CEO/Chief Problem Solver, Chief Nowian, World Renowned Contingent Labor Expert, VMS Software Design Legend, Direct Source Software Designer, Philanthropist , Believer of People, Devoted Husband and Dad
Why are Staffing agency markups dropping in California?? The California Staffing Market continues to lose margin as many temp staffing agencies have a created a price war. Some markups are as low as 19%! Recently a very good staffing supplier of ours Eric Garcia who runs a wonderful staffing business in California was victim to this when a fraudulent staffing supplier outbid him at 19%. This really hurts Eric’s business and put his client in jeopardy. But how is this possible?? How can an agency price services below the cost of doing business? Let me give you some ways it is happening: 1. Misclassification of workers comp codes 2. Not paying payroll taxes These are two of the most common reasons on how an agency can price below cost. Do YOU, the client, have any exposure??? YOU BETTER BELIEVE YOU DO!! Misclassification of workers comp in which YOU THE CLIENT benefit from can get you in BIG trouble. How can you (the staffing agency) better educate your clients on the risks of doing business with these kind of companies? Forward this post to your client or remind them of the risks they are taking when working with these fraudulent companies. I will share another post that can provide companies a check list on how to avoid these issues.
Vicki Riechers
7mo
I’ve had a front row seat to what is happening in CA for several years. An associate of mine who owns a WBE staffing company was run out of business in CA by staffing companies who are using an array of methods to cheat the system. Meanwhile the State of CA does nothing to stop these practices even when legitimate staffing companies report these illegal practices to the proper government agencies. Instead CA continues is driving employers out of the state with regulations. It will be interesting to see if good staffing companies will be able to survive what is happening here. So sad!
Anuj Sehgal
7mo
Yep. This is pretty much impossible. The math doesn’t work out in anyway. Plus throw in any other customer fees and volume discouts, the supplier is going to be bankrupt within the quarter We have been educating and advising our customers as suppliers continue to create unrealistic and shady value propositions that we know are impossible to meet Most tend to understand, some customers don’t. But there are huge risks involved with working with suppliers that just want to operate solely on a pricing differential. It’s a red flag and some corners would be getting cut somewhere 🚩 there is no free lunch out there
Leo Castaneda
7mo
19% MU with Sick Pay and Holiday Pay LOL awesome post!
Richard Nevarez
7mo
This action from the temporary help industry is called cutthroat. This happened in the 80's. This type of what some companies call corrupt is just another way of saying if you can't do it, we will. Majority of companies (clients) know how this industry works. This is nodifferent than what a buyer does with his suppliers. You take three quotes from three different suppliers and you buy from the lowest. And on to the next. I am sorry to put this very bluntly, but there is no politician that will help or no aid will come because the first rule is the client can change services when they want if no written contract has been agreed upon and signed off by both parties. Plus the fact they can go with the lowest quote. There end game is to go with the cheapest rate. They are looking at the bottom line.
Lissette Haber
7mo
Saw so much of that during the 2008-2010 recession - 🤢 Seriously?!! So sad… so many businesses with non-legit WC codes, incredibly under-priced business - old bait and switch - give them what will win the business and go on for price increases later, branches running so lean to support no to low profit margins that they can’t support the client. You name it, it happens… great post. Make good business choices people!
Alfredo Garcia
7mo
Great post. I’ve handled investigations in the staffing industry for decade’s. I would add: 3. Not having workers compensation coverage. 4. Generating false certificates of insurance when there is no actual policy. I have staffing company clients who markup to cover true costs and limit liability. Choose the right staffing company not the lowest markup.
Agree. Companies that work with shady staffing outfits are also open to claims of the contracted worker(s). I have seen cases where the employer was hit with multiple claims because the staffing company they used went out of business and/or was not insured. If I had a dime for every time I found warehouse workers classified as retail stores or tree trimmers as maintenance workers, I would already be retired and enjoying my island!
Paul Capozio
7mo
So sad what was once A if not THE greatest light industrial market in the country. I built in the hundreds of millions many years ago with markups almost twice that. I’m glad I’m done and found a new industry to build positive cash flow in my semi retirement. I’m greatful for what I had and the time I had it in. To those operating now I wish you well I remember 17 years ago saying they cant drop rates forever. Well here we are.
Regional Vice President of On-site Operations
7moHi Jean. What do you believe should be the standard starting point MU% to ensure fair profitability on the agency side as well as competitive enough for the client to feel safe they are dealing with a legit agency?