Starting a Staffing Agency

The choice to form a limited liability entity depends on many factors, and indeed some small business owners are perfectly fine operating as sole props rather than a more "formal" entity. Forming a limited liability entity is a fairly simple thing to do and costs very little, and the benefits associated with it make it a no brainer for many businesses. It is especially wise to do in this HIGH liability and HIGH risk industry. Why expose your personal assets when a couple hundred dollars can provide your shelter from that?

Correct, the moment you engage in a business activity with a profit motive you become a business entity by default. However, a sole proprietor has ZERO personal protection from liability, and that is the most important point here. In regard to insurance, independent contractor insurances and the type of insurances a true agency that employs other people requires are completely different. Don't be fooled into thinking that just because you have IC coverage, you have a company policy. You don't. You must be rated to get coverage when you employ other nurses. You also will be subject to occasional audits as the insurer bases the amount you owe on either your payroll or your total revenue... and of course the amount of coverage you purchase. The difference in cost is SUBSTANTIAL.

Just because it's "worked" for you so far doesn't mean it will continue. If/when the hospital discovers this shortcoming, the business person could lose their contract with the hospital, and they may end up with issues collecting money on work that has already been performed as the hospital tries to sort through how to deal with the situation. This could cause a serious interruption in the business, the person's income and their ability to pay their other staff. Again, to save a few hundred bucks, why would a person expose themselves to such silly risks? Also, Harry, since you are now incorporated you are legally required to put a corporate abrevation (or spell out corporation or limited liability company, etc.) at the end of your business name on official documents including contracts.


Hospitals are REQUIRED to perform this due diligence on EVERY single vendor. If they aren't doing so, they expose themselves to serious risks. Namely, they could lose their government reimbursement monies. Without this, almost every single hospital would have to close shop. If they aren't performing their due diligence, they are putting YOU as a vendor at risk. Hospitals and many other business receiving ANY federal money must verify all vendors against the Attorney General OIG list. The people and companies on the list are primarily people who have committed some sort of fraud against the government or owe them a bunch of money for something. The OIG look up is just ONE of many verifications both at the federal and state levels they are legally required to do on each and every single vendor they use. They also have to do this on every single employee in the hospital's organization. The amount of verification they must perform on vendors is far less than what they must perform for employees, but they share most of the verifications in common, meaning they are already QUITE well equipped for performing proper DD on vendors.

This is incorrect information Harry (not entirely but mostly). All business entities (even sole proprietors if they use a fictitious name, meaning anything other than the actual name of the business owner) are REQUIRED to register as a business entity. If you are an out of state company, you must also register as a foreign entity in any state your transact in. If you can't afford the small filing fee and the 2 minutes it takes to fill out your annual report, there are far worse problems that need to be addressed. You may consider them expensive and incredibly expensive, but it's the law. Also, in your case Harry, by not filing your foriegn corp status with the state (as you say you don't), you are are potentially at risk of losing the veil of limited liability protection of your corp. In the event you are sued in that state, they could potentially go after all your personal assets, not to mention that at that point you've just been discovered to have commited a crime in that state and have THAT to deal with.


I'm not sure where you read this in my post. I never said that, and I honestly don't think I implied it either. With that said, having owned several of my own businesses that posted millions in revenue every year (though not in the nurse agency industry), I can speak from solid experience when I say it's not terribly complicated to deal with the additional requirements of corporate compliance, and I would never want to operate without its protection. It's true, it's a little more work, but worth it.


In closing, folks, It's ALWAYS best to conduct business based on BEST PRACTICES and within the law. Just because someone says they "get away" with something or "fly under the radar" doesn't make it safe, legal, ethical or wise.

Are you a healthcare professional? There is no corporate shield available for professional liability. If you harm a patient, your personal assets are on the line period. Just as they are as a normal employee of a hospital (who is also incorporated). Insurance is needed.

Yes, if you use employees or have business premises, incorporation can shield you from some types of liability. However, that has never been absolute, and post Enron there is much more responsibility on corporate officers on how business is operated and personal liability for corporate practices. For example, if you knowingly send an incompetent nurse out on contract and a patient is harmed, you can be held civilly and even criminally responsible. Insurance is needed.

