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Choosing a Staffing Agency

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How to Select a Staffing Agency

Using temporary staff is a great resource for companies of all sizes.  Temporary employees fill voids in the work force everyday.  The American Staffing Association defines a “temporary staffing service” as:

“A service whose business consists primarily of recruiting and hiring its own employees and assigning them to other organizations to support or supplement their workforces, or to provide assistance in special work situations such as employee absences, skill shortages, and seasonal workloads, or to perform special assignments or projects.”

When a company determines that a temporary employee is needed, how should they select a service?  Clearly, a major factor is based on who can deliver the best candidates, and second is commonly the “likeability” of the recruiter.  However, your business relationship with a temporary service company should be reviewed more carefully given that users of temporary employees are typically in a “co-employment” relationship with the staffing agency they choose.  Is the recruiter you like the most working for an agency that is prepared to handle the risk management issues that are inherent in staffing?  Is your agency’s workers’ compensation insurance adequate in the event of an accident?  Does your agency have adequate new hire materials to protect your organization?  What are your agency’s qualifications regarding human resource education and training?

On January 1, 2015, California signed into law AB 1897 that imposes joint liability on clients of labor contractors for failure to pay proper wages and maintain valid workers’ compensation insurance. The term “labor contractor” is defined as any entity that supplies workers to perform labor within a client’s usual course of business, including staffing firms.  AB 1897 holds companies accountable for serious violations of workers’ rights committed by their own labor suppliers (i.e., temporary staffing firms) to workers on their premises.  This law is intended to incentivize the use of responsible staffing firms who are committed to complying with California and Federal employment laws. It will protect vulnerable temporary workers, as well as businesses that use staffing firms that follow the law.  It will penalize employers who disregard their obligations and/or profit from intentional violations of the State’s employment laws by using staffing firms that don’t comply.  Now that AB 1897 is the law, is your current staffing firm protecting your interests or putting your company at risk?

Matura Farrington Staffing Services has provided the following information and guidelines to assist companies in evaluating their current and future temporary services firms.


Employment Status of Temporary Employees:

Do you know the employment status of your temporary workers?

W-2 Employees:  In general, a temporary employee who performs work at a client’s site on behalf of a staffing agency will be considered a W-2 employee by the Employment Development Department (EDD) of California.  With W-2 employees, the employer (in this case the staffing agency) must perform all payroll functions and tax obligations for the employee, including handling expense reimbursements, and providing workers’ compensation insurance.  This is the ideal co-employment relationship between a staffing agency and a client because the staffing agency has established itself as the primary employer thus aiding the client in the reduction of risks and liabilities.

1099 Independent Contractors:  Some staffing agencies are set up as “referral services” and are not the employers of the temporary workers (“the referrals”) they send to a client’s work site.   These agencies classify their “referrals” as 1099 Independent Contractors and pay them an hourly rate, but do not pay wage related costs such as FICA, MEDI, SUTA, and FUTA.  Nor do these staffing agencies withhold state and federal taxes on behalf of the “referral.”  In addition, these staffing agencies are not providing workers’ compensation insurance for the “referral.”  Therefore, employment liability issues regarding workers’ compensation and payroll taxes could become the responsibility of the client in the event of a work related accident, or if the Department of Labor determines that the “referral” should have been classified as a W-2 employee.

Employer of Record:  Some staffing agencies use an independent payroll service to pay their temporary employees and act as the official “employer of record.”  Staffing agencies that use these resources do so because they lack the operational structure and financing to maintain these functions in-house.  When these services are used, the client of the staffing agency becomes a co-employer with the payroll service, along with the agency.  This means employment liability issues are now in the hands of a third party who is unknown to the client.  Our research shows that some of these payroll services are not compliant with California labor and employment laws.  In addition, the time cards used by some of these services include disclaimers to absolve them from liability for the actions of their temporary employees.  In these situations, the client has now taken back some of the liability they thought they were minimizing by using a staffing agency.

Clients/users of temporary services should always confirm a staffing agency’s employment status with their workers.  If the status is 1099 Independent Contractor or a third party payroll service is the “employer of record”, a client should consider a full assessment and evaluation of the risks and liabilities associated with using temporary employees or “referrals” from these staffing agencies.

Matura Farrington Staffing Services is the employer of record and classifies all temporaries as W-2 employees.


American Staffing Association Membership:

Is your staffing agency a member of their industry’s associations?

The American Staffing Association (ASA) is the voice of the U.S. staffing industry.  Along with its affiliated chapters, ASA promotes the interests of the industry through legal and legislative advocacy, public relations, education, and the establishment of high standards of ethical conduct.   A staffing firm that maintains membership does so because they are committed to their industry and believe in providing the best possible service according to the standards set by this organization.

The California affiliate of the ASA is the California Staffing Professionals (CSP); a non-profit membership organization which provides products and services to its members within the staffing services industry. CSP promotes and maintains high standards of services and business integrity through the dissemination, application and enforcement of the CSP Code of Ethics and Standards of Professional Responsibility.

