Staffing agencies that pay temporary nurses as contractors, issuing them 1099s instead of W-2 wage statements, may be putting the nursing homes who use them at increased legal risk.
That’s because evolving labor standards typically view temporarily deployed nurses and nurse aides as being jointly employed — entitling them to more protections under federal law by both their agency and the facility to which they’re assigned.
“Over the last couple of years, a new claim en vogue is to sue companies for their use of independent contractors on the theory that they label them as independent contractors, pay them like independent contractors but treat them like employees because of the amount of control they exercise over that individual,” explained Gerald Maatman Jr., partner and chair of the class action practice group at legal firm Duane Morris and a frequent defender of employment law claims.
Misclassification suits were bolstered by a National Labor Relations Board proposal last year that could make it easier for workers connected with staffing firms, franchises and other placement companies to both organize and sue as individuals.
Beyond potentially strengthening union bargaining rights, joint employment status is important because corporations that co-employ can both be sued over working conditions, pay and protections.
Employees, for instance, should receive benefits and overtime and have any required taxes withheld. But many nursing home providers using agency may not realize that they should view nurses placed in their buildings as employees, experts told McKnight’s Long-Term Care News. Even fewer may know whether those temporary workers’ Social Security and payroll taxes are being withheld.
Nursing homes might assume an agency is going to take all of the risk, said IntelyCare CEO and co-founder David Coppins, but there’s growing proof that that is not always the case. Increasingly, nurses who find out that they were entitled to more protections are using the courts to go after not just the agencies but the agencies’ clients, including nursing homes.
“The agency that supplies [nurses] might even have done it so well that they are absolved of employment liability, but the facility they end up working for isn’t,” Coppins said. “If they’re under their supervision, if they’re told when they can come and when they can go and so on, then they fail a couple of the [co-employment] tests.”
Coppins’ agency issues workers W-2s and classifies them as employees, meaning IntelyCare must deduct Social Security, or FICA taxes, and other required payroll taxes for nurses they place. The W-2 employer also contributes half the 15% FICA tax.
Temps who work as independent contractors and have their wages reported on a 1099 form will instead be obligated to pay a similar 15% self-employment tax out of their own pockets. If they owe payroll taxes, they’ll also be on the hook for those come tax season.
Coppins estimated the split between agencies classifying temporary nurses as contractor vs. employees is about 70% to 30%, with the latter growing as new agencies rushed in to fill a void during COVID-19.
“It was only during the pandemic that people got so desperate that people needed help from any place they could get. That’s what opened up the floodgates for 1099s to come through,” Coppins said.
“It’s going to be a huge eye-opener again this year because of the massive growth in the 1099s,” he added. “Every year, you see social media crawling with, ‘Oh my gosh, I can’t believe how much I owe. How am I going to pay this? They never told me!’”
Open dialogue with the agency
Maatman said tax season, workers’ financial needs and word-of-mouth about other successful lawsuits have all helped fuel more legal action brought by temporary workers against staffing agencies and facilities.
Last September, he wrote an issue paper on misclassification for the American Staffing Association, outlining major concerns and implications for both agencies and healthcare facilities that use them. It included a sample letter that agencies can give their clients, warning that some “online or app-based platforms” may not classify their workers as employees.
“The danger is that while the workers may be independent contractors with respect to the platform … you could be on the hook for the payroll taxes and other employee-related costs,” the paper warned.
Using the contractor model requires less overhead for agencies; they can pass the money they save on to the nurses they recruit, making them more competitive in especially tight labor markets.
But it can be hard to know which agencies use which classification and tax forms. Providers should ask up front. Depending on whether they think they’ll be protected from legal liability or not, they may want to look up alternate agencies staffing in their area.
“You have to have a dialogue. You need to kick the tires and do your due diligence,” Maatman said. “I don’t want to get into a worse situation and have overtime and pension problems and be sued as a joint employer because I thought I was getting a 1099 temp and instead I was getting a W-2.”