True, so what? You still need insurance to manage your risk, just as does a corporation. I've said this to you in the past and I will say it again, most small businesses in this country are sole proprietors, even some mid sized employers. It is a valid business model.

I'm not fooled and it is a company policy. But you are right that the rate is adjusted for employees actually working. However, your advice is misplaced. I am talking to someone who will start by only employing himself. No other nurses involved.

Can you cite a source for this remarkable statement? If a sole proprietor contracts with a hospital and does not state that he is a different entity, how could that fact void the contract or collection?

Technically true, but you are living in a cave if you think that there are not other practices out there. The fact that multinational companies and some of the large travel companies do not identify their corporate status on their documents gives me great confidence that there is little risk in this practice. The real risk would be the other direction, a sole proprietor representing himself as incorporated. However that too would not by itself invalidate contracts made and performed to specification.

Again, can you cite a source for this remarkable statement? Hospitals have hundreds of vendors and I can promise you that they do not do any sort of due diligence on most. They do validate competencies and credentials of every individual healthcare practitioner they employ or contract, perhaps this is what you are referring to.

Yes, some hospitals do OIG. Takes about 10 seconds online. Recently, hospitals have been requiring me to supply them with a report (which would seem to break a chain of custody to me). That goes right along with the insurance credentials I also have to send them. Perhaps this is the due diligence you are referring to, looking at my documents? They certainly do not call my insurance company or the state workers comp board to ensure I'm operating legitimately.

Another remarkable statement. No reason to register as a sole proprietor in a state where you don't have a physical presence. If that is true, a company selling widgets would have to file in every state they send an order to or a salesperson. Just not true. But if you care to cite any state site that lists such a rule or a page with a mechanism for filing such a status, I'd be happy to stand corrected. Of course, I must withhold taxes appropriately for the work state, perhaps that is what you are calling registration?

My risk and that of many thousands of other companies. It would be a civil offense, not criminal though. And I manage my liability with insurance, just like any other responsible person or business. All business decisions carry risk, it is up to the individual owner how to manage that risk.

The experience of very large businesses and very small businesses are very different and require different approaches. Risks are also very different. Large companies can have whole departments related to corporate compliance (especially if publicly held), one person operations cannot afford or need this.

If you want to advise a one person shop that they need to spend $5,000 a year to cross their t's, that is fine. But until you live in our shoes, your advice on how large companies manage their business is ill advised.

Yes I am. I am also a CPA and professional business consultant with nearly 20 years of experience in corporate compliance, accounting and tax law. I have served as an executive for companies both small and large. I've also been a business owner for the greater portion of my life and have served on several boards for small and mid sized companies. I guess you could say nursing came later in life for me, but I still would like to consider myself fairly young, though the kids will be quick to disagree with me on that subject.

Again Harry, you are incorrect or should I say you're right but on the wrong subject. It's not NEARLY as black and white as you make it out to be. Additionally, you are relating your own position as an IC versus the original poster's questions regarding EMPLOYING PEOPLE (though not initially). From your postings that I have observed, this doesn't seem to be something you do, nor do you seem to have any practical experience in regard to the subject (employing people). Specific to an IC (you), there can be times when there is no personal liability protection for a professional when during the performance of their professional duty they commit a crime, and that's a pretty simple concept for most people to understand (that's where the applicability of your statement ends). The point I have been trying to make is that without the protection of a limited liability business entity, you open yourself to personal liability based on what your EMPLOYEES do.

Mostly right. However, again, you are talking about your own IC situation, NOT the business situation the original poster is inquiring about. It's merely YOUR situation as an IC. I have been providing input on what you need to do to protect yourself from your EMPLOYEES creating additional liability issues for you as an EMPLOYER.

If you commit a CRIME as an owner or executive you are not allowed ANY limited liability protections, nor is the company. This has existed since corporate entities have been acknowledged in the US. However, nurses that you employ in the field are not considered to be corporate representatives, so they can not put your personal assets at risk, provided you are operating as a limited liability entity.

