A generally strong job market has increased demand for qualified employees and created new challenges and opportunities for the temporary staffing industry.
Those ups and downs are represented on the Business Journal’s 2018 list of temporary staffing firms ranked by Los Angeles County revenue, which showed an industry that is growing overall. The 25 companies on the list combined for an 8.5 percent gain in revenue for 2017, reaching $660 million compared with $608 million the year prior.
There was some volatility on the list, with 14 companies moving up in rankings, five moving down and five holding their rank.
No. 24 Medical Professionals was the one new addition to the list; it replaced Premier Financial Search.
The biggest gainer on the list was System One Holdings, based in Torrance, which jumped 15 spots to No. 9 from No. 24 in 2017.
The company’s rise in the rankings can be partially attributed to an aggressive acquisition strategy that added to revenue in 2017 and has continued this year, with a deal for information technology staffing firm TPGS last month on undisclosed terms. Additional revenue from TPGS, which provides IT professionals with security clearances to government contractors, isn’t reflected in the current list although a number of other deals have factored into System One’s rise.
“From 2015 to 2018, we acquired five companies,” System One Vice President Jodi Zarin said.
Among the acquisitions was GAP Solutions Inc., now a System One subsidiary that operates the recently acquired TPGS.
“Our chief executive looks for companies in bases that we are not in to expand our reach and diversity” when pursuing acquisitions, Zarin added.
She also credits the company’s recent boost to experience gleaned from three decades of experience in temporary staffing.
“I’ve been through three recessions,” she said. “When this last recession hit, I realized that I can’t just specialize in one area, and that’s when I began nationwide recruitment in all disciplines, which is what we do here.”
System One employs staffers in a wide array of industries but mainly in light industrial, warehouse, and information services. Zarin said the company works with more than 50 clients in the light industrial sector daily.
Larger trend
The L.A. County numbers are in line with growth in the broader temporary staffing market, which saw nationwide revenues top $120 billion in 2017, up from $120 billion in 2016, according to Mountain View-based market research firm Staffing Industry Analysts Inc.
Historic lows for unemployment rates have been double-edged for staffing agencies, making it a challenge to meet demand but also providing some leverage in dealing with employers, according to SIA.
“One headwind to temporary staffing market growth has been a scarcity of labor supply,” SIA research analysts said in a report. “Consequently, we are at last starting to see broadly (but not universally) reported signs of bill rate increases, which could support revenue growth and help offset any declines in volume due to labor scarcity.”
The environment also is ripe for industry consolidation, and System One isn’t the only Los Angeles-based company to take advantage.
Calabasas-based Asgn Inc., which ranked No. 5 on this year’s list with $66 million in L.A. County revenue, acquired government services contractor ECS Federal in April on undisclosed terms. Asgn has more than $2.6 billion in overall revenue.
Asgn Chief Executive Peter Dameris said ECS’ employees and a pipeline of contracts worth an estimated $2 billion made ECS an attractive buy.
“The work is to be performed over the next four years, and we estimate ECS will do over $600 million in revenue this year,” Dameris said.
“Why we’re growing faster than the economy and some of the offshore project consulting companies is companies are electing to use contract labor to execute tech and maintenance,” Dameris added. “The benefits are greater productivity; you have 100 percent utilization” because the workers leave after their job is done, and there isn’t excess cost.
Asgn expects to post revenue north of $3 billion in 2018, according to Dameris.
Gig threat?
There are some threats to the temporary staffing industry, with the so-called gig economy leading the pack. That employment sector includes rideshare drivers and other individuals who might have gone to a staffing agency looking for temp. work but who now can earn money independently and on a flexible schedule as independent contractors.
Zarin said System One is booming despite “a tough market for temporary staffing” and wants to undercut the gig economy’s poaching of workers by collaborating with them.
“We want to partner, we are in talks with several industries that are only 1099, and we want to partner with these companies and let them know we’re big on payroll servicing; we onboard employees, and they become part of the System One payroll to be filed with a W-2,” said Zarin. “(Gig jobs) do take potential people looking for work away from us.”
Asgn’s Dameris, meanwhile, noted both similarities between gig jobs and temp. jobs, as well as appreciable differences.
“We were the original gig economy model, we share resources on a contract basis and our employees are W-2 benefit employed,” said Dameris, who added that many companies use the gig model because “it’s hard to hit the standard of being an independent contractor, especially in California.”
The state wage-hour law penalizes businesses $75,000 for violations, which a company would typically pay in back taxes, Dameris said.
“When you see sophisticated large corporations using contract labor or freelance or alternative work status labor for strategic reasons, they’re trying to do it in an illegal way to get the benefits of enhanced utilization,” Dameris said, adding that “the gig economy is actually driving business to us, as the world gets more dangerous on a cyber and personal security basis, and as people try to turn human capital into variable cost the way they’ve turned inventories and manufacturing into variable costs.”
