The topic of payrolling comes up often in staffing conversations, and many ask: Is it really good business?
First, let’s clarify. Payrolling is the process of engaging with a temporary worker and placing them on someone else’s payroll. In other words, a company may choose to “move” its employees off their own books and onto a staffing company’s payroll.
Why Clients Choose Payrolling
There are several legitimate reasons why clients pursue this arrangement:
Cost Savings – They avoid the expense of hiring a full-time employee.
“Try Before You Buy” – They can evaluate talent before committing to permanent employment.
Flexibility – They maintain greater control over workforce levels.
These are strong incentives, making payrolling an attractive service. However, staffing firms must also proceed with caution.
Warning Signs to Watch For
Not every deal is a good deal. Here are four red flags staffing firms should carefully consider:
1. Loss Runs
Safety matters. If the jobsite has a history of injuries, it could negatively impact your workers’ comp modifier—not just for payrolled employees, but across your entire payroll. Always request loss runs before agreeing.
2. Employee Turnover
If a client has high turnover, they may be shifting employees to your payroll to offload unemployment costs. High turnover means higher State Unemployment Insurance/Tax (SUI/SUTA) rates due to more claims. Ask about their turnover ratio.
3. No Recruiting
Margins on payrolling are often very slim. Between onboarding, payroll, taxes, and burdens, profit quickly disappears. If the client expects you to handle recruiting as well, the deal becomes a time drain with little return. Look for turnkey arrangements only.
4. No Credit Terms
This may be the most important. Unlike traditional temporary placements with higher margins, payrolling requires strict payment terms. You should expect payment the day the client receives the invoice. If they insist on extended credit, it could signal cash flow problems. Remember the rule: No check, no service.
The Bottom Line
Payrolling can absolutely be a profitable revenue stream for staffing companies—but only under the right terms and conditions. By recognizing the red flags and setting clear expectations, you can turn payrolling into a smart and sustainable offering.
Want to learn more about structuring payrolling deals for success? Contact me anytime—I’d be happy to share insights.
Ready to start your funding journey? Partner with Madison Resources today [apply here]
Explore our website to find more staffing insights. Madison Resources is the premier payroll funding and back office support partner to the staffing industry. Grow with confidence.