Your CHEAPEST "insurance policy" is obtained by conducting business through a limited liability entity (granted it's not a real insurance policy but it's a protective shell which is better than insurance). Now, beyond that, OF COURSE insurance comes into play, but as a limited liability entity your insurance policies are in place to protect the companies assets (with caps), not personal assets. I'm going to assume that you are aware that professional and general liability insurance policies have "per occurance" and "per policy" caps. Any money you owe due to a lawsuit, or worse multiple lawsuits in the same year, should you exceed those caps, the additional balance becomes your company's responsibility (your insurance only has to pay up to their insured limits), and in the event someone takes your advice and conducts business as a sole prop, they are PERSONALLY responsible. This means their personal assets will be used to settle up the remainder of the bill. That could wipe them out. With a limited liability entity, pending the owner(s) acting lawfully and within the reporting and structural requirements of their chosen entity, they are safe from personal liability. Only the company entity's assets are exposed.

According to your previous posts, you don't EMPLOY people. You don't have the same policy as we are talking about. If you do, you in fact have the WRONG policy for YOUR situation. I wouldn't consider the advice I've provided to be misplaced. The most recent poster wishes to start an agency that will ultimately employ others. She/he wishes to be the sole employee at first. This is NOT the same as your situation. She/he will need a rated policy from day one otherwise he/she will have to deal with tail coverage and other issues (and tail coverage will be near impossible to get in this situation if you are honest about your situation) because you'll have to transition from an IC/Individual policy to a business policy. To prevent liability issues the best this person can, they should pay themselves a reasonable salary (with appropriate withholdings taken out) and insure their limited liability company. The umbrella policy will cover the business entity and her/him as the current sole employee in the field. Again as long as he/she does not commit a crime he/she has no personal liability exposure. Any additional profits beyond the "reasonable salary" may be taken via distributions or dividends based on the entity they've chosen. Safe, simple, best practices.



In a case where you represent yourself as someone or some business you are not it's fraud, but that's the most extremes of extremes. What I was really talking about is that should a hospital have concerns over the legalities of a business entity, they may (and often do) choose to put a hold on paying any current invoices until they conduct their own "investigation". We all know that hospitals can void a contract virtually at will due to the numerous angles they have in any given contract. The most simple thing they could assert is professional misconduct.

I'm not sure I see a need to cite that.

Seriously Harry... it is a legal REQUIREMENT, and you yourself state it's the case. So why the issue? Every state requires this, as does our federal government. A fact is a fact. A law is a law. Don't worry about what others do or you ASSUME them to do. Do what's right and lawful. The lawyers will worry about the rest. They always do.


Go to google and type in: oig hospital vendor precluded
You can also type in: oig hospital nurse precluded

You'll find plenty of worthy citations there.

Harry, just because you got "lucky" and they missed your issues doesn't mean they aren't LEGALLY REQUIRED to perform due diligence. I've consulted with what I consider to be some of the best regional hospital systems in the US. I can speak from EXPERIENCE rather than assumption. The reputable systems perform thorough due diligence in regard to vendors. Those that don't... I would be cautious of doing business with.


Fast and free. OIG checks are simple indeed. While some MAY not do them, the greater amount in fact do. It's a federal requirement. It's a law. Those who don't are exposing themselves to serious legal and monetary risk. This in turn, as I've already said, exposes their vendors to risk (in terms of possibly not getting their money for services or products already delivered). It's also a legal requirement to run the OIG exclusion check on all employees.

I believe you may be talking about a "certificate of insurance". If so, what you are talking about is possibly one of the biggest issues right now in terms of liability insurance fraud. Less reputable agencies have (for years) paid their down payment (typically 25%) to get their insurance certificate and then never pay the rest of their balance on their policy. Technically, they aren't covered, but no one is the wiser... until a lawsuit surfaces. Most recently, many hospitals have begun requiring NAMED certificates which are sent directly from the carrier. This is a good start to put an end to this unethical practice. Ironically, one of my recent assignments I took through my agency was held back a day because the certificate was delayed (due to a foul up by the carrier). While it was a minor issue for me, I'm honestly glad to see they were doing the right thing.

