BUILDING A PAYROLL BUSINESS

This is an extract from The Free Ebook Contracting De-Coded. In order to be able to process your Temp/contract business, you either need to partner with a firm like TheDynamicSale’s Signature Back Office or do it on your own. Usually, it won’t be worth the headache and time to set all of this up on your own until you have a reasonable sized temp/contract business. You need to set this up and you need to do it now!! NOW, before the client calls you for a temp/contract need! Here’s what you need:

Employer of Record

You will need to become the legal Employer Of Record for your Temp & Contract Employees. You are already likely incorporated if you are independent. However, we strongly suggest that you create a new corporation (LLC or S-Corp, although LLC far easier to start) SOLELY for your Temp/contract Business. This way, in the event that you lose a law suit (as Employer Of Record, you will be FULLY RESPONSIBLE for any claims against you or the employee and you can also be equally liable, called co- employment, for acts committed by your clients. SIMILARLY, if you use a service such as ours, you will not have any of this law suit risk, as we will be Employer Of Record). So, you want to make sure that only your temp/contract business can be at risk. Not your home; not your perm business. If you set up this new entity, your risks will be significantly minimized.

Insurance & Licenses

You will need to carry the appropriate insurances, as required by law. This will include General Liability Insurance ($1 million+ suggested), as well as all required workers compensation insurances for each state where you will PLACE temp/contracts. Many states also require you to be licensed to process temp/contracts, which is easily done and often for free. We also suggest that you get an umbrella policy for a few million dollars, as well as auto coverage and errors and omissions insurance. It also may be wise to invest in Criminal insurance, which will limit your liability should a Temp/contract employee commit a criminal act while employed by you. Below in suggested coverage:

Statutory Workers’ Compensation Insurance ($1,000,000 per accident)

Crime insurance (minimum $50,000, up to $100,000 depending on the criminal act)

Hired and Non-Hired Automobile Liability ($1,000,000 combined single limits)

International Travel Workers’ Compensation Insurance ($1,000,000 per accident, $2,000,000 in the aggregate)

Commercial Liability Insurance ($1,000,000 per occurrence, $2,000,000 in the aggregate) Professional Liability ($1,000,000 combined single limits, $2,500 deductible)
Commercial Excess Liability/Umbrella ($5,000,000 per occurrence, $5,000,000 in the aggregate)

Workers Compensation insurance, again, needs to obtained for each state where you will do business. Your insurance agent can handle most states, however, there are a handful of “monopolistic” states that require you to get the coverage on your own. These states are: Ohio - www.ohiobwc.com, Washington, North Dakota & Wyoming. Check out more details here, which will help you gaining Workers Comp Coverage in these states.

Workers Compensation, for smaller firms, without huge volumes, will require all of the premiums paid up front. Your broker (and the states listed, above) will determine your existing/projected Pay/wages volume and then apply standard rates based upon the workers comp codes (skill codes) that you expect to fill. You will only be covered for the codes that you submit and pay for. Additional binding can be underwritten, usually within 48 hours of notice. However, this may be too long for a quick assignment that you lose to a competitor, so you are best to OVERPAY the premium and get the

binding for what you need! Most Monopoly states will require ACTUAL job descriptions and details and won’t bind you UNTIL you get the actual job! Larger temp/contract firms can often have the premiums built into an hourly rate, which, in essence, will be an insurance premium “PAY AS YOU GO” plan. Bear in mind that since all Workers Comp is based upon “estimated pay”, the premiums are just that, estimates! Each year, your policy will be trued up. The insurance carrier will look at the estimated wages and the actual and then decide the actual premium that you should have paid. The rates will then be trued up (with either a surcharge or a credit to your next premium). They also will look at your experience and will then bind you for another year.

Bear in mind, this can be a very time consuming process and will certainly derail you from your sales efforts. Also, many independents and small firms are intimidated by the risk associated with being the “Employer of Record”, as well as the up front costs necessary to set these up. These are the main reasons why you will likely want to use the services of TheDynamicSale. As Employer Of Record, Signature Back Office already has all of the necessary insurance coverages. Signature Back Office is responsible to pay wages and other forms of compensation or reimbursement and all applicable federal, state, and local withholding taxes and unemployment taxes, as well as social security, state disability insurance and all other payroll charges payable to, or on behalf of the Temp/contracts/Contractors.

Payroll Processing

You will need a company to process your payroll. They should take care of all of your withholdings (Federal, State, Local, Unemployment, Social Security, Disability, Workers Comp, etc.), file your taxes for you and also pay the candidates and provide them with their W2s. This can be as simple as using a payroll company like ADP or much more advanced and coordinated. You DON’T want to handle this on your own, as you can be hit with still penalties with incorrect withholdings or payments.

