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Temporary Staffing Industry in the age of "Obamacare"

We want to share with you one of the hot topics we have been discussing with clients looking to diversify their offering and create a new revenue channel. 

We have been talking about our PEO clients’ expanding their service offering to include Staffing. The $97.1 billion U.S. staffing industry ($87.4 billion temporary workers, $9.7 billion permanent placement, according to the American Staffing Association) is primed to benefit from multiple changes in employment marketplace. 

Staffing companies have undergone quite a transition over the last few years moving off of all-time lows (2007/2008) in an ultra-competitive environment of compressed fees and slim margins that forced many local/regional staffing companies that could not weather the economic storm to close.

The last two years have shown the industry as a whole grow by nearly 20% annually.   According to the American Staffing Industry, temporary/contract positions accounted for 91% of job creation between June 2009 and June 2011.   Many suggest these trends will continue as the demand for temporary or contingent workers continues to build in anticipation of multiple events. 

Including:

  • “Obamacare” (2014)
  • General Economic Environment
  • Demographic forces at work (e.g., the aging of America)

We have all had our fill of discussions on PPACA or as it’s been fondly named….“Obamacare”.   One of the upcoming provisions that keeps employers up at night is the employer mandate. Under this provision, employers with 50 or more full-time employees will be required to provide affordable healthcare insurance or be forced to pay a $2,000 annual penalty on each employee (beyond the first 30 employees).  Even if they do offer insurance, they could be subject to penalties if the coverage is “unaffordable”.  “Unaffordable” is defined under the current language to mean that it costs more than 9.5% of an employee’s income or the employer pays less than 60% of the premiums.   If an employer does choose to offer coverage, their plan will be subject to new taxes and requirements under the PPACA that will increase their costs and the administrative burden.

Even though the mandate won’t take effect until 2014, employers are looking for ways to avoid these costs now taking into consideration some of the “look back” provisions also written into the current bill.  Employers are beginning to shift some of their full-time employees to part-time to get below the mandate’s threshold. Others may be tempted to classify workers as 1099 Independent Contractors, but since there has been a crackdown on the enforcement of worker misclassification at both the state and federal levels, this is not a viable option to side step the mandate.  The most likely solution for the “average” employer above that magic 50 employee headcount is to utilizing contractors who are W-2 employees of a staffing company and bring their own employee number under 50 and in this scenario, it doesn't matter how many hours the contractor works because they will be counted as an employee of the staffing firm, not the company.

Only time will tell if Obamacare really affects the number of contractors in the workplace, but as employers try to contain their costs, contract staffing could be a very viable solution.   As a human resources solutions provider, you will want to think about ways to position yourself as a sole-source provider to your clients, able to handle ALL of their needs…including staffing.

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