I have been in the staffing industry for almost 30 years. In all that time, I have seen a lot of crazy things happen in our industry. However, over the past few years, one of the biggest issues I have seen facing businesses is staffing firms that have a pricing structure that is so low that they are losing money on every single hour they bill. So why are they doing it? And what does it mean to your business if you are working with these firms?
“Cut-rate staffing sounds like a wonderful thing, until it quietly becomes a liability that ends up costing your business far more than it ever saved.” If a staffing agency significantly undercuts the competition in terms of pricing, then it’s a sure bet that they are cutting corners in a way that can get them into serious trouble. And in Ontario, they are starting to get caught.
For example, in a recent case in Ontario, a temporary help agency in Ontario was fined $100,000 after admitting that it had given false records to a regulator and had also obstructed an investigation into a possible breach of the Employment Standards Act. This is not a case of a simple paperwork infraction; it’s a case of a business that decided to engage in deliberate non-compliance. And if your business works with them, then that’s on your business too, whether you like it or not.
But that’s not all. In another case in Ontario, a pair of directors of a staffing agency were convicted of fraud after they stole money from the business and underreported more than $2.8 million in income. They were both fined hundreds of thousands of dollars each.
And then, of course, there is the Temporary Foreign Worker (TFW) piece of it. An employer in Toronto was fined $111,000 for failing to deliver on its promises of wages, job type, and working conditions. These infractions often come down to backroom deals made by third-party recruiters or staffing agencies. And get this: fines for TFW infractions in Canada have jumped into the millions of dollars as enforcement becomes more robust.
In Ontario, they have moved to further regulate this industry by making it necessary for agencies providing temporary help services to become licensed, and penalties for non-compliance can reach as high as $50,000.
So- what do you risk if you use one of these “Bad” agencies?
Using a non-compliant staffing agency is not just their problem; it is yours, and it becomes yours in a hurry. Here is how it happens to businesses:
- Legal Liability (Yes, it can land on you)
If they’re not paid, misclassified, or not receiving overtime, you’re opening yourself up for regulators to go after not only the agency, but also the client company. In Ontario, joint liability laws mean you’re on the hook for unpaid wages, vacation pay, and violating the ESA, even if you don’t touch payroll. - Fines, Back Pay, and Audits
Once an issue is identified, it will rarely remain minor in scope. You will potentially be looking at:
• Back pay for several employees
• Government fines
• Full audits of your business practices
This ‘$2/hour cheaper’ figure now becomes a five- or six-figure problem. - Reputational Damage
If your agency is associated with worker exploitation, unsafe working conditions, and/or questionable business practices, it will follow you. Your customers, employees, and future recruits will know. You don’t want your brand associated with business practices that allow for exploitation. - Workplace Safety
Unscrupulous agencies don’t bother with training, documentation, and certification requirements. You will potentially see:
• Increased workplace injury
• WSIB claims
• Potential shutdowns and investigations
And guess where this will happen? On your floor. - Reduced Quality and High Turnover
Unscrupulous agencies don’t bother with hiring requirements and qualifications either. You will potentially see:
• Unqualified employees
• High turnover
• Reduced productivity
You’re not saving money; you’re babysitting a revolving door. - Tax and Payroll Exposure
If your agency isn’t paying CPP, EI, and taxes correctly, authorities will potentially investigate your relationship with this agency. Even if you’re not directly implicated, you will now be embroiled in a potentially messy investigation. - Supply Chain and Contract Exposure
Larger clients and business partners are now inquiring about worker exploitation. If you can’t demonstrate worker safety and exploitation avoidance, you will potentially lose contracts, particularly if you’re working for a large firm that takes corporate responsibility seriously.
The reality is that cheap labor isn’t cheap; it’s delayed risk. A responsible agency isn’t just providing labor. They’re protecting your business from potential legal and financial ruin.
If someone is significantly undercutting the market, don’t ask how they’re saving you money.
Ask what they’re not paying for and whether you’re prepared to pick up that tab.
