If you’re forming or operating an employment agency, putting proper measures in place is essential to your business, and can also minimize your collection needs.
The term “employment agency” can be either a staffing or placement firm.
“Staffing” means assigning a temporary worker to one’s client, whereas “placement” means referring a permanent employee.
In staffing, the assigned worker is your own employee. You pay his wages and charge your client, usually for the number of hours worked.
In placement, you refer a job seeker to your client, who becomes his employer. The employer pays his wages, and you charge a placement fee to either the employer, the job seeker, or both.
Like any business, employment agencies have general corporate needs. In New Jersey, they have specific regulatory needs. And they also have contract issues that are unique to the industry.
These regulatory and contract issues in particular are crucial to enforcing agency fees.
General Corporate Issues
If you’re starting an agency, like any new business, you’ll want to incorporate it to shield yourself from personal liability. You can do this through a corporation or limited liability company.
You’ll then obtain a tax number, open bank accounts, and register any trade names. You should also consider the need for a Shareholder Agreement (for corporations) or an Operating Agreement (for LLCs).
If you’re an out of state agency, you don’t need to incorporate separately in New Jersey. However, you do need to register as a foreign entity doing business here. This is a corporate registration requirement, separate from any regulatory registration.
Regulatory Issues — Licensure & Registration in New Jersey
New Jersey’s statute (NJSA 34:8-43, et seq.) doesn’t use colloquial terms like staffing and placement. Instead, it creates several categories for personnel services and gives each a statutory name. The 3 main types are called Employment Agencies, Consulting Firms, and Temporary Help Services Firms.
Employment Agencies, in general, are placement firms that charge either the employer, the job seeker, or both. In contrast, Consulting Firms are placement firms that charge employers only. And Temporary Help Services Firms are what we normally call staffing agencies.
Under the statute, Employment Agencies require licenses. Consulting and Temporary Help firms only have to register. If you plan to do both staffing and placement, you can register for both.
But some Temporary Help firms are exempt. The statute only applies to those that charge their employees (like charging a training fee or liquidated damages for leaving), or inhibit them from working for someone else (like a non-compete agreement).
There are other categories as well, such as Health Care Services Firms, which have to register and receive accreditation.
Whatever category you fall in, failure to comply can have real consequences, including the inability to enforce contracts in New Jersey courts. I discuss these in The Employment Agency’s Guide to Getting Paid (Quickly) in New Jersey. As a result, you could forfeit a fee agreement, or an employee non-disclosure or non-compete agreement, etc., if you’re non-compliant at the time you enter them.
Contract Issues – Fee and Employee Agreements
In my book, The National Fee Collection Guide for Staffing & Placement Agencies, I discuss the most common challenges to employment agency fees, along with suggestions for avoiding them. I also discuss these in the New Jersey Guide (see link above).
For example, you should always use a signed fee agreement describing your services, your fee, and the duration of your referral. This should eliminate common pretexts for non-payment, such as claiming you don’t have a contract, or it’s missing a material term. etc.
You should also stipulate that your fee extends to any position within the specified period, so the client can’t switch your candidate to a different job and say the fee agreement doesn’t apply.
Perhaps most importantly, your agreement should focus on priority rather than causation. By providing an exclusive right to candidates you present first, for example, you can prevent clients from arguing that a later agency was responsible for the hire.
For general non-payment issues, it helps to include interest and legal fees in your contract, so it becomes cheaper for the client to pay you than not to pay you.
Like any company with employees, you’ll want to consider the need for written employment agreements. Issues to address may include compensation and termination, as well as non-disclosure and non-compete provisions. However, as noted above, such agreements may bring an otherwise exempt Temporary Help firm within the statute, thereby triggering a registration requirement.
In summary, the most important relationships for your agency are your clients and employees. Therefore, consider the value of reviewing your fee and employment agreements periodically to make sure they protect you.
To learn more about compliance issues and other employment agency fee disputes (and how to avoid or defeat them), download your free copies of The National Fee Collection Guide for Staffing & Placement Fees and The Employment Agency’s Guide to Getting Paid (Quickly) in New Jersey.