Workers lucky enough to have survived downsizing in the early ’90s may yet see the ax fall — this time on their pensions and benefits. Congress is now working on legislation, drafted by the temporary employment industry, that would alter the definition of “employer” for the purpose of taxation and benefits, with drastic results.
The nations’ gigantic temp firms say the bill would simply let them provide more workers with benefits. But critics, including the U.S. Departments of Labor and Treasury, say the change would open the door for companies to shift thousands workers to the payrolls of temp agencies, and turn permanent, full-time jobs with good benefits into temporary ones with poor benefits.
The bill was tailor-made by the temp industry. For starters, the National Association of Temporary and Staffing Services (NATSS) — representing major temp agencies such as Kelly Services and the nation’s largest private employer, Manpower Inc. — wrote the bill themselves.
Then they lined up support from key members of the House Ways and Means Committee overseeing the bill, many of whom received campaign contributions from NATSS’ political action committee, including the Republican who introduced the bill, and the Democrat who put it on the committee’s agenda.
How does it work? Currently, common law says an employer is someone who supervises an employee at the workplace, while tax and labor laws say that a company must offer eligible employees the same health and pension benefits it offers to other employees at the same level or doing the same work. Furthermore, to make health and pension benefits tax-deductible, the employer must offer them to at least 70 percent of employees.
But under the Staffing Firm Workers Benefits Act, the tax code would recognize the employer as the one who pays wages, withholds payroll taxes, hires and fires, and provides benefits. Temp agencies would then become legal employers — with the result that companies could use “permanent temps” to avoid providing equal benefits to workers with equal eligibility. In other words, to save money, a company could simply fire large numbers of workers and shift them to the payroll of a temp employer with inferior wages and benefits.
The prospect of this two-tiered benefits structure has unions alarmed. Organized labor hates the bill, and plans to fight it when it comes up for a vote. “We oppose it because we see the consequences: that more workers will get less benefits. Employers will use it to free themselves of their obligations,” says Peggy Taylor, legislative director for the AFL-CIO.
NATSS spokesman Ed Lenz isn’t surprised that the AFL-CIO is opposed to his group’s bill. “Organized labor isn’t a big fan of anything that would help temporary employment agencies,” Lenz says. “They’re opposed to it as an ideological issue: Anything that benefits us and doesn’t benefit them.” He says the bill will not affect existing labor laws.
Rep. Jim McDermott (D-Wash.), who originally backed the bill, says he withdrew his support once he learned more about its potential consequences. He agrees the bill will result in reduced benefits for many current full-time permanent employees, who will find themselves switched to the payroll of the temp agencies even though they still sit at the same desks and work for the same boss.
“The devil is in the details,” says Jennifer Crider, a spokesperson for McDermott. “Conceptually, the bill looks good on the surface — if you don’t see the potential harm it does. It’s essentially contracting away health and pension benefits and making full-time, permanent employees [into] temporary ones.”
But Lenz says McDermott backed off because a group of lawyers who represented the benefit claims of “permatemp” employees at Microsoft are “putting tremendous pressures” on representatives supporting the bill. “They’re demagoguing the issue.”
David Stobaugh is one of the lawyers who represented the Microsoft temps. According to his analysis, the bill could indeed provide companies an incentive to cut labor costs by transferring employees to the payrolls of staffing firms. Furthermore, he says benefit plans offered by staffing firms will be costlier, and the bill could create a “two-tier workforce” where “highly valued employees,” say, management, would reap greater benefits packages at lower costs than those employees covered by a staffing firm.
But it’s not just unions and temps’ attorneys who oppose the bill. In September the U.S. Departments of Labor and Treasury voiced similar concerns in a joint policy statement: “The tax law should not be used to encourage a two-tiered wage and benefits program for workers.” They warn that the bill “would enable companies to use staffing firms to reduce benefits for rank-and-file empoyees and to provide more favorable tax-qualified benefits to highly compensated employees.” There is also concern that “unscrupulous individuals” could call themselves staffing firms in order to sell financially unsound health plans to employers.
Lenz says the bill is being “reworded” to address these potential problems, and he deflects criticisms, saying that they really address economic trends far beyond the scope of the bill. The sole purpose of the bill, according to Lenz, is to correct the outdated tax code so that staffing firms which give benefits to their workers have a “sound legal footing” to do so (the IRS has recently challenged their right to claim benefit expenses because they are not legally the employer). This would allow staffing firms to expand benefits to a growing segment of the workforce, he says.
Benefits are costly, but temp agencies provide them for the same reason many companies do: Better benefits attract better workers. “Recruiting workers is subject to intense competition for good, qualified people,” says Lenz. Recruiting costs are a major expense for temp agencies. If they can keep those employees by offering better benefits, then they can cut costs and increase profits, Lenz says. Providing benefits is just sound business practice. “It’s not for charitable reasons. These are for-profit businesses.”