Matura Farrington Staffing Services is proud to be a continuing member of both organizations for over 10 years.


Certified Staffing Professional – CSP:

Does your staffing agency have a designated “Certified Staffing Professional” (CSP) through the American Staffing Association (ASA)?

This certification program pertains to labor and employment law and ethical practices as they relate to the staffing industry.  Professional certification helps a staffing firm avoid legal missteps that could result in court action, and protects the rights of candidates, employees and customers.  CSP is a distinguished

credential that demonstrates a staffing firm’s commitment to its customers, high level of professionalism, and dedicated efforts to comply with co-employment obligations and responsibilities.  Matura Farrington Staffing Services continues to have a designated Certified Staffing Professional since 2005.


Hiring Procedures:

Do you know if your staffing agency’s new hire process protects its clients?

A staffing firm should maintain all employment-related records and provide a handbook and training to its employees regarding key labor and employment issues.  The following essential materials should be included in the hiring process and should be available for review by clients:

  • Confidentiality Agreement – Temporary employees are exposed to sensitive and confidential material while on assignments.  This agreement allows the agency to address with the employee the importance and seriousness of maintaining confidential information, and can assist with the risk management requirements of a client, such as liability and malpractice insurance coverage criteria.
  • Harassment Policy and Training – State and federal employment laws require employers to have a policy against harassment.  A staffing firm should have a strict policy against harassment in addition to a training program for new hires.
  • Safety Policy Compliance – State and federal employment laws require employers to have a formal safety policy known as an Illness and Injury Prevention Program.  New hires should be given a complete written program that addresses safety and accident reporting procedures.
  • Arbitration Agreement – In the event of a claim, the arbitration agreement can help to manage the cost of litigation.
  • Client Benefit Waiver – This document acknowledges that the employee is solely an employee of the staffing service for benefit plan purposes and that the employee is eligible only for such benefits as the staffing service may offer to its employees.

Matura Farrington Staffing Services provides all of these documents for our clients’ review.


Insurance Coverage:

Is your staffing agency adequately insured to reduce risk?

Insurance coverage types and limits carried by a staffing agency are critical for protecting its clients.  Before a company does business with a staffing agency, it is important to know if they are fully and properly insured by a carrier that is nationally recognized for covering the unique exposures of staffing firms, including liability exposures at the client’s site.  In order for a staffing agency to qualify for limits that are adequate, they are required by insurance underwriters to meet stringent criteria regarding; financial stability, risk management procedures, best practices of their operation and policies, and general business philosophy.  Standard coverage requirements a client should insist upon:

General Liability:  $1 mil per claim/ $2 mil annual aggregate

Professional Liability/Errors and Omissions:  $1 mil per claim/ $2 mil annual aggregate

Umbrella:  $1,000,000 or higher

Employment Practices Liability:  $1 mil per claim/ $2 mil annual aggregate

Employee Dishonesty Bond:  $250,000 per claim

Matura Farrington Staffing Services carries insurance that meets the standards listed above.


Workers’ Compensation Coverage:

Does your staffing agency carry adequate workers’ compensation insurance?

Did you know that if a staffing agency doesn’t carry workers’ comp insurance, their clients may be forced to take responsibility for some, if not all, of any claims that arise from an injured temporary employee?  Temporary employees, like all employees, must be covered by workers’ compensation insurance under the law.  However, there are staffing agencies that do not carry this coverage or have inadequate coverage.  So what happens when an accident occurs and it is determined the staffing agency has no coverage?  By law, the injury must be reported against the client’s workers’ compensation policy.  The claim could become part of the client’s loss history and workers’ compensation insurance modification factor – this affects rates!  In extreme cases, it could affect the client’s ability to purchase workers’ compensation coverage in the future.

Matura Farrington Staffing Services carries workers compensation coverage in amounts no less than required by law, and is underwritten by Zurich American (“A” rated).


Healthcare Benefits:

Does your staffing firm understand the Affordable Care Act and it responsibilities under this law?

Matura Farrington Staffing Services is committed to compliance with this sweeping law.  In addition, we will provide our clients with indemnification provisions regarding our obligations under the law.


Outside Counsel:

Who is your staffing firm’s trusted legal advisor?

The daily business of a staffing firm, which is managing employees and the employment process, has many challenges that often require legal counsel.  A staffing firm should be ready at any time to speak with counsel for advice on events that pose potential risk, even those that may seem minor.   Customers of staffing firms should seek out the name of their agency’s counsel and consider, “Is this a lawyer I would select to represent my company?”  Who a business selects for legal representation is a good indicator of their commitment to manage and reduce risk for themselves and their clients, in addition to how they run their overall business operation.

Matura Farrington Staffing Services retains an AmLaw 50 national law firm known for their outstanding labor and employment law practice.

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