Workers' Compensation

The False Picture of Contingent and Temporary Workers in the American Workplace

Study argues that lack of coordination in gathering data on contingent and temporary workers has resulted in undercounting and misclassifying of work hazards

Thomas A. Robinson, J.D., the Feature National Columnist for the LexisNexis Workers’ Compensation eNewsletter, is a leading commentator and expert on the law of workers’ compensation.

According to a report released earlier this year, significant growth in the number of contingent or temporary workers within the American work force during the past several decades is itself a disruptive force that not only negatively impacts workplace safety and health, but also challenges existing structures of data collection, legal responsibility, and future planning for social safety net programs [See Foley, M., et al., “Contingent Workers: Workers’ Compensation Data Analysis Strategies and Limitations,” American Journal of Industrial Medicine, 2014; 57(7):764–775]. The extensive report argues that a lack of consistent definitions and a rigid adherence to existing institutions and data collection programs likely results in both an undercount and misclassification of work hazards and outcomes for these contingent and temporary workers. The result is a false picture of the American workplace. Part of a series of papers on the challenges to using workers’ compensation data for occupational injury and illness surveillance and eventual prevention-oriented activities, the report seeks to identify and highlight how the emerging arrangements must be restructured and adapted to improve future outcomes.

Contingent Work and Alternative Employment Arrangements

The report concentrates on two, separate but related categories of workers identified by the U.S. Bureau of Labor Statistics (BLS): (a) contingent workers and (b) those in alternative employment relationships.

Contingent workers are defined as those:

1. Who do not have an explicit or implicit contract for long-term employment; and

2. Who hold jobs that are expected to last only a limited period of time.

Persons who do not expect to continue in their jobs for personal reasons, such as retirement or return to school, are not considered to be contingent workers so long as they would have the option to continue in the job.

The BLS identifies four categories of alternative employment arrangements, which may or may not involve contingent work:

1. Independent contractors, consultants, and free-lance workers, who may be either self-employed or wage and salary workers;

2. On-call workers who are called to work only as needed;

3. Temporary help agency workers who are paid by a temporary help agency, regardless of whether the worker considers the job to be temporary; and

4. Workers provided by contract firms, who are working for a contract company, usually work for only one customer, and usually work at the customer’s worksite.

According to BLS statistics, contingent workers account for 1.8 to 4.1 percent of total American employment, depending on how expansive the definition used. The researchers note that this percentage has not changed significantly since 2001. Alternatively, there are approximately 10.3 million independent contractors—7.4 percent of total employment. 87 percent of these independent contractors identify themselves as self-employed. BLS also identifies 2.5 million on-call workers (1.8 percent of total employment, 1.2 million temporary help agency workers (0.9 percent of total employment) and 813,000 workers provided by contract firms (0.6 percent of total employment). The researchers indicate that while there has been slow growth in recent years in the numbers of contingent workers, the number of workers in alternative employment arrangements continues to grow significantly.

Previous Studies Inadequately Explain the Difference in Safety Records Between Permanent and Temporary Workers

The researchers point out that while a number of earlier studies have noted that the increasing share in the labor force made up by temporary or flexible-contract workers leads to some deterioration in health and safety outcomes, most of the studies, however, have focused largely on discrepancies in health outcomes rather than on the underlying mechanisms that lead to the differential. For example, earlier studies have not controlled for differences between temporary and permanent workers in their industrial distribution. Moreover, even after controlling for occupation or industry, the researchers suggest that it is important also to control for differences between temporary workers and standard employment workers in other variables that may be associated with increased injury. Among those variables are:

> Job tenure—evidence suggests that individuals with shorter job tenure are at higher risk for injury or illness.

> Age of the worker—young workers (younger than 25) appear to experience higher rates of workplace injury and illness.

The researchers indicate that earlier studies have generally ignored other important factors that might lead to higher rates of injury and illness among temporary workers. For example:

> To what extent is this difference the result of temporary workers’ relative youth as distinct from their brief job tenure?

> Are temporary workers given the more hazardous jobs in a given worksite?

> Do they know what to do if they are exposed to hazards? Do they feel unable to refuse unsafe work?

> What kind of safety training do temporary workers receive at the worksite compared to permanent workers?

> Do temporary workers underreport injuries more than permanent workers?

The researchers suggest that these questions can be answered only by supplementing existing workers’ compensation data with other sources of information such as worker and employer surveys or guided interviews.

Significant Rise in Numbers of “Independent Contractors” and Contingent Workers During Recent Decades

At the heart of the researchers’ report is the fact that while the American workplace has changed substantially during the past three or four decades, its basic methods of tracking information have not. It isn’t just that American firms compete with each other; they compete on an international landscape in which companies in other countries not only often do not pay the level of wages enjoyed by American workers, they also often do not provide fringe benefits, such as pension or profit sharing arrangements, paid time off, hospitalization and dental coverage, and the like to which so many Americans have become accustomed.

American employers have more and more looked to contingent work forces as a means of competing globally. For example, the researchers note that in the middle of the first decade of the current century, 72 percent of full-time American workers were covered by health insurance, whereas 50 percent of contingent workers are covered. 76 percent of full-time workers enjoy some sort of pension rights, whereas 56 percent of contingent workers enjoyed them. Employers in this country are under pressure, therefore, to characterize workers as independent contractors, rather than as employees. Since independent contractors are not covered for purposes of workers’ compensation insurance, there is additional incentive to push as many workers to the “independent” status, whether or not the “employer” has actually given up the requisite levels of control to support such a change.

