It’s easy for staffing agency owners to focus only on the front end of their business. After all, the success of a staffing business depends on getting placements, securing new clients, and growing in their market. 

However, operating a staffing agency across multiple state borders can get complicated. Each state is essentially its own country regarding employment laws, licenses required, and even the culture different employees can expect. 

Wage and hour laws often vary dramatically by state. California has stringent pay transparency rules, while there are no such laws in places like Texas. California and Nevada have daily overtime, while other states do not. Some states adopt the federal minimum wage, while other states have their own minimum wage, which can be much higher. Similarly, overtime exemptions (for certain salaried employees) can vary by state as well.

If your staffing agency is growing quickly across state borders, then you will need to be aware of the laws of each state where you have workers.

The Risks of Non-Compliance 

Failing to conform to a state’s employment laws can significantly impact the success of your staffing agency, from dealing with lawsuits to reputational damages and even harming the chances of you being able to exit your staffing agency down the line. 

Financial 

The most obvious risk when operating a staffing agency without compliance with state guidelines is the one to your bottom line. For example, penalties for wage and hour violations are typically 2x the missed pay amount. This is due to something called "liquidated damages," where most states award the missing pay and an additional 100% of the amount owed. Your staffing agency would also be liable for attorney fees for defending the case.

If you are working with hundreds of staffing employees, employees could also bring a class action lawsuit against your staffing firm. In this case, the awards could be very large (sometimes in the millions of dollars). For discrimination and harassment cases, you could receive a state EEOC claim and the associated fines.

Reputational 

Legal mishaps can also significantly affect your staffing agency's reputation. Your staffing agency may face scrutiny, and ultimately, your clients may no longer feel they can trust you to provide candidates. Moreover, if your employees find out, they may leave your agency and find an employer they believe can be trusted to keep them compliant. 

M&A

If you’re building up your staffing agency to sell it in the future, breaking employment laws can significantly diminish your chances of selling on favorable terms. Most buyers will research a company and non-compliance incidents when acquiring businesses, significantly diminishing buyer confidence if they find a non-compliant history.

What Do I Need To Consider To Stay Compliant? 

Staying compliant with employment law and regulations isn’t as simple as paying the right wage. Each stage has nuances, including industry-specific qualifications, which you must consider. The following list is not exhaustive but shows some examples of compliance areas important for staffing agencies.

Paid Leave and Overtime 

Just over a dozen states in the US currently require paid sick leave, while most, like Florida, do not. Paid Sick Leave is where a worker accrues an hour of paid sick time for a certain number of hours worked. These rules vary by state. Some states and even cities now have paid leave laws that allow paid leave to be used for any purpose, not just for sickness.

Overtime regulations can also differ from state to state. As mentioned above, California requires employers to pay their employees overtime for any hours worked over eight in a single workday. Conversely, most states subscribe to the FLSA standard that overtime is only paid once an employee has worked 40 hours a week. Get this wrong, and you could be facing a hefty wage and hour lawsuit.

Worker Classification 

Worker classification is also a difficult area for staffing agencies operating in multiple states, especially if you are occasionally engaging independent contractors.

Some states use what's called the "ABC Test" to judge whether a worker can be an independent contractor, while others use the "Common Law" standard. These nuances might seem small but can have dramatic effects. States that use the ABC test for IC classification require that three points are met in order for a worker to be considered an independent contractor: they must have control over their work/schedule, they must be doing work outside the client's normal business, and they must be operating a bona fide standalone business. If any of these facts are not there, the person cannot be considered an independent contractor. States under the "Common Law" standard use a "sum of the facts" approach, which generally looks at behavioral, financial, and other forms of control, but no one factor is determinative. These different approaches can mean that your normal process of classifying a worker as an independent contractor in Texas (a common law state) won't work in places like Massachusetts (an "ABC" state).

Getting IC classification wrong can cost thousands in fines, back taxes, and missing wages for each worker, so it's important to know the state laws where you have workers being classified as independent contractors.

Industry Specific Regulations

Another common area where staffing agencies can be non-compliant is industry-specific regulations. For example, many states require some form of licensure in the healthcare staffing industry before a staffing agency can make a placement.

However, these industry-specific regulations will change from state to state. Kentucky, for example, requires no licensure, but Florida requires both a license and nurse roster reporting. Knowing how your state regulates staffing in each industry is vital for maintaining compliance. 

Insurance Regulations 

Another consideration that differs from state to state is what insurance a staffing agency requires. As a general rule, workers' compensation is required in every state. Texas doesn’t require workers' compensation, but most clients will require it.

Furthermore, for health insurance, while federal law requires a staffing agency to offer health insurance if the company has over 50 employees, some states, like Massachusetts, require offering insurance when your staffing agency has over 11 employees.

How Can Staffing Agencies Ensure They’re Compliant? 

While many staffing agency owners aim to maintain compliance, managing things in-house can be very expensive. Hiring a Payroll director or HR director and using a labor attorney is very expensive, especially for a startup staffing agency. Another option, however, is to outsource your back-office management to an Employer of Record (EOR), which allows you to maintain compliance without draining your internal resources. 

An Employer of Record (EOR) acts as the legal employer of your workers in the states in which you operate. The EOR will manage compliant employee onboarding, hold all the required insurance (including general liability, professional liability, and workers' compensation), manage payroll, and ensure compliance with employment laws from different states. Some EORs like Ascen will do invoicing and funding for you as well. Allowing the Employer of Record to do your back office allows your staffing agency to fully focus on sales and recruiting, instead of back office operations.

Ascen 

Ultimately, the list of compliance requirements for staffing agencies in the US is constantly changing, so staying compliant can be difficult.

Ascen was developed with this in mind and features a comprehensive back-office management suite for all 50 US states plus DC. Ascen can handle everything from the insurance each state requires to automating your onboarding process and ensuring your employees receive the right benefits. 

If you’d like to book a demo to see what Ascen can do, please book it here.