I own a temporary help agency and would like to decrease employee turnover by offering health benefits. Can I do this and what are the potential pitfalls?

If your staff are truly "temporary" with respect to your clients, you should not violate any tax or ERISA rules by providing coverage for them. Where the complexities seem to be arising is with the PEO's who want to argue that the people they facilitate are their employees, but the IRS tends to believe that they are the employees of the PEO's clients.

The basic issue is who is their employer for the common-law test. If you are the employer of your workers, you should be able to offer them the full range of benefits available under the Code. But, in the staffing industry, this is just not obvious.

Yes, they are temporary to the client. I withold all federal income tax and FICA for them. What is a PEO? Is that like employee leasing? Thanks for your help, Becky.

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Originally posted by BeckyMiller:
If your staff are truly "temporary" with respect to your clients, you should not violate any tax or ERISA rules by providing coverage for them. Where the complexities seem to be arising is with the PEO's who want to argue that the people they facilitate are their employees, but the IRS tends to believe that they are the employees of the PEO's clients.

The basic issue is who is their employer for the common-law test. If you are the employer of your workers, you should be able to offer them the full range of benefits available under the Code. But, in the staffing industry, this is just not obvious.

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A PEO is a professional employer organization. They take over all the personnel, full-time or part-time, and handle all the employment related issues. The issue is whether the PEO is the employer or the workplace owner. Lots of controversy. The PEO folks want to create a co-employment relationship with their clients. The government is uncertain of the ramifications of co-employment.

Becky, we're really not looking to take on all the personnel of one of our customers. We have several employees that work enough hours to warrant benefits and would just like to get them some so they don't go looking for a full-time job.

I did not think you were wanting to do that, I was just responding to your question about what a PEO was. Did not mean to confuse the issue, but that happens sometimes in this electronic format.