Time Cards

You will need to provide Time Cards for your candidates and clients. To be taken seriously, it is strongly suggested that you purchase the ability to process time cards electronically, on a web portal, such as the one that TheDynamicSale Signature Back Office uses. This will show that you are state of the art and also provide much more security since only the EMAIL address that YOU submit will be able to approve a time card!

Front Office System/Applicant Tracking System

This is a must and don’t even consider using Excel, Outlook or vanilla folders. The great news about going independent is that you can choose the best systems on the market and get them up and running quickly, much faster than your existing firm. Some of the top systems on the market are Bullhorn. And PCRecruiter. Agencies save a lot of money by using older antiquated software or no software at all. Make sure you go with a web-based system that requires no server. Your system also MUST be setup to allow for the placement of Temp/contracts/Contractors! The top systems are available for only $100/month.

Credit & Collections

Oh, fun stuff!! You have to remember, though, that Credit & Collections take on a much bigger meaning under the temp/contract/contract world. Sure, you never want to lose a perm deal with a write-off, but all you really end up losing is your time! You didn’t have to front money. HOWEVER, on the temp/contract side, you will be fronting payroll and payroll taxes each and every week that they work!! If your client ends of defaulting for any reason (claims against the temp/contract, insolvency/bankruptcy, gone awol, etc), you will be out of pocket not only for your time, but also for every cent that you have paid out to date!!! NOT FUN! As such, you need a good credit system. You can buy services to the major players, which include Dun & Bradstreet or Lexus Nexus!

Also, since you will be laying out these funds on wages/payroll, you will want to make sure that you get your cash collected on a timely basis. This will require much more focus on the collection process!

Again, integrated services, such as Signature Back Office can provide you with all of the credit and collection support that need, including obtaining credit checks and authorizations for EACH client and also assisting with collection calls and aging reports. Additionally, we will pay you for all of your temp/contract placements in ADVANCE of your clients even paying us!

To Fund Or Not To Fund

Well, in short, you NEED funding! Sure, you can get away with paying one temp/contract out of your savings account, but if you do that, then you are also exposing your personal assets to risk. As noted,

you need a new entity and need to fund those bank accounts. You NEVER want to miss a pay period for a temp/contract or contractor. EVER! Once you do, you will lose them (and all that they tell) forever, and will also quickly lose your hard earned clients!!! There are many options out there, in fact, too many to really go into a lot of detail here, but here are your options:

Factoring

Factoring is very common in our industry, but pretty expensive. Basically, you are taking out a loan based upon a percentage of your outstanding Accounts Receivable (invoicing) and then paying a high interest rate to borrow that money. It is pretty easy to do once you have minimal volume. The factoring company mitigates its risk by taking a secured position against your receivables. So, if you don’t pay up or if a client doesn’t, they will then OWN the other receivables and be able to keep those funds

Line Of Credit

This is also a pretty good way to go once you get some volume! Basically, since you will always be billing out at a higher amount than you pay out (well, you better!!! We discuss pricing later), you really just need to make sure that you have money to pay your temp/contracts until the clients pay. You will be likely paying out wages weekly, but your clients, unfortunately will average 30 days. Some may take 45 and a percentage will take 60 and even 90+ days. A line of credit allows you to borrow what are missing between the cash on hand (collections) and the wages due. This is typically a straight money factor and will likely be in the 2% range for you and is actually calculated based upon the number of days that you take the loan!

Full Service Funding

You can also get complete funding and back office services. This will typically cost a new or small firm 5 to 6% of the total Billings! This is a great option in that everything is handled for you: From credit & collections, to payroll processing, funding and reporting. For these rates, though, you will still need to be your own Employer Of Record and also take on all risks associated with being the employer. You also must get all of the insurances, etc. on your own that we spoke of earlier

Full Service – COMPLETE

FIRST AND FOREMOST, don’t fall for a firm that charges you based upon a percent of your SALES/BILLINGS!!! Why should you get punished or penalized for getting a higher bill rate or mark up! Make sure to work with a firm those only charges you based upon the pay rate!!! You make a lot more money and is much easier to budget and plan your costs! You can use a firm Like TheDynamicSale Signature Back Office and get EVERYTHING that you need! Companies like us provide you EVERYTHING in the full service funding example, above, but ALSO they/we become the employer of record and handle all claims, insurances, etc. SO, all you have to do is focus on the business of selling, recruiting and placing and let us handle the rest! In fact, as discussed, you even get paid BEFORE your clients even pay the invoice! The great news about using TheDynamicSale is that we not only provide you with these great services, but you also get our complete library of training and boot camps. You get monthly free webinars and calls and even deal-by-deal coaching! ALL FOR FREE! So, you not only get the funding and tools necessary, turnkey, but you also get all of the great training resources that have made Neil Lebovits and TheDynamicSale.com one of the fastest growing training companies in our industry.