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The #1 Challenge for most staffing companies, aside from the marketing and operations aspect of the business, is insurance. Insurance costs (workers compensation, general liability, professional liability, E&O, etc.) can make or break a staffing firm.

Take Workers Comp for example. In the first years of business, most staffing companies have to purchase state fund workers compensation insurance. Most states require an initial deposit, then a monthly premium based on the type of temporary worker that is sent out. Rates tend to be lower for a company sending clerical and administrative temps vs. those sending out light industrial and industrial temps. Workers comp rates can vary from state to state, and the rate is affected by accident incidence. Then generally there is an experience modifier (a mod) that is placed on the premiums, most of the time after a year.

This mod is a premium on top of the actual rate (for instance a 1.5% mod rate). So if normal premiums would be $10,000 for the year, with a 1.5% mode, the actual rate would be $15,000. With staffing owners having to keep such competitive rates in place in order to gain or keep business, this mod rate can really affect the bottom line. The cost can hardly ever be passed on to the client company in the form of higher bill rates. Care needs to be taken to prevent workplace accidents (through proper training and education) so that workers comp claims will be kept to a minimum.

Accidents happen (which is why they call them accidents), but I have seen many staffing firms go out of business just due to workers comp rates skyrocketing. Other insurances are just part of doing business, but many insurance companies dont understand the staffing industry, so it pays to find an insurance company or broker that really understands the business, in order to obtain the right policy so that your business remains intact. If you are a start up staffing company, be prepared to spend a considerable amount of time securing your initial general liability and workers comp insurances.