Professional employment and staffing services definitions
For licensing purposes, it’s important to distinguish between employment agencies, staffing agencies, and professional employer organizations (PEOs).
- Employment agencies seek to place individuals in long-term positions in return for a fee from the applicant or from the prospective employer. Employment agencies do not hire employees themselves or pay the people they place.
- Staffing agencies (or employee-leasing firms) mainly place temporary employees. Staffing agencies hire their employees, and they, not the client company, are the employer of record. Staffing agency/employee leasing services can sometimes overlap with professional employer organization services, so be sure to check the definition of both with the relevant state when deciding whether this license is required.
- A professional employer organization (PEO) is a type of full-service human resource outsourcing known as co-employment. In this arrangement, the PEO performs various employee administration tasks, such as payroll and benefits administration, on behalf of a business. PEO services can sometimes overlap with staffing agency/employee leasing services, so be sure to check the definition of both when deciding whether this license is required.
State licensing requirements for professional employment and staffing services
Licensing requirements for companies in this industry vary by state.
Generally, to obtain an employment and staffing services license, you must submit an application, the fee, and supporting documentation.
Furthermore, the application may require the general manager of your business to take a state examination, obtain an individual professional license, and acquire a surety bond in the name of the entity. Other common requirements include examples of proposed contracts and schedules of fees, financial statements, and supporting corporate documents.
Once obtained, professional employment and staffing services licenses are valid for a certain period, typically one to three years, and must be renewed.
Some agencies may also need to obtain a business license from and register with a state that has an employment services licensing requirement in order to conduct business in that state. This is regardless of whether or not the agency has a physical office in the state.
It’s important to note that definitions and requirements can be very inconsistent.
For example, Massachusetts requires businesses that meet the definition of an employment agency to obtain a license from the Department of Labor Standards (DLS). Staffing agencies must either be licensed as employment agencies or registered as placement agencies, depending on their business activities. Licenses and registrations are valid for one year, and the DLS determines the appropriate classification when reviewing an application. PEOs must separately register with the DLS and generally provide a $250,000 surety bond.
California does not require employment agencies to obtain a general state license, but agencies subject to the Employment Agency Act must maintain a $3,000 surety bond and file a copy with the Secretary of State. Talent agencies must be licensed by the Labor Commissioner. Separate registration and reporting requirements may apply to businesses that provide or contract for workers in the garment industry.
Maine generally does not impose a statewide license specifically on employment agencies or temporary staffing agencies, although local business licensing requirements may apply. PEOs and other businesses that meet the state’s definition of an employee leasing company must register with the Maine Bureau of Consumer Credit Protection. Maine’s definition excludes businesses that provide temporary-help services, labor-dispute workers, or other arrangements outside the statutory criteria.
Ramifications of non-compliance
Failure to maintain a specific license or registration can result in sweeping penalties. Depending on the state, fines can range from $1,000 to $25,000.
If you operate as an unlicensed agency, you may also be ordered to restore any money paid to you by a client. The state can also prohibit you from operating in its jurisdiction in the future.
CT Corporation can help
Outsourcing business registration and license research, management, and renewals can help you take the pressure off internal resources. By working with a full-service management provider who specializes in the efficient processing of business licenses, you can free up your time to focus on starting and growing your business while ensuring you keep up with changing compliance requirements.
For more information on CT Corporation services and how we can streamline your business licensing, please contact a CT Corporation business license specialist.
