Staffing Agency Contract Agreements Explained

What is a Staffing Agency Contract Agreement?

The staffing agency contract agreement is a complex legal document that dictates the rules of the game when it comes to employment. It is the contract between the staffing agency and either the employee or the client. It serves multiple purposes in its two forms—direct hire and temporary hire.
Almost every aspect of the employer-employee relationship is covered in the staffing agency contract agreement, including compensation (salary, hourly pay, paid time off, bonuses, commissions, etc.), working conditions, hours, benefits, and most importantly, the rights and responsibilities of both the employee and the employer.
When you hire a staffing agency for your business, you are hiring a teammate, an extension of the staff within your company . You depend on the staffing agency to be sure they show up on time and have the skills to do the job—and you would not tolerate a failure to comply with your wishes on their part.
It is no different in reverse. In fact, to be fair to your business, it could be argued that the due diligence in screening of employees should fall more heavily on the company side than it does on the staffing agency side. Granted, the staffing agency has made a business out of providing quality employees to companies just like yours, but you have made a business of using employees to do the work you need to have done.
The most basic purpose of the staffing agency contract agreement is to put down paper what each party has a right to expect from the other. The staffing agency contract agreement is the documentation of the business relationship between the staffing agency and the employee, and between the staffing agency and the client.

Core Components of a Staffing Agency Contract

When a staffing company and a client establish a contract agreement, there are a number of different factors that need to be outlined for both parties to be protected. Here are some of the main areas of focus that should always be part of the contract: terms and conditions, roles and responsibilities, and payment structure. Terms and conditions – these will define the scope of work, including how many employees the staffing company will provide through the agreement, the client’s expectations, and any other details or special arrangements that are required for the contract to be considered valid. Any other requirements, such as providing materials or covering costs for travel, housing or meals should also be brought up here. The length of the agreement also needs to be discussed, with the possibility of future extensions if the client so chooses. Roles and responsibilities – the duties of both the staffing firm and the client are essential components of a contract. Each party must understand exactly what is expected of them throughout the term of the agreement, and if either party fails to meet their obligations, the contract may be considered void. Both parties need to make sure they are prepared to meet their obligations to avoid ending up in court later. Payment structure – while it may not be the first thing that comes to mind when you first think of a staffing agency contract, the structure of payments is critical. For example, is the staffing firm going to be paid by the hour for its workers, or will the worker be paid only a certain amount while the rest of the fee goes to the staffing company? Will the staffing firm be given a retainer fee? Are there contractors billed and paid by the job? By laying out very clearly how payments to the staffing agency will be handled, you can avoid issues regarding invoices and payment disputes at a later date. Having a thorough contract written up that establishes terms and conditions, identifies roles and responsibilities and outlines the payment structure is essential to ensuring a good experience for all parties involved through the contract.

Advantages of Utilizing a Staffing Agency Contract

The benefits of having a staffing agency contract in place are numerous. Certainly, one of the primary benefits, as explained above, is ensuring that there is a contractual agreement in place to ensure compliance with state and federal laws. A staffing agency contract is similar to any other vendor contract a business has. It is a mutually agreeable way to ensure that all parties understand what the other’s obligations are to maximize the likelihood of the business arrangement working.
By clearly specifying what each party’s responsibilities are, a staffing agency contract helps reduce the risk of misclassification of individuals by making the test for whether someone is an employee or an independent contractor clear and unambiguous. A staffing agency contract will clearly note whether the staffing agency or the business is responsible for the classification, what each party’s obligations are under the test, and whether there is an "independent contractor retention guarantee" clause. Such a clause obligates the staffing agency to reclassify the individual if the IRS or Department of Labor successfully determines that they are actually an employee.
Most businesses already have contracts in place with other vendors. A staffing agency contract is just one more vendor contract with the added benefit of knowing that you have satisfied both federal and state law requirements by taking the proactive step of drafting a staffing agency contract.

