PERA Membership of Substitutes Employed by a Third-Party Employment Agency

On June 30, 2023, PERA sent an email to all School and DPS division employers regarding substitute teachers. The purpose of that email was to clarify that all substitute teachers must be members of PERA regardless of whether the school or district fills those roles using a third party. This means that both member and employer contributions are due, as well as working retiree and employer contributions if the individual is a PERA retiree. PERA will enforce its clarified position beginning with the 2024-2025 school year.

For other outsourced positions, the test of whether an individual is an “employee” of the PERA affiliated employer—and thus whether PERA membership is required—remains the same as it currently exists. PERA employers must review applicable factors to determine whether an individual is an “employee” of the school or the district. Factors may also indicate that an individual is an independent contractor, an employee of a third-party staffing agency, or a concurrent employee of both the PERA employer and staffing agency. If the individual is an employee of the district or a concurrent employee of the district with some other entity, PERA membership is required.

Part of this analysis may depend on the individual’s role and the relationship to a school. For example, teaching is a core function of a school with specific state requirements for performing those duties, but some services, like snow removal, are more incidental. Some services may more easily lend themselves to outsourcing without creating an employee relationship. Colorado law governing PERA grants PERA authority to determine membership status and exemption from membership. PERA will review an employer’s classifications of other outsourced positions upon request. Please note a misclassification can lead to owed member or working retiree contributions and employer contributions as well as interest, so we encourage you to carefully assess your other outsourced positions.

PERA has answered additional FAQs regarding this enforcement:

Why did PERA send an email to School and DPS divisions about the employment status of substitute teachers?

PERA’s email communication dated June 30, 2023, is a clarification concerning substitute teachers and the requirement that those individuals must be members of PERA. If a school or district outsourced substitute teachers in the past, this communication was to provide PERA’s position that these individuals should be PERA members. This means that both member and employer contributions are due, as well as working retiree and employer contributions if the individual is a PERA retiree. This also means that all working retiree rules apply to any outsourced substitute teachers. PERA will enforce its clarified position beginning with the 2024-2025 school year.

Why is PERA taking this position?

Substitute teachers are being treated inconsistently across schools and districts and are losing out on PERA service credit. Further, there is a negative impact to the School and DPS division trust funds if they are not receiving contributions on all substitute teachers. Finally, classifying substitutes as non PERA members avoids working after retirement contributions and rules, which has a long-term negative impact on the trust funds. PERA’s clarified position ensures that

Can other positions still be outsourced from schools/districts or other PERA employers without the individuals being PERA members?

For other outsourced positions, the test of whether an individual is an “employee” of a PERA employer (including a school or district) remains the same as it currently exists. PERA employers must review applicable factors to determine whether an individual is an “employee” of the employer and thus required to be a PERA member under statute. Factors may indicate that an individual is an independent contractor, an employee of a third-party staffing agency, or a concurrent employee of both the PERA employer and the staffing agency. If the individual is an employee of the PERA employer or considered a concurrent employee, PERA membership is required.

Specifically, regarding outsourced positions at schools/districts, part of this analysis will depend on the individual’s role and the relationship to a school/district. Teaching is a core function of a school district, but some services, like snow removal, are more incidental to the operations of a school district. Some employment relationships may more easily lend themselves to outsourcing without creating an employer-employee relationship. Colorado law governing PERA grants PERA authority to determine membership status and exemption from membership. PERA will review upon request an employer’s analysis of any outsourcing classifications.

If a school/district does not properly categorize an individual as an employee, and thus does not provide PERA membership to that individual, what happens if it is later discovered that the individual should have been treated as an employee?

When an individual is incorrectly categorized as either an independent contractor or an employee of a third party, PERA will assess member and employer contributions (or working retiree and employer contributions if applicable) on PERA-includable salary paid during the period of misclassification. In addition to employer contributions, the school/district may also be responsible for the payment of interest on the employer and member contributions. These are the same rules which apply to any misclassified employee of any PERA employer.

How do we report these substitute employees to PERA? Can the vendor report them directly? Will separate reporting be required for these employees if they continue to work through a third-party staffing agency?

As is the case with all PERA members and working retirees, these employees must be reported to PERA through the STARS employer payroll reporting system. PERA can provide STARS access to a third-party vendor upon an employer’s request if the third-party vendor will be uploading contribution reports on behalf of the employer. PERA will not require a separate report.

Third-party staffing agencies are private employers and do not fall under the public records requirements. Will PERA require PERA employers to provide personnel information from staffing agencies to complete the reporting process and other necessary processes?

All PERA employers are required to submit tax and other data to PERA upon request, and PERA will need access to information retained by a third-party staffing agency to accept contributions on behalf of PERA members. As set forth above, PERA can provide STARS access to a third-party vendor upon an employer’s request, if the third-party vendor will be uploading contribution reports on behalf of the employer.

Are the employees of the third-party staffing agency still subject to Social Security withholding in addition to PERA contributions?

PERA is unable to provide employers with tax advice. Employers utilizing a third-party vendor should confirm with the vendor whether the individuals are subject to Social Security withholding.

There are expenses/fees associated with utilizing third-party staffing agencies that are charged to the school/district. These are administrative expenses paid by the school/district that are outside of compensation paid to the substitute teacher. Do schools/districts have to pay contributions on these administrative expenses paid to the vendor?

PERA contributions are determined by the contribution rates set forth in C.R.S. 24-51-401 applied to the individual’s PERA-includable salary. Salary is defined in C.R.S. 24-51-101(42) and PERA Rule 1.20(F) and that definition is the same for substitute teachers as all other employees (including full-time contract teachers). All amounts that are compensation for services rendered by the substitute teacher are PERA-includable. The financial arrangement between an employer and its vendor should be reviewed to determine what amounts are PERA-includable salary for the substitute teachers.

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