Outsourcing carries risks

After the financial collapse of a major national player in the personnel outsourcing business, state officials last week were quick to caution employers who hire others to do their payroll or personnel functions that they're still ultimately responsible.

An increasing number of companies have reason to pay attention, as officials say outsourcing of payroll or other human relations functions is growing rapidly.

Small and medium-sized companies are particularly likely to outsource payroll or personnel functions as those jobs become increasingly

complex.

About 180 Nevada employers nearly all of them in the Las Vegas area and about 1,000 workers in the state were left holding the bag when Ohio-based Team America filed for Chapter 11 bankruptcy protection on Sept.

26.

Nevada Labor Commissioner Terry Johnson said last week he's concerned that Team America, which billed itself as an "employee leasing" company, may have issued bogus checks to workers.

In other instances, Johnson said,Team America may have debited companies' accounts for payroll, then failed to pay their workers.

In either case, the labor commissioner said, the employer is ultimately responsible for paying workers.

That's true, too, if the employer was a subcontractor on a job, Johnson said.

In that case, the general contractor is responsible.

Workers who aren't paid can turn to the labor commissioner's office, which can bring legal actions to recover their wages.

Employers' responsibilities don't disappear, either, if they outsource their health insurance program.

If a payroll company fails to make premium payments for health coverage, the employer is liable for any deductions that were made from a worker's paycheck.

And an employer who can't pay premiums is legally required, Johnson said, to provide at least 10 days notice to workers.

"My big fear is that someone is going to get stuck with a hospital bill they thought they had covered," the labor commissioner said.

State Insurance Commissioner Alice Molasky-Arman said employers need to keep a close eye on the health coverage provided by outside agencies.

"Employers must know 'Where is the insurance policy?'Who is is the insurer?' 'Who is the policyholder,'" the insurance commissioner said.

Then, if the payroll contractor closes shop, the employer can track down the insurance company to make sure there isn't a lapse in insurance.

Things aren't quite as complicated with workers compensation coverage.

Nevada requires joint workers compensation policies for employee leasing companies and their clients, said Charles Verre, chief of the state's Industrial Insurance Regulation Section.

Verre said Nevada doesn't permit a single master policy covering all the clients of an employee-leasing company.

Instead, the personnel outsourcing company must have a separate workers compensation policy with each of its clients.

Even so, Verre said the employer remains ultimately responsible for workers compensation coverage.

So with all this responsibility, how can employers protect themselves from the collapse of a payroll outsourcing company? Acknowledging that there are no easy answers, Johnson said the best step is careful review of contracts between employers and outsourcing companies.

"A couple of hundred dollars in legal fees may be worth it in the long run," he said.

Charles Harrall, chief executive officer of Odyssey Business Services,

an employee leasing firm in Carson City, said the Team America bankruptcy demonstrates the need for businesses to qualify anyone with whom they do business.

"Make sure they are properly licensed and reputable," Harrall said.

"Check them out with state regulatory agencies, the Better Business Bureau, chambers of commerce."

The state Division of Industrial Relations licenses employee leasing companies.

"If you find that a company you are doing business with is not properly licensed, let the appropriate agencies know.

This protects your business and other businesses," Harrall said.

Harrall, who has operated Odyssey with his wife, Sandra, for six years, said the problems at Team America were the result of management failure by the company and don't reflect widespread problems within the industry.