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Like every other business, staffing agencies have to deal with paying their employees and calculating payroll taxes on an ongoing basis.
However, due to the unique business drivers of the staffing agency, these processes are often more complex than usual.
This article will provide you with the information you need to handle payroll in your own staffing agency so that you can avoid mistakes and maximize your profits while complying with all relevant regulations.
Overview of the staffing agency business model
Staffing agencies act like a middleman between the employers and the workers.
They recruit and supply workers for businesses that are looking to fill certain positions. Many times staffing agencies will have a “contract to hire” clause in their contract with their customers whereas the customer will have the right to hire the worker onto their payroll after the worker has worked certain hours for the business as a staffing agency employee.
Staffing agencies provide value to businesses by taking care of their flexible staffing requirements in line with the ebb and flow of their business needs.
Unique business needs of the staffing agencies
Staffing agency businesses have certain unique business needs because of the nature of their business. The Payroll and HRIS software platforms targeting staffing agencies should address these unique needs otherwise their clients will face higher cost and will be unable to provide great customer service. Here is a short list of these unique needs.
High Turnover of Employees
One of the biggest issues faced by staffing agencies is very high turnover of employees. No other kind of business faces such high employee attrition.
It is not uncommon for a staffing agency to have the number of terminated employees to be five to ten times of the number of active employees.
Such a high employee turnover has a direct impact on the kind of functionality the Payroll and HRIS platform needs to support. Because Staffing agencies are constantly recruiting, the Payroll and HRIS system needs to provide support for a robust Recruitment functionality, also known as ATS (Application Tracking System).
This need can be met in a couple of ways. Either the Payroll platform can have a built in ATS functionality or the Payroll platform should provide a seamless integration with some of the leading ATS platforms in the market.
For example, Uzio platform supports seamless integration with a number of leading ATS platforms. If the Payroll vendor does not provide support for ATS, the agency staff has to manually enter data from their ATS platform into their Payroll platform. Considering the very high attrition faced by the staffing agency and thus the need to continuously hire new employees, this leads to significantly high cost and errors.
In an ideal scenario for the staffing agency, their payroll vendor will either have built in ATS functionality or will support seamless integration with some of the leading ATS vendors, leading to smooth recruitment and employee onboarding and reduced cost of operations.
Higher Unemployment Claims
A direct result of the high employee turnover is the high cost of unemployment claims faced by the staffing agencies. You may wonder how a HRIS platform may be of help when it comes to high unemployment claims.
Here is how.
The payroll and HRIS platform used by staffing agencies should be the “System of Record” (SOR) for the employee data. This means the system should provide support to capture and store all the details regarding the employee from hiring to termination including detailed notes captured during employee’s performance review sessions, feedback provided and notes taken regarding the employee performance at client site etc. during the life cycle of the employee with the agency.
The system should enable the employer to keep detailed notes of the feedback provided regarding performance gaps, issues faced at client site etc in line with the procedures laid out in the company handbook. When unemployment claims are made against the agency, these detailed notes can be used to fight certain unemployment claims. If you are successful in fighting some of these claims, you keep your unemployment rate from going up and that leads to direct savings.
Uzio platform is first and foremost an employee SOR. When a staffing agency uses the Uzio payroll system, they automatically have access to all the detailed employee records including all the notes captured during the employee lifecycle with the company. These notes come very handy when agencies are fighting unemployment claims.
Contract to Hire Clause
One of the unique business needs of the staffing agencies is to support the concept of “Contract to Hire” whereas their customers can hire the employee supplied by the agency by paying a pre agreed rate. Typically this rate reduces as the employee works more hours at the client site and in many cases becomes zero after a certain number of hours.
This means clients are constantly asking staffing agencies for information about hours worked by different employees. Staffing agencies need an easy way to generate reports which will show hours worked for an employee on a particular client contract. In absence of these custom reports, in many cases, agency staff manually goes through different paystubs of employees to calculate total hours worked during a certain period.
This is very time consuming and error prone. Uzio platform provides easy to use reports where with a click of a button, reports can be generated showing the total hours worked by an employee during a certain time period. Agencies can submit these reports to their clients and keep them satisfied.
Affordable Care Act (ACA) 1095 Reporting
The ACA requires Applicable Large Employers (ALEs)—employers that during the prior year had 50 or more full-time employees or the equivalent when part-time employees’ hours are combined—to submit 1095 reporting forms to the IRS. These reports indicate which employees were offered qualified health benefits.
Employees are considered full-time if they work 30 hours per week (based on a 52-week year) or 130 hours per month (based on a 12-month calendar year).
Because Staffing agencies have very high employee turnover where employees are constantly joining and leaving the company, it is crucial that the payroll and HRIS platform used by the staging agency provides a very easy way to track total hours worked by each employee during a calendar year.
The staffing agency should be able to easily generate reports showing hours worked by employees and provide these reports to their benefit broker or other vendor who is helping create the ACA 1095 reports for the staffing agency.
The accurate and timely generation of these reports helps the staffing agency remain in compliance with ACA reporting requirements and avoid very costly penalties.
High Cost of Payroll Platform
Most of the payroll platforms in the market today charge by the number of W2s. Because of the high employee turnover faced by the staffing agency, their number of active employees is only a fraction of the total number of employees including the terminated employees.
For example, a staffing agency may only process payroll for 250 employees in a week but may have as much as 1,000 plus W2s or more in the system, most of these being terminated employees. If the Payroll platform provider charges by the W2s, this can lead to the very high cost of running payroll for staffing agency.
At Uzio, we charge only for the number of employees who get paid in a week or a month irrespective of how many W2s the agency has on our system. This leads to significant cost savings for the staffing agency.
Recommended Reading: Biggest pain point with Payroll and HR software
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Summary
In this article, we have tried to highlight the unique business needs of a staffing agency and how it impacts their choice of the Payroll and HRIS platform. Instead of choosing a generic payroll provider, the staffing agency can save thousands of dollars in cost and better serve their clients if they work with a Payroll vendor like Uzio who are built to address the unique needs of the staffing agencies.