It is where you TRANSACT, not where you have a physical presence. If you withhold taxes for that state and bill in that state you are creating a transaction and therefore must be registered with that state. Again, huge numbers of businesses do not obey this rule, but they are breaking state laws.

With regard to sole props, I was stating simply that you must register as a business entity in your HOME STATE if you use a "dba" name (any trade name your business goes by besides your own personal name). States want people to be able to reasonably track down who they are actually doing business with. Unrelated but worth mentioning: Unfortunately, by using numerous corporate shells, businesses are able to make it pretty difficult to actually pin their identities and whereabouts.

Fraud against a government entity is a crime. In the event you get caught, your insurance company will actually fight YOU to make sure they don't have to pay the fines or carry the expense of defending you because of your choices. In most cases they will have no responsibility to represent you in criminal cases. They will work hard to find a way to put the liability back on you. Sadly, you may have to hire an attorney to fight your own carrier's attorneys, and they are much better paid and way more equipped.

There are definately aspects with regard to small and large business that differ. However, they all must play by the same rules (laws and regulations, SEC aside), and that's what we are talking about here.

If it takes $5000 to do it right, then yes I'd advise them to spend the money. If they can do it right for less... well I'd advise them to do so. I started my first "real" business on $500 as a one person shop. I grew it to the point that I didn't wish at that time to carry the debt that was required to run it (huge inventory carrying costs). I sold it for a large sum of money. My next venture required about $100k. I grew that one into a $3 mil+ yearly revenue company. Sold it too (to a local competitor). Made out like a bandit. Later, I started a third business following years of working in executive level (CFO and COO) positions. I started an accounting, financial and business consulting firm. I sold that one too. That one provided me a hefty retirement fund (it also provided my employees a large sum of money too, due to my desire to reward them for THEIR part in making the company what it was). This allowed me to pursue a new interest without much worry, so I chose nursing because I was always interested in the medical industry but didn't want to go through the schooling required to be a doc. So, the point being, I conducted myself ethically and always in a legal manner, and as a result, I got everything I ever dreamed of.

We agree on many things apparently but some of what you are saying is just wrong. I'm not sure who you are giving advice to, but the post I most recently replied to wishes to start off contracting personally. Large business advice is inappropriate, particularly when incorrect.

There is no corporate shield available for your own professional liability. This is indisputable. If that was so, it would be easy to set up corporations with no equity and not bother with insurance at all. That is not the case. I meet many locum docs who operate as sole proprietors. They have insurance because they know it is needed regardless of the type of entity. The major reason that sole practitioners incorporate at all is for benefits. Which is why I did it.

I'm not sure why it matters, but I do have employees. 1099 employees. I do not have W-2 employees because the risk is much higher in regards to workers comp and unemployment. The liability risk is negligible. Not sure you understand that.

Do you know any nurses who have been held civilly liable for their actions? It would be remarkable if you did. There is a reason why nursing liability insurance is so cheap, there are no claims. Go one step farther, have you ever heard of an agency being held liable for a contract nurse? I never have. The insurance that I do carry is only to satisfy hospital vendor requirements, I know that otherwise it is just money down the drain.

Sole proprietors can operate across state borders much more readily than corporations. That is a major advantage of a sole proprietorship for travelers. Many business books mention just this about choosing a business form.

Incidentally, corporations are state creations. There are no federal laws controlling use of names. It is state law that primarily governs corporate actions. That is the reason so many large corporations choose to incorporate in Delaware, corporate case law is more complete there than perhaps any other state and it is easy to settle corporate issues in their courts than any others.

Finally, as a matter of fact, I know many nurses who contract themselves out to hospitals. Many are sole proprietors. I hate to just say I know better than you, but you've never done this and do not understand small business issues and practices. I've been doing this for four years as both a sole proprietor and a corporation and I understand the laws and the risks, and when I talk to other agency owners (some quite large) they seem to be on the same page as I do.

