US staffing agencies face a unique challenge but have an enormous opportunity. They have access to the world's largest staffing market. Still, to truly take advantage of the market, they must also deal with one of the most complicated legal and administrative requirements globally.
Unlike many countries, the American states have significant power to decide their regulations and labor laws alongside federal regulations. The US political landscape is constantly changing, bringing shifts in federal laws and state authority. For staffing agencies operating across multiple states, this creates a complex web of regulations spanning taxes, insurance, licensing, and overtime requirements, which can be difficult to manage at scale.
US staffing agencies must stay compliant; fines can be hefty at the federal and state levels. If a staffing agency violates industry-specific regulations, such as those in the healthcare sector, it may be banned from operating.
Some staffing agencies try to handle compliance in-house, but this often drains time and shifts focus away from growth. Building an internal compliance team is possible, but it can be costly, time-consuming, and impractical for more agile organizations.
However, there are a few options for staffing agencies looking to expand in the US.
Introducing Employer of Record (EOR) and Professional Employer Organization (PEO)
EOR and PEO offer solutions for staffing agencies that want to grow but lack the internal resources or time to manage their compliance with employment laws. However, there are a few differences between the two.
EOR
An Employer of Record is a third-party entity that acts as the legal employer of a company’s workforce. This means they handle employee benefits and taxes and comply with local and federal labor laws, such as overtime and minimum wage regulations.
With this model, a staffing agency retains control of its daily operations and talent management. In practice, however, the agency still has to handle payroll processing.
PEO
A PEO is a co-employment system in which the PEO and the staffing agency share employer responsibilities. In practice, a PEO is essentially a source of outsourced HR support; it handles payroll processing, benefits administration, and compliance.
In either case, a staffing agency will retain control over business operations and supervise its talent.
What’s The Difference Between EOR and PEO
There are a few key differences between the EOR and PEO employment models.
Legal Employer Status
In an EOR model, the Employer of Record provider serves as the sole legal employer for talent. This means they assume full legal responsibility for the employee and will be responsible for any compliance issues.
In contrast, a PEO provider will act as a co-employer for the staffing agencies, meaning the two businesses will share employment responsibilities. These liabilities will usually be spelled out in the contract, and sometimes states mandate what a PEO is responsible for and what the client company is responsible for.
Business Registration Requirements
Due to an EOR taking on the legal responsibility of the employer, companies don’t have to establish a local legal entity to hire talent when engaging with an EOR firm. This can be useful for staffing agencies operating nationwide or globally, such as those expanding into the US or Canada. In comparison, a PEO will require its client company to have an existing legal entity due to the nature of the employment relationship. Furthermore, PEOs will usually require certain registrations in the local jurisdictions.
Control Over Talent Management
An EOR provider will take control of every aspect of talent compliance. This can include payroll management, compliance with overtime laws, and even minimum wage laws on a regional basis.
A PEO firm will help a staffing agency comply with labor laws and regulations. However, an agency will retain significant control and responsibility for staying compliant. This will commonly include day-to-day functions, such as tracking hours worked and managing licensing in industries like healthcare. The PEO contract will usually explicitly state that the staffing agency is responsible for all HR compliance outside payroll taxes, unemployment insurance, and workers' compensation insurance.
Insurance Coverage
The level of insurance coverage on offer is also different. EORs act as the legal employer for your workforce and provide comprehensive insurance coverage, including workers’ compensation, which is mandatory in every state except Texas, and General Liability Insurance, which protects against claims of bodily injury or property damage caused by business operations.
It’s also common for EOR platforms to offer Professional Liability Insurance, also known as Errors and Omissions (E&O) insurance, which safeguards against claims of negligence or inadequate work.
In contrast, due to the co-employment nature of a PEO relationship, the insurance coverage on offer is often much more limited.
A PEO usually offers workers' compensation insurance and employer liability insurance. However, staffing agencies must still secure their own general liability, professional liability, employer's practices liability, and other insurance coverages, which can represent a high, hidden, fixed, upfront cost.
EOR vs PEO: Which is Better for Staffing Agencies?
While there is no single answer to which service is best for staffing agencies, each has distinct advantages and disadvantages.
