Threats that go bump in the night, keeping CEOs up, is common in business. But there are some risks that can impact the staffing industry that keep staffing execs pacing the floors, burning the midnight oil.
We spoke with several experts about some of the risks. Yes, many of these top-of-mind issues can’t completely be erased as they are endemic to staffing but they can be mitigated. Some concerns are more complex than others involving suits that can prove very expensive to the agency.
Here’s what our specialists recommended.
1. Indemnification: Be careful what you sign.
Client companies frequently demand extensive indemnification clauses, often resembling insurance agreements rather than indemnification. Such overreaching requests can place staffing firms at risk of significant liability and cause anxiety for staffing executives.
Joel Klarreich, a partner at Tannenbaum Helpern Syracuse and Hirschtritt LLP, warns that clients may even seek indemnification for actions they themselves take, such as instances where a staffing firm must indemnify a client for its employee’s misconduct.
To protect themselves, staffing firms must resist and question onerous indemnification agreements. Klarreich emphasizes the importance of understanding the terms before accepting them, as overly broad indemnification can leave firms without insurance coverage.
James A. Essey, President/CEO of the TemPositions Group of Companies, stresses the need for thorough contract review and mentions that the American Staffing Association offers model contracts on its website for guidance. These models can serve as reference points during negotiations with clients.
Essey also cautions staffing companies serving healthcare organizations about becoming HIPAA business associates. This designation can lead to substantial mitigation expenses if data breaches occur, and the HIPAA law allows clients to include staffing firm employees in their HIPAA headcount.
In summary, staffing firms must carefully consider and negotiate indemnification clauses to avoid unnecessary risk and liabilities, while also staying informed about potential HIPAA-related obligations when working with healthcare organizations.
2. ACA: Watch your bill, stop loss coverage.
The Affordable Care Act, passed in 2010, still concerns staffing firms. Two key worries surround ACA: potential financial penalties and stop-loss coverage. Employer penalties took effect in 2015, necessitating qualifying insurance provision or fines. Staffing firms opt for “skinny” MEC health plans for external workers, but could still owe penalties if workers receive exchange credits. The bill for 2015 penalties arrives in May, causing potential financial strain.
The second concern centers on stop-loss coverage. Some staffing firms, unable to secure fully insured plans, go the self-insured route. However, the ACA demands no lifetime cap on claims, while some stop-loss carriers impose caps. This leaves self-insured firms liable if claims surpass caps, emphasizing the need to scrutinize policies.
Background checks and “Ban the Box” laws present another challenge. Criminal background check regulations vary by location, and “Ban the Box” laws restrict criminal conviction inquiries on applications. Staffing firms must navigate diverse rules based on their operational areas, making legal counsel crucial. Liability in pre-employment screenings falls heavily on staffing firms, given their significant involvement in the process.
In summary, staffing firms grapple with ACA penalties, stop-loss coverage intricacies, and complex background check laws, highlighting the necessity for careful policy analysis and legal compliance.
4. Wage and hour; IC misclassification.
Wage-and-hour laws pose challenges for well-intentioned employers. Buyers may request off-the-clock work from staff. Staffing firms must proactively monitor this. Determining compensable time is tricky; a Supreme Court case ruled non-compensable time for security checks.
Wage and hour claims are costly; unpaid overtime results in double damages. Misclassification is another concern; workers might sue if misclassified as independent contractors. Government agencies seek such cases. Periodic self-audits by industry-savvy attorneys are advised.
Misclassification can be expensive; FedEx settled for $227.1 million in multi-district cases, with more pending. Additionally, they agreed to pay $228 million in a class action lawsuit by California drivers. Despite using independent contractors under a new model, it was a costly legal battle.
5. Immigration: Increased scrutiny, costs.
Staffing firms employing H-1B visa workers, including skilled IT experts, face intensified challenges due to rising costs. Political candidates’ stances on corporate H-1B use have been inconsistent. Administrative actions and legislation have driven up H-1B access expenses. Regulations have imposed extra costs when H-1B workers switch employers, while larger firms with over 50% H-1B employees now face doubled petition fees.
Critics in Congress and the US Citizenship and Immigration Services aim to restrict staffing’s H-1B access, and the presidential debate often disfavors such programs. H-1Bs are also scrutinized for allegedly displacing US workers, primarily targeting outsourcing firms, not staffing firms.
The TechServe Alliance strives to advocate for H-1B visas and reasonable immigration laws while seeking fee reductions.
Staffing firms also grapple with cyber threats and data breaches. They hold sensitive data, like Social Security numbers and bank details, making them prime targets for data theft. If data is compromised, staffing executives are accountable, and the costs can be significant. Hacked firms often cover credit monitoring for affected individuals, and varying state regulations mandate data breach reporting.
Other Pitfalls
Besides these prominent risks, there are other potential pitfalls that make executives uneasy. Top of the list are: sick leave laws, VMS systems and even millennials. This generation of workers are a breed unto themselves bringing a different perspective to the workplace as far as how long they want to be at one company and what they expect. Often, firms have to treat them differently than previous generations to keep them engaged or firms can face significant turnover, Essey says. And turnover costs can debilitate the bottom line.
Other risks that can trip staffing firms up include the mandatory paid sick leave. This is another type of law that can vary by jurisdiction with different rules to follow for each.
Traditional staffing was conducted with a certain set of rules. Along came the VMS which changed the way staffing firms work, with many companies still concerned about VMS’ impact on personal relationships between staffing firms and buyers when a third-party technology stands between them. The VMS is often seen as the enemy that erodes a staffing firm’s margins. Today, the bad blood has reduced for some as more and more people are getting accustomed to dealing with the VMS.
Staffing execs have seen their share of troubles and like many others have struggled, innovated and adapted to stay afloat. When asked about changes in the industry over the last 25 years at the last Staffing Industry Executive Forum, Jai Shekhawat, founder of VMS provider Fieldglass, replied “the thing that I think has been least changed is the inherent resilience of the staffing industry.”
Craig Johnson is Senior Managing Editor of Staffing Industry Review and Staffing Industry Analysts Daily News.
For more insights and perspectives on managing the workplace, discover TemPositions’ blog.
