Staffing agencies, temp agencies, and managed service providers (MSPs) occupy a unique position under AB5. Unlike most industries, the staffing model specifically involves placing workers at client sites - which raises both AB5 and joint employment questions.
The Staffing Agency Model Under AB5
Legitimate Staffing Agency Model
In a compliant model:
- Agency employs the workers (W-2 employees)
- Agency handles payroll, taxes, benefits
- Agency provides workers' compensation
- Client pays agency for services
- This model generally complies with AB5
Problematic "Payrolling" Model
Some arrangements are problematic:
- Client finds/selects the worker
- Client directs all work activities
- Agency only handles payroll/admin
- May create joint employer liability
Joint Employer Liability
Both Agency AND Client May Be Liable
Under California law, both the staffing agency and the client company can be held jointly liable as "employers" for wage and hour violations if both exercise control over workers.
| Factor | Agency Responsibility | Client Responsibility |
|---|---|---|
| Hiring/Firing | Usually agency | Often shared |
| Day-to-Day Supervision | Sometimes | Usually client |
| Payroll/Benefits | Agency | Funded by client |
| Work Schedules | Sometimes | Usually client |
| Workplace Safety | Shared | Shared |
Managed Service Provider (MSP) Considerations
What is an MSP?
MSPs manage contingent workforce programs, often coordinating multiple staffing suppliers and contractors. They may also directly engage workers.
MSP Compliance Issues
- Direct Engagement: If MSP directly engages workers, AB5 applies to that relationship
- Supplier Management: Must ensure suppliers are compliant
- SOW Workers: Statement of Work arrangements may mask employment relationships
- IC Management: Managing independent contractors creates control issues
The B2B Exemption for Staffing
In limited circumstances, the B2B exemption may apply when an agency contracts with an incorporated consulting firm rather than individual workers:
- Consulting firm must be legitimate business entity
- Must meet all 12 B2B criteria
- Consulting firm (not individual) contracts with agency
- Consulting firm has multiple clients
Best Practices
- Employ Placed Workers: Make temporary workers W-2 employees of the agency
- Written Agreements: Clear contracts with client companies
- Allocation of Duties: Define who controls what aspects
- Compliance Programs: Regular audits of worker classifications
- Insurance: EPLI coverage for both parties
- Indemnification: Address liability allocation in contracts