By the way Eddy, I just realized something about every single hospital contract I've done. Not one hospital has ever used a corporate identifier on their contract. So every single hospital I've signed a contract with has also committed a "crime". I guess I'm in good company with my practices in case anyone ever wants to prosecute me!

What I've told you may at first glance seem "wrong" to you, but if you take the time to do your research, you'll find it's quite the contrary. I can speak from experience with regard to giving business advice. People pay me lots of money to do it. These things you have issue with really have nothing to do with small vs. large business situations. They have to do with UNIVERSAL BEST PRACTICES. If you would consider sparing the time you spend debating these issues here with me and instead research them, you'd be doing yourself and countless others who come to this forum for advice a big favor.


Harry, I'll continue to say this. It is not NEARLY as black and white as you make it out to be. While it is true that health professionals have a difficult time with pass-through liability when in the performance of their profession, there are many more sources of liability exposure that can effectively be protected against from transacting through a limited liability entity, and there is no question that a health professional benefits from these protections. Additionally, when specific to a nurse, pass through liability has been argued in court continously and has been ruled in favor and against countless times. It largely depends on the degree of discretion used by the nurse. Scope of practice and scope of care are also closely examined for a determination. Again, not a black and white issue. Transacting through a limited liability entity combined with solid general and professional liability policies is simply BEST PRACTICES for an agency owner with employees, and yes, even an IC like you.



Oh boy. Harry, if you 1099 them, they are NOT employees. You can't even call them employees. They are contractors. This actually IS very black and white. Here, this might help. See http://www.irs.gov/businesses/small/...=99921,00.html Keep in mind, the practice of simply calling a contractor an employee has caused them to actually revert to employees in several cases throughout the US. Of course that puts the company on the hook for all the payroll taxes, fair access to benefits (comperable to any you provide yourself through the company) plus you'll owe the IRS some painful penalties and interest.

With regard to work comp, the risk is exactly the same in most states if the contractor does not carry their own WC policy. By state law (for most states) you actually become the default insurer if they don't have their own policy. No contractual agreement can trump that unfortunately, so make sure your IC's get their own policy. It usually costs about $700 a year or so for a nurse and they'll have to pay 25% up front as a deposit most of the time.

You are correct that unemployment insurance risks can be pretty safely avoided by using contractors. The only way a contractor can typically secure unemployment benefits from your fund is by first proving they should have been classified as an employee to begin with (so don't call them employees!). Even then (if they won that round), they'd still have to go through the usual process to get UI benefits, which you have the ability to dispute, even appeal if needed.


Why yes I do, and if you feel left out, see google for thousands of examples. Try starting out by searching for nurse lawsuit death.

One example off the top of my head: All About Staffing currently has a wrongful death suit against them which involved the use of their own employees as well as contract nurses. You generally don't hear a ton about these because they usually settle prior to going to trial.


Negligible at best. They would more likely be better off with a limited liability entity than worrying about making it a littler easier to do business from state to state.

Correct.

Incorrect. Trademarks and copyrights involve company naming and branding and are handled by the federal government. Entity creation is at the state level. Maybe that's what you are thinking.

Wrong. The federal government has countless laws and regulations regarding "corporate actions", not to mention several federal agencies specifically involved with monitoring, auditing and investigating corporations with regard to federal compliance. Again, they are created at the state level (like you mention with your Delaware expample) and indeed they are regulated at the state level as well, but to say "primarily" at the state level would be misleading.


Harry, you are free to have your own opinions, but when you provide information that is wrong, I'll continue to do my best job to correct it for the benefit of others seeking information and advice on this forum. I question whether you are worried more with trying to win a debate than you are about providing factual information to the users here on the forum.

I'm fairly certain I'm qualified to address these questions and situations. In the accounting and consulting world, we hear from people that claim to "know better than you" all the time. They make us lots of money when we inevitably have to come in and clean up the messes they make because of their assumptions.

