4 Big Mistakes that Could Land your Agency in Hot Water

Are you making mistakes that could cost you dearly? Workers’ comp, client contracts, taxes and more all can be a recipe for disaster if not handled appropriately. Heed the words of a certified public accountant and the president of the American Staffing Association as they identify the four biggest mistakes staffing firms make.

1. Don’t have enough money to cover payroll and payroll taxes.

This area always has been and always will be a problem for staffing agencies, says Bruce Friedman, director of assurance services at SS&G Financial Services. Friedman knows well as he frequently advises clients in the staffing industry. He says the payroll problem is created because staffing agencies must pay their employees before their clients pay them.

“The biggest thing to remember before getting into the industry or if you’re preparing for growth is make sure you have a financing arrangement lined up,” he says. “Whether you use a funding company, a bank or you’re an owner who has the ability to get funding on your own, you want to make sure you know what your obligations are going to be before getting started so you have a plan as to how you’ll be able to meet your cash flow needs.”

2. Fail to keep up-to-date on industry rules and regulations.

The staffing industry has a tremendous responsibility to ensure compliance with laws and regulations, says Richard Wahlquist, president and CEO of the American Staffing Association.

To make the most efficient use of time and resources, Wahlquist suggests tapping into an organization such as the ASA to stay on top of existing and new laws and regulations. ASA offers certification programs that teach critically important aspects of labor and employment law to staffing professionals so they can then make sure their firm is in compliance. Visit www.americanstaffing.net for more information.

“With a little time and attention devoted by staffing firms to this area, you’ve got a third-party credential you can hold out to employees and clients to demonstrate your firm takes compliance very seriously and is the kind of firm to do business with,” Wahlquist says.

3. Don’t have proper workers’ compensation coverage.

Friedman says staffing agencies should understand how they are required to provide the mandated coverage. The staffing agency itself is usually responsible for providing workers’ compensation insurance because the worker is considered an employee of the agency, not the client’s.

In most states, temporary staffing agencies receive workers’ compensation insurance through an insurance company. However, in some states, workers’ compensation is handled differently. For example, in Ohio, it is primarily a state-funded program.

For a complete listing of workers’ compensation rules, regulations, forms, contact information and more by state, visit http://www.workerscompensation.com/workers_comp_by_state.php.

4. Fail to write proper contracts.

Requiring a client contract and including all the necessary information, such as payment details and due dates, is essential.

Include a confidentiality clause to protect your client wherein you agree not to disclose trade practices your employees may learn while working with the company (and don’t forget to make sure your own employment contract includes that confidentiality promise as well.) You may also want to include an exclusivity clause in which the client agrees you are the exclusive source for the company’s temporary employment.

Finally, include a contingency clause, Friedman says, to ensure your client won’t hire your employee within a certain time or you will receive an additional fee.

“As a staffing agency, you want to make sure your contract is something that covers and protects you,” he says. “Make it restrictive, but don’t go overboard. Include what will reduce your liability and eliminate potential problems.”