Managing risk in the staffing industry

With any business comes risk, and the staffing industry, in particular, faces unique risks in terms of workers’ compensation insurance, cash flow problems and contract/agreement needs.


Mismanaging or ignoring these risks can land your staffing firm in serious trouble and they need to be occasionally revisited to ensure your firm minimizes its risks and maximizes its potential.


Workers’ comp


One of the largest staffing firm expenses is workers’ compensation, and it is a necessity you should take seriously.


Workers’ comp protects you in the event of an employee injury by providing wages and medical benefits in exchange for the right to sue for negligence.


In most states, temporary employees are considered employees of the staffing firm, not of the client, meaning you are responsible for injuries and disability costs, which vary depending on your industry and its specific risks.


Most staffing firms receive workers’ comp insurance through an insurance company; however, some states, such as Ohio, handle it at the state level. To determine your state’s rules and regulations, visit


Without workers’ comp coverage, you are at risk in the event of an employee injury, and you could face penalties from your state for failure to maintain coverage.


To reduce work-related injuries, screen employees through drug testing, background checks and prior injury history. Also, ensure that employees are properly trained and provided with the proper safety equipment.


Cash flow


Most staffing firms face the same cash flow problem: You must pay your temporary employees and vendors weekly, while waiting 30, 45, 60 or even 90 days for client payment.


This is especially important to keep in mind when starting a staffing agency or preparing for growth, as you can easily find yourself in a situation in which you need to shell out money you don’t have.


To combat this issue, many staffing firms turn to payroll factoring, in which you sell your accounts receivable invoices to a factor for a fee and receive cash up front to pay employees, vendors or other bills.


Establish clear payment terms with your clients and be proactive when a client doesn’t pay. Creating a cash flow plan that outlines your weekly and monthly cash flow helps you determine your staffing company’s cash flow trends and plan for them accordingly.


Contracts and agreements


A paper trail is important, especially in an industry in which you are working with multiple clients and vendors.


For client contracts, include payment details and due dates, as well as a confidentiality clause, in which you agree not to disclose trade practices your temporary employees may learn while on the job. Insert a reciprocating confidentiality clause in which your client agrees not to disclose your trade practices, as well.


A contingency clause is also essential, as it ensures that your client won’t hire your temporary employees within a certain time unless you receive an additional fee.


You may also want to consider an exclusivity clause, in which the client agrees to use only your staffing firm as its temporary employment provider.


For in-house employees, noncompete agreements are common. These prevent your employees from both starting a competing business and working for a competitor within a certain time and/or geographic area.


Non-compete agreements can be tricky, as enforcement depends on specific court interpretation, so they should be as narrow as possible. Consult legal counsel to ensure your agreement will hold up in court.