I'd say you still have a great deal to learn, but you've definately got more business knowledge than the average nurse. However, a little knowledge can sometimes make people think they are qualified to make sweeping assumptions on incredibly complex issues. Be careful in that regard.

I too know several agency owners. I've been very close friends with the owners of one for about 12 years. This particular agency has been an Inc 500 company the last 2 years in a row. That makes them one of (if not THE) fastest growing privately held nurse agency in the US. Quite an acomplishment. I showed this thread to one of the owners yesterday. I'm going to be honest with you Harry, we both got quite a chuckle out of it.

Best of luck!
-eddy

1099 employee is a common expression. Google it for thousands upon thousands of hits I used it for clarity in this conversation. I use the word contractor in all of my contracts. My contractors are required to carry their own insurance. I'm well aware of the risks of pass through workers comp. As I said before, this is the risk that makes it advisable for hospitals to contract with corporations. So far as I have said, no one has asked or otherwise verified that I am a corp although they would be well advised to. This does not eliminate their risk completely though. If for example I go bust and my subcontractor is hurt at work.

I've been in business for over four years, currently own three businesses and am starting one more. I have real world experience on the ground starting a small business, your credentials in larger businesses do not impress me. You are a consultant? Ask any nurse how impressed they are with various consultants who come to hospitals and lecture from lofty levels.

I have done plenty of research and am debating you from my actual knowledge base. An Inc 500 company is far removed from how to run a small business and would be right to laugh at how we run our businesses. Different risks completely. The business I am about to start is a rather large one and will have staff employees and none of the advice I am giving here is pertinent. Nor is your advice.

Dang, it sounds like you are agreeing with me while you say you disagree!
OK, name one source of liability exposure for a sole practitioner without business premises that incorporation will protect personal assets.
Not for personal professional liability it hasn't. Whether a hospital or other employer is also liable is another story.
People can and do sue for anything, whether sustainable in court or not. But that has nothing to do with the risk of being a sole proprietor or carrying the proper liability insurance. AAS by the way is fully owned by HCA. In any case, I'd like to know what the legitimate basis could be for suing a staffing agency. I can think of some scenarios, however they are unlikely.
No argument here about this elementary advice (never mind that there are tens of thousands of business owners who disagree), however for the umpteenth time, the question is about starting as a sole practitioner, and this advice is irrelevant.

I am not arguing about the real advantages of incorporation, I'm incorporated myself. And it is intimidating to most people although relatively easy. But statement that it is not necessary to start off incorporated is completely valid. So is the fact that sole proprietors have much less work to do when they cross state lines. I'm still waiting for evidence that sole proprietors have to register when they work in other states, had a bit of a laugh about a high powered business consultant saying that myself. You will have to share this with your agency owner friend.

Just to cover my bases, some states do require agencies to register with the board, however this is the exception rather than the rule, and is specific to nursing agencies.

Hi eddy,
I'm a RN with 6 years of ICU experience. I'm going to start my regular full time permanent RN position in one of the kansas hospital. I'm doing 3 night shifts/week(days will differ every week.I mean if i work on monday,tuesday& wednesday in a week,it may vary next week). I would like to work atleast 2-3 days agency shift in a week. As i checked with allnurses.com, you are recommending the cascade healthcare services as one of genuine agency.
Can you give me some details about cascade, about shifts,pay (please tell me atleast approximately with my experience),hospitals where i'll work,benefits.,

Thanks
Sherry

harryhk u give good advice! i'm planning to start a local staffing agency here in the new orleans area. I don't have much funding what should I do? Do I need a special type of license to start?

My knowledge base is limited to traveling. That is something that can be done to employ one's self with practically no funds or licenses. A local staffing agency is a very different beast. Yes, you will need significant funds and/or a way to finance your payroll, set up an office, purchase needed utilities and licenses, and promote your business. Good luck with that! It is certainly not low hanging fruit but if you know the industry well and have many contacts with local nurses and facilities, then that is the kind of business you should take a stab at. Do do lots of research before you start, check out your competitors and what you can do better, and of course other market conditions, particularly availability of staff and needs of facilities.