How to Get a License for a Staffing Agency in the US

Starting a staffing agency can be a profitable business in today's evolving employment market. There are over 26,000 staffing companies in the United States [1], and according to SIA, the US staffing industry is expected to grow 5% to $198.3 billion in 2025. This demonstrates the resilience and growth potential of the sector. Whether you're planning to launch a temp agency, executive search company, or specialized recruitment agency, obtaining the proper license for staffing agency operations is essential. Before you invest, here’s exactly what you need to know to get a license for a staffing agency in the US.

What Is Required to Open a Staffing Agency?

Opening a staffing agency involves several key components beyond just obtaining a license for staffing agency operations. The basic requirements typically include:

• Obtain an Employer Identification Number (EIN) from the IRS: This is a unique number that identifies your business for tax purposes. You can apply for an EIN online for free on the IRS website.
• Choose a business entity structure for your staffing agency: This determines how your business is owned, operated, taxed, and liable. There are different types of business structures, such as sole proprietorship, partnership, limited liability company (LLC), and corporation. Each has its advantages and disadvantages, so it's best to consult with a legal or tax professional to determine which one suits your needs the best.
• Register your business name with your state and local authorities: This ensures that your business name is unique and not already in use by another entity. You may also need to obtain a trademark or service mark for your business name if you want to protect it from being used by others without your permission.
• Open a business bank account for your staffing agency: This helps you separate your personal and business finances and makes it easier to manage your cash flow, payroll, taxes, and expenses. You will need your EIN and your business registration documents to open a business bank account.
• Obtain the necessary licenses and permits for your staffing agency: This is where things get more complicated, as different states have different requirements for licensing and regulating employment and staffing services. We will discuss this in more detail in the next section.

In addition to all the points mentioned above, you have to juggle the responsibilities of managing your clients and candidates as well as their data. For smaller agencies, this can become an overwhelming burden. This is where you will need an all-in-one package such as Manatal's ATS and CRM. It gives you the best of both worlds on a single platform with complete flexibility. Manage your clients, share candidates, invite guest users, and more without having to spend time managing users, roles, and data manually.

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Do You Need a License to Start a Staffing Agency in the USA?

Government Requirements for Opening a Staffing Agency

The regulatory landscape for staffing agencies involves multiple levels of government oversight, each with distinct requirements for obtaining and maintaining a license for staffing agency operations.

Federal Documents Required for a Staffing Agency

At the federal level, several documents and registrations are mandatory for all staffing agencies:

• Employer Identification Number (EIN): This is your federal tax identification number, required for payroll processing and tax reporting. You can obtain this directly from the IRS at no cost.
• Federal Tax Registrations: You'll need to register for federal unemployment tax (FUTA) and ensure compliance with federal income tax withholding requirements for all placed employees.
• IRS Form 941: The Employer's Quarterly Federal Tax Return, filed to report income taxes, Social Security, and Medicare withheld from employees' wages. Due dates are typically April 30, July 31, October 31, and January 31 (the last day of the month following the end of each quarter). [2]
• Equal Employment Opportunity Commission (EEOC) Compliance: If you have 15 or more employees, you must comply with federal anti-discrimination laws and may need to file annual EEO-1 reports.
• Department of Labor Compliance: While not a license per se, you must comply with the Fair Labor Standards Act (FLSA) requirements, including proper wage and hour record-keeping for all temporary employees you place.
• Immigration Compliance: You must verify work authorization for all employees through the I-9 process and may need to register with E-Verify depending on your clients' requirements.

State Documents Required for a Staffing Agency

State requirements for a license for staffing agency operations vary dramatically across the country. Some states have comprehensive licensing requirements, while others have minimal regulations.

• States with Specific Staffing Agency Licenses: States like California, Massachusetts, Illinois, and Florida have detailed licensing requirements that include application fees, bonding requirements, and ongoing compliance obligations. For example, in California, staffing agencies must file a $25,000–$50,000 surety bond with the Secretary of State; no formal license is required under the Department of Industrial Relations, but bonding is mandatory. [3] Massachusetts requires staffing agencies to register as employment or placement agencies with the Department of Labor Standards; they must comply with the Temporary Workers Right to Know Law. [4] 
• States with General Business Licenses: Many states don't have specific staffing agency licenses but require general business licenses and may have employment-related regulations that affect staffing operations.
• Professional Licensing: Some specialized staffing agencies, particularly those placing healthcare workers or other licensed professionals, may need additional certifications or must comply with industry-specific regulations.
• Workers' Compensation Registration: Most states require staffing agencies to carry workers' compensation insurance and register with the state's workers' compensation board.
• Unemployment Insurance Registration: You'll need to register with your state's unemployment insurance program and maintain current accounts for premium payments.

