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 the C-suite 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 often ask for the moon in their indemnification clauses. But signing overbroad agreements can leave staffing firms on the hook for significant liability — and loss of sleep for staffing executives.
“Clients are demanding more and more indemnification that makes the staffing firm look like an insurance company and not an indemnitor,” says Joel Klarreich, a partner with law firm Tannenbaum Helpern Syracuse and Hirschtritt LLP. Some staffing buyers even seek indemnification for things they do. In some instances, a staffing firm may have to indemnify a buyer if the buyer’s own employee sexually harassed another employee.
Staffing firms must push back when asked to sign onerous indemnification agreements, Klarreich says.
“They just can’t sign it as a price of doing business, they need to understand what they are agreeing to,” he says. “There’s also a risk when you give overly broad indemnification, you’re not going to be insured.”
Even when insurance stays in place, premiums can go up if there is a large claim.
“It’s so important for people to really read the contracts they are signing with their clients,” says James A. Essey, president/CEO of the TemPositions Group of Companies, adding the American Staffing Association has model contracts on its website that address the issue. Staffing firms can point to those contracts when negotiating with buyers to show what standard contract language should look like. Essey is chairman of the ASA’s Legal/Legislative Committee.
Essey also cautioned that companies providing staff to healthcare organizations should be wary of being made a business associate for purposes of the Health Insurance Portability and Accountability Act. A HIPAA business associate means a firm will be exposed to all sorts of mitigation expense if data is exposed. The HIPAA law allows clients to include staffing firm employees in their headcount for HIPAA purposes.
2. ACA: Watch your bill, stop loss coverage. Passed in 2010, the Affordable Care Act still appears on lists of concerns for staffing firms.
Essey says there are two things, in particular, concerning about the ACA right now.
The first involves potential financial penalties. The employer penalties took effect in 2015 requiring companies to provide qualifying insurance or pay a penalty. But staffing firms may provide a “skinny” minimum essential coverage (MEC) health plan for their external employees that does not provide for minimum value. The MEC plans will avoid an ACA potential penalty assessed based on all full-time employees, but firms may still owe a penalty based on each worker that receives a credit to buy health insurance through an exchange. For firms in this position, they won’t know how much they owe for 2015 until the middle of this year.
“You don’t get the bill for that until somewhere around May of this year,” Essey says. “That could be a significant bill.”
The second issue is the stop loss coverage. A number of staffing firms have not been able to get fully insured plans and have had to go the selfinsured route. That usually involves bringing in a stop-loss carrier for exceptionally large claims. However, a problem can take place because the ACA requires no lifetime cap on claims — which staffing firms self-insuring must provide. On the other hand, some stop-loss carriers put a lifetime cap of $1 million to $2 million. That means a self-insured firm that gets an exceptionally large claim could still be on the hook if it exceeds the stop-loss carrier’s lifetime cap. Make sure to read your policies.
Essey says staffing executives should check any stop loss coverage to make sure there is no lifetime cap.
3. Background checks, Ban the Box: Follow the rules. Criminal background checks are covered under laws that can vary by locality. In addition, many jurisdictions are approving “Ban the Box” legislation that can prohibit employers from asking about criminal convictions on applications and possibly mandating when criminal background checks can take place (see page 13). That means there are a number of rules staffing firms may have to follow depending on which cities, counties and states they operate in.
“There are a lot of moving parts there,” employment law attorney Janette Levey Frisch says, and it’s important for staffing firms to be in contact with people who are knowledgeable about the laws in all locations where they employ people, because, in particular, laws regarding pre-employment background checks differ between cities, counties and states.
Staffing firms can be found entirely liable or mostly liable if something in the pre-employment screening process goes wrong because they are the ones with the most if not sole involvement in these screening processes, Frisch says.
4. Wage and hour; IC misclassification. Wage-andhour laws can present pitfalls for even the most well-intentioned employers, Frisch says.
Sometimes a buyer can ask a worker for extra work that is not on the clock. Staffing firms need to be proactive in finding out what is going on and taking reasonable steps to ensure that their contingent workers are not working off the clock.
And that’s not the only concern; even figuring out what is compensable time can be a challenging question. A case over whether contingent workers should be paid for time spent standing in line for a security check before entering and leaving Amazon.com’s warehouses before and after their shifts went up to the US Supreme Court, which decided unanimously in 2014 that the time was not compensable.
“Wage and hour claims can be astronomically expensive for any employer,” Frisch says. If a company is found in court to owe an employee legally required overtime, workers are entitled to actual overtime plus liquidated damages, which ends up being double the amount of actual straight time and overtime, not just time and a half. The employee’s counsel will also be entitled to attorney fees if the employee proves he or she is entitled to any back wages, and that will often be as much if not more than the actual wages owed.
Workers can also sue for back wages and overtime if they feel they have been misclassified as independent contractors — another area of concern. Government agencies are also keen to pursue cases of misclassification as this can mean more revenue for them.
Klarreich also warns that if a firm misclassifies, it may also not be complying with wage and hour laws. It’s a good idea to periodically have a self-audit by an attorney who knows the industry to ensure workers are being properly classified, he says.
Misclassification claims can be costly. For example, FedEx Corp. recently settled a series of lawsuit by FedEx Ground drivers who claimed they were misclassified as independent contractors. In a settlement of 19 multi-district cases, FedEx will pay $227.1 million to settle — if the settlement is approved. However, that doesn’t include other cases in a series of litigation that began in 2004. FedEx separately agreed last year to pay $228 million to settle an IC misclassification class action by California drivers. While FedEx Ground still uses independent contractors — albeit under a different model — the suits were costly.
5. Immigration: Increased scrutiny, costs. For staffing firms that use H-1B visa workers, such as highly skilled IT specialists, things have gotten tougher with increased costs. In addition, H-1B use has come under scrutiny in the presidential campaign with some candidates attacking corporate America’s use of H-1Bs. Of course, candidate views turn on a dime.
“There have been a number of administrative decisions and legislation that has increased the cost of accessing H-1Bs,” says Mark Roberts, CEO of the TechServe Alliance. “There certainly remains significant burdens on staffing firms that we are always in the process of trying to address.”
New costs have been put in place when H-1B workers move between employers, Roberts says. In addition, a bill in November doubled to $4,000 the cost for H-1B petitions for companies with more than 50 employees who have 50% or more of their workers on H-1Bs. While most staffing firms don’t meet that threshold, they may rely on suppliers who do.
There are detractors both on Capitol Hill and at the US Citizenship and Immigration Services who would completely deny staffing’s access to H-1Bs, Roberts says. Rhetoric has also grown heated in the presidential debate and has often not been supportive of programs such as the H-1B.
Use of H-1Bs have also come under fire by some who claim they are being used to displace US workers. Allegations have centered on large outsourcing firms and not staffing firms.
The TechServe Alliance continues working to educate on the need for H-1B and reasonable immigration laws and roll back fees.
6. Cyber threats, data breaches. Staffing firms often keep sensitive data on file such as workers’ Social Security numbers and bank information. Threats of hackers stealing data is a risk that is always lurking in today’s fact-paced tech driven world of business.
Staffing firms are on the hook if someone hacks the information and misuses it, Essey says. But even if the information is not used, firms may face expenses. Hacked firms often pay for credit monitoring for affected individuals. Government regulations also require reporting of data breaches with different procedures for each state.
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.
The staffing industry has seen its share of troubles and like many other industries 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.”