By: HUB’s EB Compliance Team

Update December 1, 2023: This piece has been updated to reflect that the beginning of the 90 calendar days required by Illinois cannot start until April 1, 2024.

As we have written about recently, here and here, states are becoming more active in regulations that directly or indirectly relate to employee benefits. Illinois and New Jersey have both recently begun to regulate temporary labor. These regulations will ultimately impact both employers who provide temporary labor, as well as those who use temporary labor. Though the relevant statutes impact more than just employee benefits, the focus of this piece will be limited to the employee benefits components.

Background

Employers use temporary labor for many different reasons, such as:

  • A manufacturer that hires temporary employees to help fulfill a large order.
  • A summer festival that needs a large number of staff for a very short period of time.
  • A concert promoter that uses a staffing firm to provide security personnel at an annual concert.
  • An accounting firm that uses a staffing firm to provide additional accountants during peak tax season.
  • A software company that hires an attorney through a staffing firm to fill in for an employee on a leave of absence.

Both the Illinois and New Jersey regulations are aimed at providing temporary labor with comparable pay and benefits as compared to directly hired employees. The goal is to prevent employers from using temporary labor that is paid at lower rates and with lesser benefits, as a means to avoid directly hiring employees themselves.

Illinois

Illinois HB 2862 was signed into law on August 4, 2023. This bill amended the Illinois Day and Temporary Labor Services Act by providing additional protections for temporary laborers, while also adding additional requirements for employers who use and provide temporary labor. Specifically, if a temporary laborer is assigned to work for a third party client for more than 90 calendar days (non-consecutive), the temporary laborer must be paid at least the same rate of pay as the lowest paid comparable, directly hired employee, and provided equivalent benefits. The state has clarified that calculation of the 90 days may not start until April 1, 2024.

In simple terms, if Sam is the lowest paid, directly hired widget maker for ABC Corp. and he makes $20.00 per hour with 5 years of experience, he represents the floor for how much other comparable employees must be paid after 90 days. If XYZ Staffing provides ABC Corp with Diane, a temporary widget maker also with 5 years of experience, she must also be paid $20.00 per hour after 90 days.

Under the emergency rules, which went into effect on August 7, 2023, “Benefits means health care, vision, dental, life insurance, retirement, leave (paid and unpaid), other similar employee benefits, and other employee benefits as required by State and federal law.” They also allow a staffing firm to pay temporary employees “the hourly cash equivalent of the actual cost benefits in lieu of benefits required under this Section unless prohibited by State or federal law”. Note, these emergency rules are just temporary, with proposed final rules currently in the comment period until October 2, 2023.

New Jersey

The New Jersey Temporary Workers’ Bill of Rights was signed into law on February 6, 2023. Similar to Illinois, New Jersey released proposed rules, although some provisions of the law have already gone into effect. New Jersey also aims to provide covered temporary workers with equal pay and benefits to directly hired employees. Notably, New Jersey does not require temporary workers to be employed for a specific amount of time before being entitled to equal pay and benefits, but the protections only apply to workers in certain Bureau of Labor Statistics occupational categories.

New Jersey takes a different approach than Illinois with regard to how equal pay and benefits are determined. While Illinois uses the lowest paid, directly hired comparable employee to determine pay and benefits for temporary workers, New Jersey uses the average rate of pay and average cost of benefits. Thus, the potential financial impact is greater in New Jersey if the comparable workers are paid at different rates. Just like Illinois however, New Jersey does allow employees to be paid cash in lieu of comparable benefits.

Unanswered Questions

Given the fact that neither state has released final rules, and likely won’t for some time, there are many unanswered questions. Specifically with regard to benefits, guidance on determining whether benefits are comparable is very much needed. This could be as simple or as complex as the states choose to make this. For example, employers may only need to consider the cost of the benefits, or potentially the plan designs too. One or both states could choose to follow San Francisco’s approach to the Healthcare Security Ordinance and measure benefits based on a dollar value of those benefits.

Conclusion

To say these rules are complicated is an understatement. To start, different third-party client companies will provide different benefits and at different rates. This will require staffing firms to determine on a case-by-case basis for each third-party client, whether benefits are equivalent. Clarifications in the final regulations will be very helpful in this regard. This will additionally increase the cost of temporary labor giving employers a different calculus of whether they want to hire employees full-time or continue to employ them through a temporary agency.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.