Employer of Record Advantages
The biggest advantage of engaging with an EOR for staffing agencies is the assurance that they will fully comply with legal requirements and mitigate legal risks. This allows staffing agencies to focus on finding the best talent and making placements without spending time ensuring they’re compliant. For example, an EOR will ensure that all of a staffing agency's talent is in the correct tax classification, whether W-2 or 1099.
Furthermore, an EOR relationship helps agencies avoid hefty fines and court cases, which can significantly affect the bottom line and disrupt growth.
EOR providers can also benefit US staffing agencies by simplifying their expansion nationwide. By engaging with an EOR platform, a staffing agency can expand its operations into new states without having to develop an understanding of those states' unique employment laws. This means that staffing agencies can operate nationwide and identify new opportunities for growth.
An additional benefit that EOR provides is the flexibility to maximize the US’s “at-will” employment. At-will refers to the idea that an employer can terminate an employee in the US for any reason. This allows staffing agencies to quickly change the makeup of their talent pool, and by engaging with EOR agencies, they can do so without spending time on onboarding and compliance issues.
An EOR will also help address termination issues, such as conducting exit interviews, processing final payments, and retrieving company assets. As a result, staffing agencies can move quickly and take advantage of new opportunities.
Disadvantages of EOR
One of the most prominent disadvantages of EOR for staffing agencies is the cost. An EOR provider tends to cost more than the payroll burden because it must cover all compliance responsibilities and legal risks. These costs are often worth it, however, since they protect the staffing agency from risk and ensure smooth payroll back-office operations.
By engaging with an EOR, a staffing agency will also lose some control over its internal policies. This is not all bad, however, since the EOR will ensure compliant HR policies, which can eliminate legal challenges during rapid expansion.
Advantages of PEO
PEO provides a similar advantage to EOR by easing administrative burdens. However, the most significant advantage of engaging with a PEO provider compared to an EOR is that, due to the co-employment relationship, they are significantly cheaper than an EOR service.
This can make them more beneficial for companies with greater internal resources that want to handle compliance and back-office operations in-house.
A PEO provider will also allow a staffing agency to retain control of some of its employment policies to preserve any benefits that help attract top talent. This is a double-edged sword, however, since it exposes the staffing agency to HR mistakes.
Disadvantages of PEO
The biggest disadvantage of engaging with a PEO provider rather than an EOR is that a staffing agency will still have to manage some aspects of compliance with labor and employment regulations. This means agencies must adapt to different state regulations and stay current with changing federal guidelines.
Consequently, growth-minded staffing agencies may need help capitalizing on new opportunities and navigating any fines or court cases that may arise. This can make establishing a consistent pattern of growth much more difficult.
How to Choose Between EOR and PEO
There is no “best” option between EOR and PEO. However, depending on a staffing agency's goals and current situation, there is normally a suitable option.
Generally speaking, if you’re looking to grow quickly and be able to operate dynamically, such as in new states or industries, without worrying about compliance issues, then an EOR will be the best option for your staffing agency. An EOR provider will handle your compliance concerns and enable you to scale up quickly without being dragged down by regulations.
However, if your agency wants to consolidate its presence in a single market and has a long-term, consistent plan, a PEO service will help alleviate some of the administrative burden at a lower cost and with more control. This can be a good option if you’re not planning to change your operations soon and are familiar with local and federal regulations.
Ascen
No matter which option you choose for your staffing agency, Ascen is built to support you with EOR and PEO services, so you can focus on core operations while we handle compliance and administrative responsibilities.
Employer of Record (EOR)
For staffing agencies aiming to expand rapidly across the U.S., Ascen's EOR services are ideal. By acting as the legal employer, Ascen manages:
- Compliant Onboarding and Payroll: Ensuring adherence to federal and state labor laws.
- Insurance Coverage: Workers' compensation, general, and professional liability insurance.
- Employee Benefits: Offering health, vision, dental, life, disability, and retirement plans.
- HR Compliance and Guidance: Navigating complex employment regulations.
- Background Checks and Drug Tests: Conducting thorough pre-employment screenings.
- Timesheet and Expense Management: Simplified tracking and approval workflows.
- Real-Time Reporting: Access to detailed insights on billing, payroll, profits, and distributions.
- API and ATS Integrations: Seamless connectivity with existing systems for enhanced efficiency.
Want to see how Ascen's Employer of Record and back-office platform can help your staffing agency scale compliantly and efficiently? Book a demo today.
If you'd like to see how Ascen can help your staffing agency, please book a demo here.