Rise in Numbers of Professional Employer Organizations During Same Period

The researchers point to another changing phenomenon within the American economic landscape—the significant increase in the number of employees working for Professional Employer Organizations (PEOs). A PEO is a firm that provides a service under which an employer can outsource employee management tasks such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. It does this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes. According to the researchers, as of 2010, there were more than 700 PEOs operating in the United States, covering 2–3 million workers. Operating in all 50 U.S. states, PEOs are sometimes referred to as staff leasing entities.

When a PEO obtains workers’ compensation insurance for its client companies, it generally does so in one of two ways, often depending on state insurance regulatory procedures:

1. A Multiple Coordinated Policy (MCP), in which each client of the PEO has its own policy covering the leased workers. Each client’s premium is based on its own class codes, rates, payroll, and rating programs. All policies are assigned to the same insurance carrier whenever possible, and endorsements are used to coordinate coverage between the client and the PEO; or

2. A Master Policy, where a single policy is issued in the name of the PEO, which provides coverage for all of the PEO’s leased workers for each client. Each client is typically added to the policy by “endorsement,” that is, the policy is amended with names of all employers added.

Because the goal of the MCP model is to keep the experience and reporting of each employer’s payroll, premium, and loss information unique to itself, the researchers indicate that model provides ready mechanisms through which injury and claim data can be tracked to the work site and work activity. Even when an employer leaves the PEO, it is relatively easy to reconstruct its experience rating factors. The same cannot be said for the Master Policy model. Where the PEO utilizes the Master Policy model, its workers’ compensation data is much more susceptible to inaccuracy. The connection between the injury and the actual work location can be lost.

BLS’s SOII Significantly Undercounts Occupational Injuries/Illnesses Among Contingent Workers and Those in Alternative Employment Arrangements

The researchers join a chorus of other researchers who argue that BLS’s Survey of Occupational injuries and Illnesses (SOII) undercounts occupational injuries and illnesses among contingent and alternative employment arrangement workers. Readers will recall that the SOII is the largest occupational health surveillance system in the United States, with almost 250,000 businesses sampled annually. Information comes directly from employers selected to report information from the OSHA 300 and 301 forms, on which the employer is required to keep a log of recordable injuries and illnesses during the year.

Ideally, employers report OSHA-recordable injuries and illnesses for any workers that they supervise on a day-to-day basis. Under such ideal recordkeeping practices, temporary, leased, and contracted employees are to be reported in the SOII based typically on where they are working, rather than based upon the parent firm (leasing agency, e.g.) for which they work. This contrasts with many workers’ compensation requirements, which mandate that leased employees be maintained on the leasing agency’s compensation policy.

Unfortunately, the researchers point to a significant difference between the creed and the deed; many employers allow their treatment of an injury or illness for workers’ compensation purposes influence how and whether they report the injury on the SOII. Since there is often a lack of clarity as to which entity is the true employer, the injury or illness fails to be reported within the SOII. Across the 250,000 sampled employers, the result is significant undercounting, according to the researchers. The researchers also indicate the sources of data for the SOII may just not be suited for capturing the experience of contingent workers and those employed in alternative employment arrangements.

Multiple Data Sources Must Be Utilized

Based on the apparent undercounting in SOII, the researchers point to the need for collecting data from multiple sources. They add that indeed, BLS has begun to implement such an approach in collecting workplace fatal injury data. The researchers suggest that coordinating the various data sources with state workers’ compensation data may help address some of the limitations in traditional sources of information on workplace safety. In the case of PEOs, for example, an increasing number of states have enacted explicit regulations related to mandatory reporting of workers’ compensation insurance coverage for both the PEOs and their client companies.

This Proof of Coverage (POC) data can be used as a means of identifying PEOs and their client co-employers. The researchers point to three major challenges to using POC and claims data to track workplace safety for contingent workers.

1. The data are not comprehensive; reporting requirements vary from state to state and not all categories of contingent workers are covered by workers’ compensation.

2. The two key data sets are part of different regulatory processes. POC is part of employer regulation (typically in a division of the state’s labor department) whereas claims data are part of insurance regulation (typically in the insurance division of the department of banking and financial regulation or a separate department of insurance regulation).

3. The statistical agents and rating bureaus that collect and analyze the claims data are largely prohibited by contract from sharing the employer specific data with outside entities.

All too often, however, states have created a chasm between workers’ compensation data and regulatory data maintained as part of state insurance regulation. Lessons can be learned from the four states with monopolistic workers’ compensation funds (Washington, Ohio, Wyoming, and North Dakota) since internal coordination of those states’ data is reasonably straightforward. Additional effort is required, however, if the regulatory barriers separating proof of coverage and claims data are to come down. The researchers also suggest that states take advantage of data produced by workers’ compensation rating bureaus, since such entities develop premiums from claims data and they are also interested in understanding the implications of contingent workers for the workers’ compensation insurance system.

A Call for Further Research

The researchers state that additional research is needed to assess the various factors that might be responsible for the apparent disproportionate injury risk incurred by contingent workers. Special research is required to distinguish the contributions of worker age, unfamiliarity with the job site, lack of safety training, ambiguities with regard to both worker supervision and responsibility for safety, and the assignment of riskier job tasks to contingent workers. As businesses within our nation increase their use of contingent and other sorts of “just in time” workers, stakeholders need to be equipped with accurate data in order that they can advocate and formulate appropriate policies.

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