When Provider/Partners Fail – How to Avoid Being Caught in the Aftermath


If a staffing company, payroller, EOR or other workforce management service provider serving your programs were to wind up in trouble with the law or suddenly become insolvent, it could spell big trouble for your operations. The most recent example of this catastrophic occurrence has affected numerous unfortunate organizations and reveals a risk to organizations relying on these provider/partners. Read on for details about this most recent example, along with a rundown of associated risks and what you can do to protect your contingent workforce management program from becoming a victim.

The SIA reports New York Governor Andrew Cuomo called for a Department of Financial Services investigation two weeks ago into the sudden and unexpected shutdown of a NY-based payroll firm. According to Cuomo, the collapse of this service provider, “left employees across the state and the nation with negative bank accounts and forced businesses who depend on its payroll services to scramble to find ways to compensate their employees.” This kind of unexpected failure of a staffing industry business partner exposes the risks associated with using these services.

Whenever an organization opts to engage the services of a third-party service provider, there are very real risks to consider and very costly ramifications for those failing to ensure their chosen providers are up to the task – both from a competency and a fiscal stability standpoint. Over the years, our industry has witnessed horror stories involving provider/partner failures. Some of these include staffing firms failing to enforce proper worker classification compliance or failing to pay overtime as required by law like the staffing company noted in this article from the US DOL. Other examples include payroll companies not remitting taxes collected from workers to the IRS, or simply succumbing to poor financial management leading to financial insolvency. In all these cases, hiring organizations are left on the hook to pay the back taxes and penalties and/or the wages already paid to the insolvent partner which were never delivered to the workers.

According to an article published by the BT|LG Law Firm, “The IRS and local taxing authorities hold employers wholly responsible for reporting and paying their tax liabilities. Payment of taxes to a third-party payroll company, bookkeeper or accountant does not relieve the employer of its obligations to report and pay such taxes to the IRS and the state. Therefore, if a third-party service withholds, yet fails to remit tax payments, the employer remains liable for any unpaid taxes, along with any penalties and interest that may be assessed for the failure to file and pay taxes.”

While hiring organizations are hard pressed to stay abreast of the financial health and operational/compliance performance of all of its provider partners, they can take steps to protect themselves when opting to utilize these kinds of services. One of the most effective steps is to engage the services of workforce management consultancies like the experts at nextSource.

A hiring organization will at best, have limited exposure to and experience with the handful of partner/providers it opts to engage. Whereas nextSource has exposure to and experience with many more such providers – the result of having helped many organizations build effective contingent workforce management programs over the course of many years.

We at nextSource have helped design and deploy successful, performance-driven programs for customers of every size and composition. For this reason, they have a far more complete understanding of what to look for when sourcing partner/providers. We know how to determine if a provider has the competencies, skills and financial resources necessary to deliver performance, compliance and dependability to a hiring organization. Plus, we’re more aware of the signs of financial distress among these third-party providers and can identify signs of distress that may prompt the need to sever ties with struggling firms.

Take the extra step of engaging experts like nextSource to help find the best array of staffing firms, EOR companies, payrollers, factors and other such provider partners before committing your business to any of them. There is little to lose and much to gain by having the benefit of this expertise at work for your contingent workforce operation from day one.

To read more on this subject, turn to nextSource for expert guidance and visit our employer of record page.

More Articles