Typical Provisions of a Staffing Agency Contract

These contracts typically contain a number of clauses dealing with various aspects of the employment relationship and the transfer process. For instance, these agreements often include confidentiality agreements. Information involving fees that will be paid by the new employer and prior employer are normally to be kept confidential, usually for five (5) years. Most of these contract also have a series of conditions that govern the termination of the transfer process. Non-compete clauses are also common. These clauses usually prevent the new employer from hiring the employee directly, without paying a fee, for a set period of time, usually one or two years. The transferred employee will also usually be subject to a continued probationary period of thirty days to one hundred & twenty days.

Negotiating a Staffing Agency Contract

Successful negotiations come down to an understanding of the type of contract the staffing agency uses. Beyond that, establishing a relationship of trust is crucial to a successful negotiation with a staffing agency. It pays to also carefully examine the fine print in the agreement.
First and foremost, it is important to protect your business’s interests in all situations, including the hiring of staffing firms. The staffing agreement — be it a direct hire or an FMS contract — is the basis upon which the staffing agency will provide their services. As such, clear terms and limitations in the agreement are very important to your business. If you are unhappy with the contractual arrangement, take the time to negotiate who does the work.
Problems with staffing contract agreements can often be avoided through preparation. As the staffing agency standardizes their contracts over many customers, the terms may not be favorably suited to your business needs. Having an idea of what you want to negotiate up front and discussing these in advance with someone from your own business who was involved in the RFP process, such as HR , is a great way to be well prepared for a negotiation.
Review the exact type of contract that your staffing agency utilizes. This helps you understand the scope of services provided as well as any limitations or restrictions placed on your business.
Direct Hires: Provides for a full-time employee to work under the direction of the client firm, and possibly the schedule of the client. The compensation is almost exclusively paid by the client firm. If the individual stops working, the employee can apply for unemployment coverage. Because the employee is at-risk for their continued employment, the employee is more likely to be a good employee and reliable.
FMS Contracts: An FMS contract is typically used for temporary workers. In this arrangement, you essentially lease the employee while they are being used. The more permanent the employee’s role in your organization, the looser the rules around how the worker can be used. However, the agency sets the agreements and defines the terms. Finally, the agency owns the employee, and if they leave voluntarily, you have no recourse financially with the agency or employee.
There can be costs associated with choosing to hire a temporary worker. Oftentimes if a temporary employee is hired on permanently to a business, the business or client can be required to pay a fee or be responsible for the rest of the annual salary.

Legal Issues and Considerations

Beyond the business aspects of an agreement, clients and agencies need to ensure that they both meet legal requirements in a compliance standpoint. For example, an agency may have to look at Occupational Safety and Health Administration (OSHA) regulations concerning injury liability and employer responsibility, working conditions, health and safety training, and work environment inspection. The client may also have to consider regulations regarding state unemployment compensation and the Fair Labor Standards Act (FLSA). Temporary worker rights may also require special consideration as well. For instance, the National Labor Relations Board (NLRB) has held that clients must recognize the right of temp employees to organize unions, and that temporary hires cannot be discriminated against on the basis of union organization, where such employees are to be included in a collective bargaining unit. It may also be good to include clauses in the agreement that ensure that both parties act in accordance to anti-discrimination laws, particularly in reference to the Civil Rights Act of 1964 and its amendments.

Staffing Agency Contract FAQs

How long do staffing agency contracts typically last?
Staffing agency contracts can vary in length. Many contracts are for one year, but longer or shorter terms are possible depending on the needs of the business. Contracts may also be terminated early by either party, depending on the specific terms of the agreement.
Can a staffing agency contract be renewed, and if so, how does that process work?
Many staffing agency contracts contain a provision for renewal. If this is included in the contract, you must provide your staffing agency with notice ahead of the expiration date if you wish to extend the terms of the contract . If you choose not to renew the agreement, the contract will typically terminate on the specified end date.
If a dispute arises regarding my staffing agency contract, how will that issue be resolved?
Staffing agency contracts often contain a dispute resolution clause specifying the process either party should follow to resolve a disagreement. In many cases, parties must submit to mediation or other forms of alternative dispute resolution before litigation is allowed.