Government Requirements to Start a Staffing Agency

Staffing agencies bridge the gap between businesses seeking skilled talent and individuals seeking employment opportunities. As the demand for staffing services grows, so does the interest in starting a staffing agency. If you're considering starting a staffing agency, understanding and complying with the government requirements to start a temp agency is a must.

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This guide will help you understand the key government requirements for staffing agencies in Canada and the United States, ensuring you're well-prepared and setting your business on the path to success.

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Requirements to Open a Staffing Agency in Canada

In Canada, starting a staffing agency requires navigating a multilayered regulatory landscape of federal and provincial/territorial requirements. These government requirements to start a temp agency protect workers' rights, ensure fair business practices, and promote a safe and healthy work environment.

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Federal Requirements

At the federal level, several key temp agency requirements apply to temporary staffing agencies across Canada:

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• Business Registration and Licensing: You must register your business with the federal government and obtain the necessary employment agency license or permit to operate legally. The specific requirements may vary depending on your business structure (sole proprietorship, partnership, corporation) and location.

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• Taxes: As a business owner, you're responsible for fulfilling various tax obligations, including collecting and remitting business taxes like Goods and Services Tax/Harmonized Sales Tax (GST/HST), deducting and remitting payroll taxes, and filing annual income tax returns.

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• Employment Standards and Labor Laws: You must comply with federal employment standards and labor laws, which cover minimum wage, overtime pay, vacation time, and other employee rights.

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• Privacy Legislation: To protect the personal information of your clients and candidates, you must adhere to federal privacy legislation, such as the Personal Information Protection and Electronic Documents Act (PIPEDA).

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Provincial and Territorial Requirements

While federal government requirements for a staffing agency provide a baseline for operating a staffing company in Canada, it's important to recognize that each province and territory has regulations to comply with.

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Common provincial and territorial temp agency requirements include:

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• Licensing Requirements: Beyond federal registration, most provinces and territories mandate additional licensing or registration specific to the staffing industry. For instance, Ontario introduced mandatory licensing for temporary help staffing companies and recruiters on July 1, 2024.

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• Workers' Compensation Insurance: This insurance is mandatory in almost all provinces and territories to provide coverage for your temporary employees in case of workplace injuries or illnesses. The specific requirements and premium rates vary by jurisdiction.

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• Occupational Health and Safety Regulations: Each province and territory has its own occupational health and safety regulations to ensure a safe and healthy work environment. Compliance often includes appropriate training, protective equipment, and clear hazard communication to your employees.

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• Labor Laws and Regulations: Provincial/territorial labor laws may differ from federal standards and cover various aspects of employment, including minimum wage, overtime pay, termination procedures, proper office space, and leave entitlements. Stay informed about these specifics to ensure your agency operates within the legal framework.

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Government Requirements to Start a Temp Agency in the USA

Aside from having a detailed business plan, starting a staffing agency in the United States requires understanding and complying with both federal and state government requirements to start a temp agency, each with their own requirements and implications for your business entity.

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Federal Requirements

Aside from the common challenges of staffing agencies, one of the most crucial steps for any U.S. staffing agency is understanding federal requirements. Key federal temp agency requirements include:

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• Employer Identification Number (EIN): Obtaining an EIN from the Internal Revenue Service (IRS) is mandatory for any business with employees. This unique nine-digit number is used for tax filing and other official purposes, like opening a business bank account.

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• Tax Obligations: As your own staffing company, you're responsible for various federal, state, and local tax obligations. These include payroll taxes (reported on IRS Form 941), income taxes, and sales taxes, among others. You need to understand and fulfill these obligations to avoid penalties and legal complications.

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• Employment and Labor Laws: The U.S. has a comprehensive set of employment and labor laws to comply with. These include the Fair Labor Standards Act (FLSA), which governs minimum wage, overtime pay, and child labor provisions, as well as laws related to workplace safety, discrimination, and employee benefits. To ensure compliance, use Form W-4 (Employee's Withholding Certificate) to determine the correct amount of federal income tax to withhold from employees' wages.

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• Immigration and Visa Requirements: If you intend to hire foreign workers, you must adhere to strict immigration and visa requirements. This involves obtaining appropriate work visas for your employees and ensuring compliance with all relevant regulations. Additionally, complete Form I-9 (Employment Eligibility Verification) for each new hire to verify their identity and eligibility to work in the United States.

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State Requirements

In addition to federal regulations, each U.S. state imposes its own government requirements for a staffing agency:

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• Business License and Certification: Securing a business license is typically mandatory to operate any business within a state, including a staffing agency. Some states may also require specific certifications or registrations for staffing agencies, particularly those specializing in certain industries like healthcare or finance.

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• Worker’s Compensation Insurance: Most states mandate that staffing agencies obtain workers' compensation insurance to cover their temporary employees in case of workplace injuries or illnesses. This protects both the agency and the employees, providing financial assistance for medical expenses and lost wages.

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• State TIN: Similar to the federal EIN, you will likely need to obtain a state tax identification number to fulfill your state tax obligations. This number is used for reporting and remitting state taxes, such as sales tax or unemployment insurance contributions.

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• City or County Documents: Depending on your location, you may need to acquire additional licenses or permits at the city or county level. These could include zoning permits, occupancy permits, or other local business registrations.

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• Other Licenses: Certain states or industries may have additional licensing or certification requirements. For example, staffing agencies specializing in healthcare professionals may need to obtain specific licenses or certifications from state boards of nursing, medical boards, or other regulatory bodies. These licenses often require meeting specific educational, experience, and examination requirements.

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Get the Cashflow You Need with REV Capital

Starting and running your own staffing agency isn't just about knowing the government requirements to start a temp agency. You also need to make sure you have enough money to cover overhead costs, like salaries and marketing, even when clients delay paying you.

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REV Capital understands that cashflow can be a challenge for staffing agencies. We're here to help. Our invoice factoring service gives you the financial breathing room you need to focus on what you do best. 

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We offer competitive rates, typically between 1-3%, and can advance you up to 98% of your invoice value. We can get you paid quickly, so you can keep your business moving forward. Plus, our online portal gives you complete visibility and control over your account.

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Contact REV Capital today, and we'll work with you to find the right factoring plan for your staffing needs.