When it comes to managing risks associated with a contingent workforce, these are interesting times. Front page headlines are shining a spotlight on intellectual property risks that one rogue worker can bring. Changes in widely accepted independent contractor business practices raise questionable issues. Additionally, there are multi-million dollar judgments against businesses for misclassifying independent contractors.
Although separate in nature, these issues are renewing the focus on the need for staffing agencies to manage risk. Staffing professionals agree that it is impossible to eliminate every risk associated with a contingent workforce. Doing so would be cost prohibitive and ultimately stifle the primary reason for using contingent resources. Nevertheless, staffing professionals should evaluate the different areas of risk and make sure their organizations are prepared.
Evaluating risks and devising a strategy to address those risks is important to making sure your staffing agency is prepared survive. Essential to being successful is to have risk mitigation actions in place. This involves determining appropriate responses and any preemptive actions to manage risks.
Each risk event should have its own assessment based on the probability that it will occur at your agency, the costs and the priority level. Some options to consider are:
Industry analysts have identified five common areas that present risks to having a successful staffing agency. News headlines respond to legal risk components; however, all categories require close attention for staffing agencies to maintain an effective service. The main five for contingent workforce staffing are: operations, compliance and legal, reporting, strategic planning and safeguarding resources.
Risk is an inherent part of doing business regardless of the industry. For a staffing agency, there are risks unique to the industry that are not separate from the main five areas. These include:
Mismanagement of these risks – or simply ignoring that they exist – can land your staffing agency in serious trouble. It is a good practice to occasionally revisit these areas to ensure your agency can minimize the effects of these risks and maximize potential. Effective strategy, sound judgment and good policies will go a long way to mitigating risks.
In determining who is responsible for workers compensation coverage, most states classify temporary workers as employees of the staffing agency. Therefore, you are responsible for any injuries and disability costs even when workers are injured at a client site.
Workers compensation insurance is necessary and one of the most expensive costs for your staffing agency. In essence, workers compensation will protect your agency when an employee is injured during an on-the-job activity. A portion of wages and medical benefits are covered for the employee in exchange for relinquishing the right to sue your agency for negligence.
Without this coverage, you put your staffing agency at risk if an employee is injured. You could incur penalties for not maintaining workers compensation coverage. Rules and regulations vary by state, but it is in your best interest to make sure your agency is adequately covered.
Maintaining coverage is one way to mitigate risks. Reducing the possibility of work-related injuries is another approach. Make sure all employees are screened through drug tests and background checks. You should also determine prior work injury history before placing employees in certain positions. In addition, make sure all employees receive proper safety training and equipment for specific tasks.
Problems with Cash Flow
Like most staffing agencies, you face cash flow problems of having to pay vendors and temporary employees each week, while clients can take up to 90 days to pay an invoice. This can be particularly troubling if you want to expand services but lack the capital necessary to grow.
To combat the risk of lacking financial resources, you could use invoice factoring services. Basically, you sell accounts receivable invoices to a factoring company and receive cash to meet payroll and pay bills. You are not confined to trying to run a successful staffing agency while waiting for payments from clients.
Other than using a factoring service, you can establish clear payment terms with clients. Develop a cash flow plan that outlines weekly and monthly analyses to determine trends. This information will help you plan accordingly and be prepared for unexpected emergencies.
Competition from Salaries and Rates
Without making a profit, it is impossible to have a successful staffing agency. Depending on the type of fee structure you have for your agency, money is earned from a percentage of what clients pay for each hour worked by an employee. You may also collect fees for finding permanent employees for some clients.
Your competition arises when other staffing agencies pay their employees more or charge clients less. The risk to your agency is losing both employees and clients unless you have a marketing plan that projects value for the services your agency offers. Either way, you need to have a competitive rate to have a profitable agency.
Effective Candidate Screening
One justification for having a slightly higher rate than your competitor is the quality of candidates from which clients can choose. Your concerns are usually higher than those of a traditional employer. Employees that you send to a client’s job site are your responsibility and you are trusting that they will do a good job. You are not at the job site to supervise their work ethic or behavior.
Some risks to your agency are the traits and skills of employees. If an issue arises, a majority of the consequences will rest with your staffing agency. Negative issues and poor performing employees can hurt your agency’s reputation. Generally, you can get beyond this point by having an effective candidate screening process. Run background checks according to local laws and perform skill assessments to make sure the employee you send to a client’s site bring more than a warm body to the table.
Contracts and Agreements
Having a paper trail is important, especially for a staffing agency that works with multiple vendors, clients and employees. For clients, make sure payment details and due dates are included in contracts. A confidentiality clause is essential for your protection as well as your client.
You should be willing to agree not to disclose trade practices and secrets that temporary employees might learn about while working for the client. Likewise, a reciprocating clause will ensure that clients do not disclose your trade practices to competitors.
A contingency clause is also essential language to include in client contracts. Part of your fee structure includes the time and effort you put into recruiting candidates for clients. Their payment to you is for the convenience of not having to recruit and hire workers. With a contingency clause, you have a reassurance that clients will not hire your temporary employees within a specific time frame. If they do, they are legally required to pay an additional fee.
Your temporary staffing agency provides a necessary service to clients who want to save on workforce costs and to employees who need to work. Placement could be for one day, one week or a few years. Some clients may want you to devote time to the hiring process for a permanent employee. Regardless of the time length, the staffing industry comes with plenty of business risks.
You can position your staffing agency to withstand or completely avoid these risks with a solid plan. Ongoing monitoring and management practices can also help in preventing costly situations.
Generally, evolving marker rules and regulations may dictate your risk plan. Your use of temporary employees, client needs and operational policies may also determine the agency’s exposure to certain risks. Nevertheless, having a guide for monitoring, addressing and preventing certain issues can improve your staffing agency’s chances of being successful.