PEO Problems – Who’s the Employer?

Professional Employer Organizations (PEOs) have always been a subject of confusion in the HR field. With the outsourcing of the employer/employee relationship, the lines get blurred very easily. This is never more evident than when a lawsuit brings a problem to the attention of the court system and no one wants to take responsibility. Attorney John Geaney wrote about a case back in November in New Jersey where a Workers’ Compensation claim turned into a giant game of “shift the blame”.

In the case of Rader vs. Omni, the court ended up ruling that Rader (the worker) was an employee of both Omni (the PEO) and QMT (the company he was leased to) and that the claim must be paid by QMT’s insurance carrier. This was after the PEO’s insurance carrier (CNA) pointed out that:

  • QMT was not listed under their Omni’s policy as a covered entity
  • That the PEO had understated the number of employees to be covered under the policy
  • Because Omni had changed its name to America’s Labor Force, the PEO itself was no longer technically listed on any policy with CNA either and therefore not covered

Omni (after the name change) also tried to claim that Rader wasn’t even their employee but instead an employee of ALF. They did this even though Omni and ALF were operated by the same 3 people out of the same office at the same address. The issue was further confused because QMT had no signed contract on file with ALF, only with Omni. Yikes!

What This Means for Business Owners

The upshot is that the courts in New Jersey have now made clear that PEOs and their clients have joint responsibility for employees. So, the idea that HR can simply sit back and let a PEO handle compliance issues such as WC insurance and assume everything is OK is definitely off base. It should also set off alarm bells if your PEO changes its name since this could open up the terms of any contract you have on file to disputes.

From an onboarding standpoint, it is imperative for all businesses to clearly define the legal relationship with the workers they jointly employ with a PEO. Is your PEO using our Universal Onboarding solution to ensure compliance with the law, eliminate errors and omissions, and present your company-specific policies to new hires for signature collection?  Maybe you should find out. Be sure to pass on our phone number: 770.569.5122.

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