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BLOG: Common Compliance Mistakes IT Staffing Companies Make

IT staffing firms are consistently finding themselves under regulatory audits. Robust compliance planning is the only way to avoid potential penalties. Here we will cover common compliance mistakes made in the industry and how firms can prevent them.

Why Are We Susceptible to Mistakes?

Marty Borosko, Managing Partner at Becker LLC, points to a weakening federal government. “The IT staffing industry has really been facing, what I would call a never-ending quest to stay compliant with an always-changing landscape of federal, state, and local laws that affect the industry.” Over the last 20 years, state governments have taken advantage of the dwindling power of the federal government to introduce new regulations thereby making compliance overly complicated.


FCRA Compliance

Many firms make mistakes during the background screening process. Both federal and state background regulations must be followed, requiring a deep understanding of these laws.

Chris Leddy, Esq., at Becker LLC, says “while most staffing agencies do comply with the three requirements from the FCRA (provide an FCRA disclosure to the candidate, securing written authorization from them, and obtaining consent when sharing with a client or other third party), some fail to comply with the nuances of the FCRA.” Chris explains that most mistakes involve the disclosure and authorization forms; they must be in the form of a standalone document with no other ancillary language, indemnifications, consents, disclosures, or any other information (including those that may be required by applicable state law).

State Tax Issues

Jerry Grady, CPA with UHY Advisors, reports that sales factor apportionment is where he sees most mistakes made by IT staffing firms. The work-from-home model is causing confusion in the industry regarding state taxes. Grady outlines states are categorized as “cost of performance state or a market state.” Cost of performance refers to the sourcing of the receipts and the expenses being taken into consideration. Many states are going to market-based, which looks at where is the benefit, service received or delivered, and customer coming from. Grady warns that if you are working from a performance-based state but doing work in a market-based state, you have an issue.

Understanding what type of state you are based in and the status of the states you do business in will help you avoid double taxation, stay tax compliant, and avoid an audit.

Wage and Hour – COVID Testing

There’s been a significant amount of confusion regarding compensation for COVID testing. Firms are generally responsible for compensating the time and mileage (if applicable) for employees subjected to mandatory testing where the testing is necessary for employees to perform their jobs safely and effectively during the pandemic. Additionally, several states, such as California, already require employers to reimburse the cost of mandatory testing, including the reimbursement of mileage. Firms should check the laws in applicable states of operation to verify their obligations.


One way to help avoid an audit can be done by including more concise requirements in a job description. When asked this question, Leddy stated, “I would put more in because this is the first step the auditor is taking. They are looking at the job description, not at what the person actually does…If you can at least pass that smell test with the auditor by showing them the job description, the auditor may move on and say, ‘it meets the exemption.’” However, the job description should be accurate and not misleading, as substance will always prevail over form in such instances.

Improve Compliance Policy and Procedures to Avoid Penalties

Staying compliant under a complex regulatory system can be tedious, but it is necessary to remain compliant to avoid fines and penalties, which, depending on size, could be millions of dollars. Obtaining advice from industry professionals will help your firm avoid future audits and/or potential negative outcomes.

Members can access Avoiding the Pitfalls: Common Compliance Mistakes IT Staffing Companies Often Make webinar through the TechServe Online Learning Center.

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