Staffing Your Warehouse: Addressing Hidden Risks

The warehousing sector and staffing industry depend on each other. In fact, they are so closely tied that the Department of Labor often considers warehouses and staffing companies “joint employers.” The rules for being a joint employer significantly increase the risks and exposures otherwise thought to be transferred to the staffing agency.

Payroll Taxes

Did you know that if a staffing company does not pay its payroll taxes, you could be liable to pay them, even if you already paid the payroll taxes to the staffing company as part of your agreement?

Did you know that if a staffing company does not procure, loses, or obtains faulty workers’ compensation insurance your company could be liable for paying claims that would have otherwise been covered by the staffing company’s insurance policy?

These two factors alone can be extremely concerning, especially for those companies that use a significant amount of staffing support. Some clients pay more than $10 million a year to staffing companies. If payroll taxes average 6 percent annually and the staffing company does not pay taxes for two or three years straight, that could be upwards of $2 million in back taxes owed by the employer.

Workers’ Comp

If the staffing company fails to obtain or maintain adequate workers’ compensation and a staffing employee gets injured on the job, the warehouse’s work comp policy will have to respond. The hidden costs of this issue go beyond having a claim on your record and possibly negatively impacting your experience mod and underwriting. It could also cause the insurance carrier to audit your staffing payroll and require warehouse managers to pay workers’ compensation premiums based on the staffing payroll. Using the $10 million payroll number and a rate of $10 per $100 (which is not uncommon in states like California, Illinois, Georgia, and others) that could be an audit of $1 million in additional premium.

Protecting Yourself from Exposure

How do you protect yourself from this exposure? The first step is to get a certificate of insurance. Don’t be satisfied with just seeing the limit of insurance and policy effective dates. Scrutinize the certificate to see if the staffing company’s name is actually listed at the top of the certificate. If it is not there and it’s not a name you recognize, you need to ask your staffing company why their name is not on the certificate.

Also look at the insurance company. There are not a lot of insurance carriers that will provide workers’ compensation to the staffing industry. If you are unsure of the insurance carrier, contact your broker to research the carrier on your behalf to see if it is a large A-rated carrier with experience in the staffing industry.

Sometimes staffing companies will portray themselves as an actual warehouse company rather than a staffing company to get insurance coverage. Once they are found out to be a staffing company, their policy usually gets cancelled even mid-year. Alternatively, staffing companies sometimes get cancelled due to misclassifying employees. Instead of using the warehouse class code, they may use a wholesale class code, or even a clerical class code, which is significantly lower in cost.

Make sure you ask for the work comp carrier to provide an “alternate employer” endorsement and a notice of cancellation so you can be prepared to switch staffing providers if your current staffing company suddenly loses insurance coverage.

Due Diligence

Staffing is a truly important part of a warehouse’s ability to grow, flex up and down, and manage a large and sometimes multi-state workforce. But the benefits can sometimes be lost when you partner with a staffing company that does not properly pay their taxes and/or has workers’ compensation carrier issues. If a staffing firm comes to you with a proposal that is too good to be true from a pricing standpoint, there is a chance they are cutting corners somewhere.

Just like you perform due diligence when finding new facilities, hiring new employees, and other integral business relationships, make sure you perform your due diligence on your staffing providers to ensure that you are minimizing your exposure to these potential issues.