Denver, CO asked in Business Formation and Business Law for Colorado

Q: Many businesses are creating "staffing agencies" to provide labor only to businesses they own - what are the advantages?

Working in workers' compensation in Colorado, we have noticed recently a large number of businesses creating "staffing agencies" where they provide labor only to their own businesses, not to other client companies (so technically not staffing for our purposes). We had never seen these before and are trying to figure out the reasons for doing so.

1 Lawyer Answer
Kevin Michael Strait
Kevin Michael Strait
  • Fort Collins, CO
  • Licensed in Colorado

A: Business strategists and corporate attorneys sometimes recommend wholly-owned staffing subsidiaries. A parent company will own several businesses of the same kind and own a staffing company. This business structure makes sense when there are multiple locations that all operate in substantially the same way. Great examples are restaurants with the same menu and procedures, retail stores with the same product lines and POS policies, or daycares with the same branding and worker's credentials. In these businesses, there are several business locations with roughly the same business model, products, clients, and policies. A staff person from one location could easily work at another.

When several locations are owned by one owner, the owner still wants to hold these businesses in a unique business entity for each location. This isolates the potential liability or losses from lawsuits, tax problems, and other business problems. Each location is a separate business but can draw from one labor pool.

Employees can be assigned to different locations to balance the human resources needs. Vacations, no-shows, and surges in customer demand are easier to accommodate. With a labor pool model, workers are more likely to get the number of hours they desire each week (high or low) and are therefore more likely to be happy in the job. Most workers wouldn't much care if they work at varying locations in a career as long as the commute is similar and the job functions is the same. As a last hidden advantage, the management can better detect and handle problematic employees by assigning suspect employees to a new location. Either the symptoms will follow the reassignment, or not, and either way has diagnostic potential.

I'm not sure why you are seeing a "large number" of businesses doing this "recently" but this method has certainly been around a while. Ask around to local franchise owners and you will probably find a few folks doing this right in your own neighborhood.

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