Professional employment and staffing services employees discussing the licensing requirements
ComplianceSeptember 20, 2022

Professional employment and staffing services licensing requirements

Faced with a tight labor market, businesses are increasingly turning to the services of professional employment and staffing agencies and professional employer organizations (PEO).

If you’re in this business or getting started, it’s important that you follow the laws of the state in which you operate. Many states require professional employment and staffing companies to be licensed before they can legally operate in a jurisdiction. These laws are designed to protect workers and reassure clients that they are working with properly licensed agencies.

Let’s look at the licensing requirements for professional employment and staffing service agencies.

Requirements by state

Looking for employment and staffing requirements in a particular jurisdiction? The following chart summarizes employment and staffing services licensing requirements. Click on a state for the licensing information specific to that state.

Smart chart from CT Corporation about professional employment and staffing services licensing requirements
Professional employment and staffing services licensing requirements
Learn the business licensing requirements by state.

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, in Massachusetts, agencies that meet the definition of “employment agency” must be licensed. Agencies that meet the definition of “staffing agencies” must be licensed as employment agencies or registered as placement agencies with the Department of Labor Standards (DLS). Both registration and license are valid for one year. During the application process, the DLS will advise whether a business is required by law to be licensed or registered. Another difference in Massachusetts is that PEOs must register with the DLS and obtain a surety bond.

In California, employment agencies aren’t required to be licensed, but they do need to obtain a surety bond and file a copy with the Secretary of State. Talent agencies are treated differently and do need to obtain a talent agency license.

There are also additional requirements for garment workers in California. Any company or agency that provides manufacturers with the services of employees engaged in the process of garment or accessories manufacturing must register with and obtain a valid registration certificate from the Labor Commissioner as a contractor. Agencies must also provide the Commissioner with written notice whenever it enters into or terminates an arrangement to lease or provide employees engaged in garment manufacturing operations.

Maine also has unique licensing requirements. The state does not have a licensing requirement for employment agencies but does allow licensing at the local level. Check with your county, town, or municipality. Furthermore, staffing agencies and PEOs fall under the umbrella of “employee leasing companies” and are required to register with Maine’s Bureau of Consumer Credit Protection.

Ramifications of non-compliance

Failure to maintain a specific license or registration can result in sweeping penalties. Depending on the state, fines 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 us or call us at (844) 701-2064.

 

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Hans Howk
Manager, Content Management
Hans provides internal support to key members of the Business Licensing Team, assisting with understanding industry nuances, searching and synthesizing statutes and regulations relating to business law.
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