Starting a Staffing Agency

HarryHK · Nov 18, 2007

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!

eddy · Nov 19, 2007

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.

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.

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.

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.

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.

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/article/0,,id=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.

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.

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.

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.

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.

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.

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.

Incidentally, corporations are state creations.

Correct.

There are no federal laws controlling use of names.

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.

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.

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.

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.

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'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.

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

HarryHK · Nov 20, 2007

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.

There is no corporate shield available for your own professional liability. This is indisputable.

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.

Dang, it sounds like you are agreeing with me while you say you disagree!

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.

OK, name one source of liability exposure for a sole practitioner without business premises that incorporation will protect personal assets.

pass through liability has been argued in court continously and has been ruled in favor and against countless times

Not for personal professional liability it hasn't. Whether a hospital or other employer is also liable is another story.

You generally don't hear a ton about these because they usually settle prior to going to trial.

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.

Transacting through a limited liability entity combined with solid general and professional liability policies is simply BEST PRACTICES for an agency owner with employees

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.

sherry-New RN · Dec 3, 2007

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

KRYS28 · Jan 22, 2008

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?

HarryHK · Jan 22, 2008

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.

Pete495 · Jan 25, 2008

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.
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.
Hey Eddy and Harry,
Was wondering what you said here about workers compensation Eddy. If you are a single member LLC hiring independent contractors, why would you need workers compensation coverage on your IC's if the risks are safely avoided? How can you be the default insurer for someone who is not an employee? Are you talking about pass through liability if one of your IC's files a WC claim? This is of course assuming the IC does not carry their own WC, which I can guarantee most do not in this business.
Also, are you saying that you should carry general and professional insurance coverage on each Independent Contractor even though they would be personally liable if they committed negligence or are you simply saying a person who functions as an independent contractor and single member LLC owner should carry a policy that covers only oneself as an indpendent contactor & business owner, which would include general and professional liability?
pete495

HarryHK · Jan 25, 2008

As the general contractor, you will be required to show proof of general liability, you may in turn pass this liability down to your contractors and require that they obtain insurance contractually and show proof to you.

You are not responsible for workers comp on your contractors. However, the facility may demand such proof by you or your contractors. Ultimately, you have little control over the contractor filing a WC claim against you or the hospital by attempting to show that they are an employee, not an IC. Good contracts and handling of work relationships are key to protecting yourself. A good text to read if this is of concern by you is:

HIRING INDEPENDENT CONTRACTORS: The Employer's Legal Guide, Attorney Stephen Fishman, AUG 2000 NOLO $29.95 304 pages

happynursy74 · Feb 7, 2008

Wow, this is very informative- I am in the VERY EARLY stages of starting a staffing agency- just now researching, looking up local classes, etc. I had heard from a relative it is best to start off as your own employee, but I am glad to hear details on the other options.

yamiarn2 · Jul 4, 2008

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.

I do not - at this time - have any desire to have a staffing agency. I want to be a "mini-agancy" with a staff of one - Me! I would like to have the protection of a corporaqtion but wonder if you think one kind is preferable - sub chapter S? LLC? or PPG?

chawviv · Aug 5, 2008

I have read the past posts and I must say, I have learned a lot. I am about to start my own nursing and staffing agency in New Jersey and this forum has given me a lot to put together. Thank you all.

chawviv · Sep 9, 2008

Hello,

I have started my nursing and staffing agency in New Jersey. I need guidance in trying to get my agency in medical facilities. Can someone help me with that?

I also have the application for medicare certification, because I am also looking at doing homecare.

Can someone please help me?

Darryl Murphy