct or control the activities or temps
  • Disclaim Joint Employment Relationship  – Although it is largely window dressing, any agreement should state expressly that it does not create a join employment relationship
  • Mandate Legal Compliance by the Temporary Agency – The legal compliance provisions set forth in the next section should be addressed
  • Require Proper Payroll Reporting and Recordkeeping – Require that the agency be responsible for all payroll taxes, withholding and tracking of hours for FLSA compliance. Make certain that unemployment taxes and social security withholding are accomplished
  • Require Evidence of Insurance – Obtain proof that the agency has appropriate insurance coverage for workers compensation, employment practice and liability insurance
  • Obtain Indemnification from the Temporary Agency  – Obtain contractual indemnification which provides that the agency will pay damages and defense costs should the company be charged with employment law violations, unpaid taxes, unemployment or workers’ compensation awards
  • Limit Assignment of Temporary Workers – Limit the duration of assignment of a worker to your work site to no more than six months. Longevity of the placement is an indication of employment relationship; particularly, if temporary workers perform operations integral to the business. Companies risk creating "permatemps" who may seek benefits.
  • Avoid Changing Employee Status – Except in the context of PEO’s, don’t outsource a group of employees to a temporary agency so that one day they are performing work as an employee and the next day as a temp.


To manage a relationship that may be one of joint employment, a company should add contractual provisions and adopt practices that allocate legal compliance to the temporary agency in the following areas which are in addition to those mentioned above:

  • Background Checking and Pre-Placement Tests – Temporary employees should undergo the same background checking as your own employees including work history, criminal background and drug testing. Discrepancies between job requirements for regular employees and temps are impossible to explain to government investigators.
  • Job Duties and Responsibilities – Provide the agency with a job description that includes the physical, mental and educational requirements for the work.
  • Immigration Compliance – The agency should have responsibility for I-9 completion and verification of employment as required by law. This is an area of potential criminal sanctions and should not be taken lightly. Some employers either require copies of completed documentation or maintain the right to audit compliance.
  • Wage and Hour Compliance – Require maintenance of all work hours by the agency including compliance with overtime payments.
  • Discrimination Compliance – Mandate agency compliance with all EEO laws. Consider maintaining a dual complaint process for harassment where temps can make complaints about discrimination and harassment experienced at the company’s work site.
  • Maintenance of Employment Records – Require that the agency maintain all employment records and consider setting a retention period. Reserve that right to inspect or access the records in case the company needs to defend a claim from a temporary employee.
  • Review Company Benefit Plans  – Eligibility definitions for company benefits should be reviewed to ensure they exclude temporary, seasonal and independent contractors.