Ever had a medical claim by your over employed staff? Which insurance pays?
Do you pay for training?
In case of intellectual property theft from you or the other company, do you know what are your obligations? (Receiving company is can held liable.)
What amount of taxes do you withhold? What are the penalties for withholding significantly wrong taxes in your jurisdiction?
Of course you pay for training, why wouldn't you?
Working for competing companies is even stupid than being overinsured, and could potentially be illegal (for the employee).
Company withholdings don't change so this is not your concern.
1. The employee's insurance pays; in the US, they pay at least part of their insurance costs so it is unlikely for them to be covered by two services. If so, they can choose. If they were injured on the job, or in some capacity based on your work, then how is it different? Actually, how is this situation different from them purchasing outside insurance or being covered by their spouse? It's unlikely to be a problem and if it is it's not unique.
2. Sure, why not?
3. What does this have to do with them having multiple jobs? If they steal your intellectual property, that's a problem whether or not they are employed elsewhere. How does double employment compound this? If you hired someone from another job and they brought stolen property with them, is that different?
4. They are responsible for letting you know how much to deduct. You can do standard mandatory deductions based on expected salary and as long as you pay the required employment taxes based on the salary you pay them there isn't a difference in withholding on your end, only on theirs. If they owe more in tax, what do you care?
It's not like that. Since work is a market, you exchange a previously agreed amount of money for a previously agreed amount of work and knowledge.
Otherwise, the employees can also say they failed at their task if they wouldn't determine you to part with a large sum while putting in the minimum possible amount of work and working two jobs minimum.
That coin has two sides.
I have no idea why they would want to work two jobs minimum as a part of their task at my job specifically, but yes, part of being an employee is understanding how much money you can get paid in a negotiation with your employer and getting that amount is a success.
It's my job to balance the workload such that they have enough work to make it worth it for me to employ them, and increase that workload where bearable so I can make more profit from their employment. If they are not underperforming and still doing two jobs, then I have failed my task because I have not effectively exploited their abilities for profit.