How to Select a Staffing Agency

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 situation 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?

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


Insurance Coverage:

Is your staffing firm adequately insured to reduce risk?

Insurance coverage is one of most important areas to consider when evaluating a staffing agency. Coverage type and limits are critical for protecting clients of temporary staffing services. Before a company does business with a staffing firm, it is important to know that 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 to qualify for limits that are adequate, staffing firms 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. Coverage requirements to insist upon:

General Liability: $1,000,000 per claim
Professional Liability/Errors and Omissions: $1,000,000 per claim
Umbrella: $2,000,000 or higher

Cosmopolitan Staffing Services carries insurance that meets the standards listed above.


Workers’ Compensation Coverage:

Does your staffing firm carry adequate workers’ compensation insurance?

While it is the law that all employers carry workers’ compensation coverage, there are staffing firms that do not carry this coverage or have inadequate coverage. What happens when a claim occurs? By law, the injury must be reported against the client’s workers’ compensation policy. The claim may become part of the client’s loss history, and have possible effect on a client’s workers’ compensation insurance modification factor which can affect rates. In some cases, it can affect the client’s ability to purchase workers’ compensation coverage in the future.

The bottom line? The employee must be covered by workers’ compensation insurance. If the agency doesn’t have it, their clients may be forced to take responsibility for some, if not all, of any claims that arise.


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.

Cosmopolitan Staffing Services retains an AmLaw 100 New Jersey law firm known for their outstanding labor and employment law practice.

Employment Status of Temporary Employees:

Do you know the employment status of your temporary employees?

W-2 Employees: In general, a temporary employee who performs work at a client’s sight will be considered a W-2 employee by the Department of Labor NJ. With W-2 employees, the employer (the staffing agency) must perform all payroll functions and tax obligations for the employee, including handling expense reimbursements, and providing workers’ compensation insurance.

1099 Independent Contractors: Some staffing agencies are set up as “referral services” and are not the employers of the temporary staff they send to a client’s work site. The agency classifies their workers as 1099 independent contractors and pays an hourly rate to the workers, but does not withhold the taxes or pay workers’ compensation insurance premiums. 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 DOL determines that the employee 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 is officially a co-employer with the payroll services – not the agency. This means employment liability issues are now in the hands of a third party who is unknown the client. Our research shows that some of these payroll services are not compliant with New Jersey labor and employment laws. Therefore, it is important to use the same evaluation criteria shared in this document to determine if the payroll service meets your company/firm standards.

Users of temporary services should always confirm a staffing agency’s employment relationship with their workers. If a “referral” service (1099 workers) is used, a full assessment of the risks and liabilities to the user of the service should be evaluated carefully.

Cosmopolitan Staffing Services is the employer of record and all temporaries are W-2 employees.