Worker Classification, Joint-Employer, Wage-and-Hour and Licensing Issues in a Staffing Agency Sale
Staffing sits at the intersection of two employers: the agency that hires and pays the worker and the client that directs the work. That arrangement creates employment questions that buyers of other businesses rarely face. Staffing agency employment compliance covers how workers are classified, who may be treated as their employer, how hours and overtime are tracked and paid, and whether the agency holds any license or registration its state requires. Each can affect risk, cost and value.
This article identifies issues buyers may want reviewed when considering an existing, operating staffing agency. It does not explain how any law applies. Employment, licensing and tax rules vary by state and locality and change over time. Nothing here is legal advice; buyers should rely on qualified employment counsel and other professionals.
Worker Classification
Some agencies, particularly in IT and professional placement, engage certain workers as independent contractors or through the worker’s own company rather than as employees. Whether that treatment is appropriate depends on the facts and on the applicable rules. Buyers should understand which workers are treated which way, how the agency made those decisions and whether any classification has been challenged. Misclassification can create tax, insurance and wage consequences; see our article on staffing agency payroll taxes.
Joint-Employer Questions
Because clients supervise the workers an agency places, both the agency and the client may in some circumstances be treated as employers. How responsibilities are divided, and what the master service agreements say about indemnification, training and workplace safety, are questions for counsel. Buyers may want to understand how the agency handles complaints, discipline and safety concerns at client sites.
Wage-and-Hour Practices
- How time is recorded, approved and transferred to payroll
- How overtime is calculated when workers have more than one assignment
- How travel, training and waiting time are treated
- Final pay practices when assignments end
- Any past audits, claims or settlements
Other Employment Matters
Buyers may also review employment eligibility verification procedures, anti-discrimination and harassment policies, background check practices, required notices and any charges or lawsuits. Practices that differ across offices or segments deserve particular attention.
Licensing and Registration
Some states or localities require staffing agencies, employment agencies or certain types of placement firms to be licensed, registered or bonded. Requirements vary, and licenses or registrations should not be assumed to transfer to a new owner. Buyers should confirm with counsel what applies, whether a change of ownership triggers a new application or notice, and how timing fits the closing.
How Findings Affect a Transaction
Compliance issues may affect price, the representations and indemnities in the purchase agreement, escrow or holdback terms and whether a lender is comfortable with the deal. Issues may also influence whether an asset or stock purchase makes more sense, a decision for counsel and tax advisors. Our guide on how to buy a staffing agency puts these steps in order, and our staffing agency due diligence checklist lists records to request.
Internal Team and Training
Compliance depends on the people running payroll, onboarding and client service. Buyers may evaluate who manages these functions and whether they are likely to stay; see our guide to staffing agency recruiter retention. Owners buying a second agency should also consider how its practices will be aligned with their own; see our article on staffing agency add-on acquisition.
US Professional Funding helps buyers finance the acquisition of existing, operating staffing agencies. Learn more about our staffing agency acquisition financing.
