Top Challenges Facing Staffing Businesses

Ensuring Legal Compliance Can Be Costly

With employment heavily regulated by federal and state laws, understanding legal implications is vital and ensures businesses don’t make costly mistakes. Worker classification, insurance limits, tax calculations and staff reporting are critical business functions that have to scale smoothly in times of business growth.

Workers inaccurately classified as independent contractors (Form 1099, taxes not withheld) and not as employees (Form W-2, taxes withheld) can cause issues. Their employers can become liable for the tax backlog, penalties, and fines from the Department of Labor and the State. Insurance requirements for workers compensation and unemployment are also different by state and federal laws with distinct requirements between worker classifications.

The Costs of Growing Back-Office Administration Can Quickly Creep Up

The costs of administrative operations like timesheet management, payroll processing, and employee onboarding can quickly add up and soar as the business grows. As staffing firms expand, they face decisions of how to finance and control their growing overheads, while quickly fulfilling new and larger contracts.  Customers expect placements to be filled within days, putting a financial and administrative strain on the staffing agency to recruit, onboard and pay workers – all within a week or two.

Understanding Cost Base and Profitability of Contracts

Another challenge is the ability to make payroll when taking on new or larger contracts. Though some contracts with smaller clients allow negotiation, larger or more established clients have set terms and conditions that are non-negotiable. Each contract requires close analysis to determine the margins and profitability. Renegotiate the terms and conditions before renewing contracts if the cost of running the account is higher than what it’s earning. If terms are non-negotiable re-evaluating the resources required and where savings can be made. Understanding how much is earned vs the cost of running the account allows business owners to make informed decisions about each contract.

Victor Robinson, CFO for Tamah LLC, shared that when his company went to an open bid contract model they knew they needed to become more competitive. “In most cases, we understood that our profit margins would be shrinking,” Robinson said. “At the other side of the equation are our independent contractors, the individuals that ensure the educational needs of these children are met. They needed to be paid on time to attract and retain the highest possible level of talent.”

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Worker Experience and Compensation is Vital to Recruiting and Retaining Top Talent

The current low unemployment rates make it easy for workers to change employers.  Offering competitive benefits and creating a good contractor/employee experience helps staffing companies to retain their top talent. The first interactions set the tone for the employer-worker relationship. Thus, it’s important to take the time with the employee onboarding process. Unfortunately, many staffing businesses are under-resourced and under pressure to fill the positions within days. This makes it hard to provide a great onboarding experience for the workers, while trying to juggle employee eligibility verification, setting up payroll and taxes, and manage all other contract related paperwork.

In my next post, I address how the right partnerships and growth plans can help staffing firms weather some of these challenges.

Daniel Rodrigue

Daniel Rodrigue
Daniel Rodrigue is the Bibby Financial Services National Head of Sales; He develops and implements solutions to improve efficiency and profitability.

Daniel Rodrigue

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