Lenz also claims that the sheer size of the major temp firms will allow them to negotiate better benefits. “We have the ability to pool all employees and achieve pension and benefit plans that small businesses wouldn’t have,” Lenz says.
Crider rebuts this, saying the “transitional” nature of temporary employment makes it unlikely such a pool will ever exist.
One labor expert says temp agencies seek to provide benefits strictly out of concern for the bottom line. “I don’t believe these temp agencies do this out of the generosity in their hearts,” says Kate Bronfenbrenner, director of labor education research with Cornell University’s School of Industrial and Labor Relations. Bronfenbrenner says that given their track record of paying low wages, temp agencies are likely to provide “cut-rate benefits.” “If they’re not willing to pay good wages,” she says, “they’re not willing to give good benefits.”
Bronfenbrenner also points out that the few temps who already get benefits tend to be in higher-paying technical fields. The majority of temps, she says, work in low-paying service sector jobs. “The question is whether firms like Kelly Services are really committed to covering their low-paid clerical workers. I really doubt this is a plan to benefit those workers.”
Show Us the Money
Critics may be right about the bill’s flaws, but the fast-growing temp industry, which did $50 billion in sales in 1997, has put its money where its mouth is — and has the ear of Congress.
NATSS’ political action committee, which claims to represent 1,600 companies, has given $387,000 to Congressional candidates since 1993, plus another $162,000 in “soft money” to the Democratic and Republican parties. And recently they’ve targeted their cash very carefully toward House members they think can make a difference on the Staffing Firm Workers Benefits Act.
So far in the 1997-98 cycle, NATSS PAC has given $58,250 to Congress members, $31,500 of it to members of the House Ways and Means Committee now considering the bill — 18 Republicans and three Democrats. Of the bill’s 70 co-sponsors, 23 have received campaign cash from NATSS PAC, many within days of adding their name to the bill.
The PAC gets its money from executives of temp agencies big and small, including a $1,500 check this cycle from one of America’s biggest campaign contributors, Robert McDonough, the chairman of California-based RemedyTemp Inc., which places 100,000 workers annually through its offices in 36 states. Ranked #39 on the 1998 MoJo 400, McDonough personally gave $167,500 to Congressional candidates and political parties in 1997-98, including $160,000 to the Democratic Party. McDonough declined to be interviewed for this story.
Lenz, who is also PAC treasurer for NATSS, points out that congressmembers’ solicitations for campaign contributions regularly cross his desk. He doesn’t like the current practice of funding political candidates, but Lenz recognizes the necessity: It’s just part of doing business.
“We focus our contributions on those who we believe are sympathetic to our arguments and who’s in a position to help,” Lenz says. “The contributions are more heavily weighted to those who are more hospitable to business.”
Buy Partisan Support?
Lenz says that NATSS and another staffing firm association, the National Association of Professional Employer Organizations (NAPEO), took a “proactive” role in the bill: Their lawyers drafted it.
“The bill was introduced in the House in virtually the same form as it was written. That’s testimony to the expertise of the people who wrote it,” Lenz says. Or perhaps it’s testimony to how eager Congress is to please its contributors.
The bill is co-sponsored by 15 Democrats and 55 Republicans. “The general objective is to expand pensions,” Lenz says. “These are things Republicans and Democrats can agree on. It’s a bipartisan issue.”
However, it became a bipartisan issue because the staffing industry worked closely with two congressmen on the bill — one Republican and one Democrat. Rob Portman (R-Ohio) introduced the industry’s bill, but it was Benjamin Cardin (D-Md.) who put it on the committee’s agenda. Cardin, who also worked with NATSS on the legislation, received a $2,000 contribution from its PAC.
A “new Democrat” who supported NAFTA, Cardin also received $20,000 in campaign contributions from AFL-CIO-affiliated unions, and he could be in a bind in the next election when he seeks organized labor’s votes and dollars. Deborah Dion, the labor federation’s public affairs spokesperson, says Cardin may suffer political consequences for supporting an issue which the AFL-CIO opposes.
“We’re going to hold [congressional] members accountable for taking a stand on issues that are important to working families,” Dion says.
What do the 12 million temporary workers employed annually in the United States say about the bill? Without a trade association, labor union, or PAC to represent them, not much. Bronfenbrenner says that if the bill is passed, temp workers seeking benefits will inevitably raise the question of who is their employer — and they will be left out of the decision. “While the temp agency and the real employer will fight it out in court about who is the employer, the temp worker falls through the cracks.”