Personal Business Documents and Items Required for Opening a Staffing Agency

Beyond the formal license for staffing agency operations, several personal and business documents are typically required:

• Personal Background Checks: Many states require background checks for business owners and key personnel, including fingerprinting and criminal history reviews.
• Financial Statements: You may need to provide personal and business financial statements demonstrating your ability to meet financial obligations to temporary employees.
• Business Plan and Operating Procedures: Some states require detailed business plans outlining your operations, target markets, and compliance procedures, including a 3-year projection. The SBA provides guidance on writing a business plan, which is crucial for securing funding and setting strategic goals.
• Non-Disclosure Agreement (NDA): A legal document to prevent employees and business partners from disclosing sensitive information, such as customer data, pay rates, and business strategies, protecting competitive advantage.
• Proof of Insurance: Documentation of all required insurance coverage, including certificates of insurance that meet state minimum requirements.
• Facility Documentation: Proof of business location, lease agreements, and compliance with local zoning requirements for commercial operations.

Licenses for Various Staffing Agency Types

Apart from the state-level requirements, you may also need to consider the type of business that you are running when it comes to licensing and regulating your staffing agency. There are different types of employment and staffing services, such as:

• Employment agencies: These are businesses that seek to place individuals in long-term positions in return for a fee from the applicant or the prospective employer. Employment agencies do not hire employees themselves or pay the people they place.
• Staffing agencies: This refers to businesses that mainly place temporary employees. Staffing agencies hire their employees, and they, not the client company, are the employer of record.
• Professional employer organizations (PEOs): These are businesses that offer full-service human resource outsourcing known as co-employment. In this arrangement, the PEO performs various employee administration tasks, such as payroll and benefits administration, on behalf of a business.

Depending on the type of business that you are running, you may need to obtain different types of licenses or permits. For example, some states require employment agencies to obtain an employment agency license, while staffing agencies and PEOs may need to obtain a staffing agency license or a PEO registration. Some states may also require different types of bonds or insurance coverage for different types of employment and staffing services.

To determine what type of license or permit you need for your business type, check the definitions and regulations of each type of employment and staffing service in your state.

Start a Staffing Agency from Anywhere in the World

For services outside the USA, a U.S. state license may be unnecessary. However, you must adhere to the local laws where your clients or employees reside. For example, if you are providing employment and recruitment agencies in Canada, you must secure a license from the relevant province. The same applies to operations in the Philippines, where a license from the Philippine Overseas Employment Administration might be necessary.

Before establishing a staffing agency, it is crucial to thoroughly research the laws and regulations of your target locations. Ensure you obtain the necessary licenses or permits to operate legally.

Conclusion

Obtaining a staffing agency license in the U.S. requires navigating complex federal, state, and local regulations. Success depends on researching state-specific requirements, financial planning for bonding and insurance, and establishing compliance procedures. Beyond licensing, building client relationships, maintaining candidate databases, and staying updated on employment laws are crucial for a thriving staffing agency. Proper licensing and strategic planning can turn a staffing agency into a valuable business partner and employment source across industries.

Frequently Asked Questions

Q: How do I register as a staffing company in the USA?

A: To register a staffing company in the USA, you must choose a business structure, register your business name, and obtain an EIN. Additionally, you need to register with your state's labor department or licensing board, obtain employment agency licenses, and fulfill tax, workers' compensation, and unemployment insurance requirements in the states where you operate.

Q: Do I need a special license if my staffing agency works with temporary foreign workers?

A: Yes, recruiting or placing foreign workers requires compliance with federal and sometimes state regulations, including registering as a labor contractor for H-2A and H-2B workers. Employers must follow specific recruitment, housing, and wage rules and adhere to immigration and anti-trafficking laws.

Q: What are the penalties for operating a staffing agency without the proper licenses?

A: Operating without proper licenses can result in significant penalties, including fines ranging from hundreds to thousands of dollars per violation, cease and desist orders, criminal charges in severe cases, and civil liability for damages to workers or clients. States may also pursue back taxes, penalties, and interest on unpaid employment taxes and workers' compensation premiums. Additionally, you could face lawsuits from workers for unpaid wages or benefits, and clients may refuse to work with unlicensed agencies, severely damaging your business reputation and prospects.

Q: What types of insurance are required or recommended for staffing agencies?

A: Staffing agencies are typically required to have workers' compensation, unemployment, and disability insurance. Additionally, it is highly recommended for them to have general liability, professional liability, employment practices liability, cyber liability insurance, and surety bonds. They may also carry commercial auto insurance for transporting workers and fidelity bonds against employee theft.

Q: How can I stay compliant with labor laws and avoid audits or fines?

A: Maintain detailed records of employee hours, wages, taxes, and benefits, ensure proper worker classification, and stay updated on labor laws. Conduct audits, implement compliance policies, and consider joining industry associations. Use compliance software and consult employment law attorneys for guidance and representation.

Citations:

1. DOIT Software

2. IRS

3. Wolters Kluwer

4. Massgov