When an Employee Double-Dips On a Paycheck, Who Pays?

Remember this?

Suppose the chip is a check, and the employee tries to cash it twice? Who would you rather be, Costanza or Timmy?

Staffing agency clients are increasingly pointing to a fraud committed by disloyal short-term employees. They cash a paycheck on their mobile app, then deposit the paper check a second time for duplicate payment. The check clears twice. Who must pay?

While this problem can arise in many scenarios, including with regular W-2 employees, it seems to be occurring more frequently with staffing agency employees, PEOs, temps, and other short-term workers. So let’s take a look.

I found a few good blog posts covering this subject (for those wanting more detail, try here or here), but here’s the bottom line:

The Check 21 Act, passed in 2004, addresses what happens when a bank allows its customers access to a mobile deposit app. When a customer electronically deposits a check, the bank creates an electronic image of that check, called a “substitute check.” This is what you sometimes see when you view your statement online. It’s negotiable, like a live check.

The original live check, however, still exists too. A fraudster who acts quickly enough can sometimes cash both. Under the Check 21 Act, the bank that creates the “substitute check” — the bank that allowed its customer access to the mobile check cashing app — is the bank that bears responsibility for any loss from the twice-cashed check.

This makes sense. Because that bank’s customer is the fraudster who double dipped, that bank is also in the best position to recoup the funds from the double-dipper.

Staffing agencies, payroll agencies, or PEOs who issue a twice-cashed check are sometimes asked to make good on the same payment twice. They shouldn’t be. If the double dipping occurred through an electronic “substitute check,”, they can point to the Check 21 Act, specifically 12 USC §5004, and argue that the double-dipper’s bank is properly accountable.

Note:  The Check 21 Act only applies to electronic double dipping. If an employee claims to have lost an original live check and obtains a substitute, then cashes both checks, different rules apply.

Joint Employment Is Like Taking Steroids By Accident

athlete-joint employment - staffing agency - 1840437_1920It seems like every month another professional athlete is caught using a prohibited substance. The typical script (after getting caught) is to blame the maker of a supplement. “I should have more carefully checked the label,” or “I had no way of knowing what was in that synthetic elephant urine.”

Fair or unfair, every athlete knows that he/she is responsible for what goes into the athlete’s body, whether the juicing was intentional or not.

The same rule applies to companies who use staffing agencies.

When workers are deemed to be joint employees, both the staffing agency and the company that benefits from the services are responsible for failures to follow employment law. It doesn’t matter who made the mistake.

Under the FLSA, for example, employers must pay non-exempt employees a minimum wage, must pay for all hours worked, must pay overtime, and must properly calculate overtime rates. Sometimes this is hard. Two traps that ensnare even the most sophisticated employers are the challenge of accounting for off-the-clock work (checking email by cell phone, for example), and calculating the base hourly rate when there are bonuses and other forms of compensation provided.

Joint employment means joint liability. If the staffing agency responsible for paying employees makes an error, both companies are on the hook. That means a company can be responsible for hundreds of thousands of dollars in damages  — including back pay, attorneys’ fees, and liquidated damages — for errors it had no control over.

When the potential exists for a finding of joint employment, be careful when selecting  vendors who supply workers. Here are three tips:

  1. Be sure any vendors who supply workers are reputable, competent, professional, and reliable. (Four tips in one! you’ll thank me later)
  2. Be sure they stand behind their obligations with a suitable (and specific) indemnity clause.
  3. Be sure they are sufficiently insured.

Remember, under the FLSA (and many other laws), your company may be jointly liable for a staffing agency’s mistakes — even if you had no control over their pay practices.

Using staffing agency workers is like taking a performance supplement. It may enhance the bottom line and improve overall performance, but any funny business is your responsibility.

It doesn’t matter who put the horse steroid in your protein powder. If you ingest it, you are responsible for it.

The Myth of “Temporary Employees”

IMG_1067What is a “temporary employee”? I have practiced employment law for 20 years (Note to self: Keep practicing; someday you’ll get good at it.) and I can’t tell you. It’s a state secret. All lawyers have been sworn to secrecy forever.

Either that or, if you really want to know and say “pretty please” (with or without sugar on top, but no artificial sweetener please), that term has no legal significance. Usually the term is used to mean one of two things:

  1. your employee, hired on a trial basis with some sort of probationary period; or
  2. a staffing agency worker, retained to augment staff levels on a temporary basis.

Under option 1, the “temp” is a regular W-2 employee of yours, probably employed at will like your other employees, but whether you call that person “temp” or “permanent” or “regular” or “irregular” (?), none of it matters. A temp worker who is your employee, paid subject to deductions, is your employee.  Temp time counts toward FMLA eligibility. Continue reading

Trump’s Tax Plan Is Great News for Independent Contractors! Here’s Why.

IMG_1063President Trump’s tax plan, released last week, is great news for independent contractors. Contractors may be able to cut their tax rates by half (or more) by creating an entity, instead of contracting as an individual. Indirectly, this would help companies who use contractors as well. Here’s why:

Benefit to Individuals:

For individuals, the proposal would reduce personal tax rates modestly. An individual being paid as an independent contractor will likely see a reduction in marginal tax rates, but the range is likely to remain somewhere between 25% and 35%, depending on income level.

For individuals being paid through their homemade entities, however, the proposal could result in substantial savings. Currently, pass-through entities like LLCs pay taxes at the rate of the individual. The sole owner of an LLC would pay taxes on the LLC’s profits at the individual’s personal income tax rate, likely between 25% and 35%.

Under the proposal, however, pass-through entities such as LLCs and partnerships would instead be taxed on pass-through business income at 15%. That’s a sizable savings compared to 25-35%.

If this proposal passes, individual independent contractors will have a strong financial incentive to incorporate. Creating an LLC is relatively inexpensive. If it leads to Continue reading

Avoid this Common But Disastrous Mistake in Staffing Agency Agreements

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A client once asked me to review the Employment Agreement of a candidate they were considering hiring. The candidate had recently been terminated but his Employment Agreement contained a 12-month non-compete, and my client’s job offer seemed pretty clearly to be for a competing job.

But the terminating employer made once huge mistake. When it meant to terminate employment, instead it terminated the agreement … and with it, the non-compete.  Oops!

I see the same mistake in Staffing Agreements and Professional Services Agreements all the time.

These agreement are usually intended to serve as Master Service Agreements (MSA), with additional work orders to govern the actual services to be provided. These MSAs contain very important clauses that are intended to survive, even after the services have stopped. Examples of clauses intended to survive the termination of services include indemnification, insurance coverage, preservation of confidential information, and right to audit.

The mistake I see over and over, however, is the inclusion of a termination clause that allows for termination of the agreement, not merely termination of services.

Continue reading

Four FMLA Traps When Using Temp Workers — and How to Avoid Them

The FMLA is full of traps for companies who use staffing agency workers, both for staff augmentation and temp-to-hire. Here are a few of the most common mistakes and how to avoid them:

fmla-danger-cliff-caution-2

photo credit: ransomtech Chimney Bluffs State Park via photopin (license)

1. Mistake: Not counting staffing agency time as service time, when determining whether the worker has worked for 12 months.

Tip: Staffing agency time counts. Add staffing agency time plus regular employee time to determine whether the worker has 12 months of service time. Accumulate all time worked during the past seven years. Continue reading