Staffing agency license in Michigan: personnel agencies and PEOs

Michigan still licenses personnel agencies. The licensing law is Article 10 of the Occupational Code, 1980 PA 299, and it is administered by the Department of Licensing and Regulatory Affairs (LARA). But the license is narrower than its name suggests: it applies to agencies that take a fee from the person looking for work or career help. Employer-paid recruiting firms fall outside the definitions, and temporary staffing firms that act as the employer of their workers are expressly exempt. PEOs need their own license under a separate 2010 act.

This page covers who needs the personnel agency license, fees and bond, the rules on fees charged to job seekers, penalties, PEO licensing, and the employer accounts every Michigan staffing firm needs. For other states, see employment agency license requirements.

Who needs a personnel agency license

MCL 339.1003(1) says a person shall not open, operate or maintain a personnel agency in Michigan without first obtaining the appropriate license. MCL 339.1001 defines two types:

• Type A personnel agency: aids a client seeking employment or making career decisions, puts the client in direct contact with employers, and receives a fee from the client.
• Type B personnel agency: aids or consults with a client on basic career decisions and receives a fee from the client.

Both definitions turn on a fee from the client who is seeking employment or career help. A contingency or retained search firm paid only by employers does not receive a fee from that client, which is why employer-paid recruiting generally sits outside Article 10. The statute does not state that conclusion in so many words, so a firm relying on it should keep its candidate paperwork free of any fee obligation.

Exemptions

MCL 339.1003(2) exempts:

• schools and charitable organizations offering free employment services;
• employers recruiting for themselves, the state employment service, and vocational rehabilitation providers;
• a person employing individuals for temporary service who pays the required taxes and insurance premiums and remains responsible for the workers' conduct; and
• booking agents for actors, artists, athletes, entertainers and performers.

The temporary service exemption is conditional. It protects a staffing firm that is genuinely the employer: paying wages, FICA and unemployment insurance, carrying workers' compensation, and answering for the worker's acts. A firm that places workers as 1099 contractors with clients loses the footing the exemption relies on. See worker misclassification for staffing agencies.

Fees, bond and renewal

LARA issues the license for a multi-year cycle and collects the annual fee for each year of it, so the amount due at application or renewal is a multiple of the yearly figure. Check LARA's current personnel agency licensing guide for the exact total. Other points:

• The agency must designate an individual employment agent (type A) or consulting agent (type B) who manages it and is licensed in their own right after passing an exam.
• A license is required for each office, and an agency may not share space with another agency or a résumé service (MCL 339.1005).
• If LARA finds the surety inadequate and the agency does not replace the bond within 30 days, the license is automatically suspended, and a cancelled bond blocks renewal.

Rules on fees charged to job seekers

For licensed agencies, Article 10 sets out how client fees work:

• Written contract. A type A agency must use a written contract with the client.
• No fee until acceptance. No fee is due until the client has made a bona fide acceptance of employment (MCL 339.1020), and registration fees are prohibited (MCL 339.1019).
• Guarantee period. If the client leaves the job before the guarantee period ends, the fee may not exceed 20 percent of wages earned, with a minimum guarantee period of 60 days and excess fees refunded within seven days of a request (MCL 339.1012).
• Type B job listing contracts. Limited to 12 months, with refund rules for unconfirmed or inaccurate listings (MCL 339.1015).

Article 10 does not regulate fees charged to employers, and I found no Michigan statute limiting temp-to-perm conversion fees for general staffing. Those are contract terms; see how to negotiate recruitment fees.

Penalties

Operating without a required license is a misdemeanor under the Occupational Code's general penalty section, MCL 339.601, with fines and jail time that increase for repeat offenses, and affected persons can seek restitution and injunctions. Licensees who violate the article face administrative fines and license sanctions under MCL 339.602. For a recruiting business the sharper consequence is in MCL 339.1019: an unlicensed agency cannot sue to collect a fee. If your model involves any candidate-paid fee, licensing is what makes that fee collectable.

PEO licensing

Michigan's Professional Employer Organization Regulatory Act, 2010 PA 370, MCL 338.3721 to 338.3747, is administered by LARA's Corporations, Securities and Commercial Licensing Bureau:

• License required. No one may provide, advertise or hold itself out as a PEO without a license (MCL 338.3727). Temporary help services and certain common-ownership arrangements are excluded from the definition.
• Fees. The statute sets an application fee and an annual license fee of up to $1,500 each, adjusted for inflation, on a license year running September 1 to August 31 (MCL 338.3733). LARA's PEO page lists the current combined amount.
• Financial requirement. At least $100,000 in working capital, or a bond, letter of credit or securities of $100,000, with more required if working capital is negative (MCL 338.3735). An audited financial statement is filed annually.
• Limited license. Available for out-of-state PEOs with no Michigan office or solicitation and no more than 50 Michigan employees.
• Penalties. Administrative fines of up to $5,000 and license sanctions (MCL 338.3741), and a knowing violation is a misdemeanor (MCL 338.3743).

Employer accounts every Michigan staffing firm needs

• Unemployment insurance. Register with the Michigan Unemployment Insurance Agency. PEOs report each client's wages under that client's account (MCL 421.13m).
• Workers' compensation. Required under the Worker's Disability Compensation Act, and one of the conditions of the temporary service exemption above. See staffing agency insurance requirements.
• Business and tax registration. Entity filing with LARA and withholding registration with the Department of Treasury.

A Michigan checklist

MICHIGAN CHECK — [date] — owner: [name]

Model:
  [ ] Employer-paid direct hire: outside type A/B definitions (no candidate fee)
  [ ] Candidate-paid placement or career help: personnel agency license
  [ ] Temp/contract: 339.1003(2)(c) exemption conditions met
        W-2 wages, FICA, UI paid    [ ]
        Workers' comp in force      [ ]
        Responsible for conduct     [ ]
  [ ] Co-employment of client workforce: PEO license (338.3727)
  [ ] Entertainment/athlete booking: exempt (339.1003(2)(d))

If licensed:
  Agency application + annual fees paid           [ ]
  Agent designated and exam passed                [ ]
  $10,000 bond filed                              [ ]
  License for each office                          [ ]
Next review: [date]

Re-check if a temp desk starts placing 1099 contractors or charging candidates, since either change can take you out of the exemption that most Michigan staffing firms rely on.