skills/cim-teardown/references/overlay-staffing-labor-services.md

# Overlay: Staffing / Labor Services

Use for temporary staffing, temp-to-hire, direct-hire, payroll services, outsourced labor, and labor-heavy businesses where bill rate, pay rate, gross spread, client concentration, compliance, and working capital drive value.

## Table of contents
1. Decision lens
2. Driver tree
3. Mandatory denominators
4. Typical gating items
5. Kill criteria examples
6. Evidence asks
7. Owner mapping
8. External triangulation when thin
9. Red flags

## Decision lens
- Are billings durable by client and active worker, or inflated by temporary projects?
- Does gross spread survive payroll taxes, workers' comp, benefits, bad debt, and payroll funding costs?
- Are top clients under contract, at-will, public-sector, or purchase-order dependent?
- Are regulatory, wage-hour, payroll tax, workers' comp, immigration, safety, or ACA issues bounded?
- Can the business operate without the seller's personal client, recruiter, or compliance role?

## Driver tree
Default equation:

`hours billed x bill rate - hours paid x pay rate - payroll taxes - workers' comp - benefits - recruiting costs - bad debt - payroll funding cost - compliance burden`

## Mandatory denominators
- weekly hours billed and paid by client, worker, assignment, and branch
- bill rate, pay rate, markup, gross spread, and gross profit by client
- active temps, placements, starts, ends, fill rate, and churn by week
- top-client revenue and gross profit concentration, preferably by ultimate parent
- contract status, rate cards, termination rights, and change-of-control terms
- DSO, AR aging, bad debt, collections, and payroll funding line usage
- workers' comp claims, loss runs, experience modifier, safety incidents, and insurance renewal risk
- payroll tax, wage-hour, ACA, OSHA, EDD/state agency, immigration/I-9, and public-sector compliance status
- internal headcount, recruiter productivity, owner time allocation, and SOPs

## Typical gating items
- EBITDA history is not comparable because revenue, markup, or owner addbacks are undefined.
- "Diversified client base" conflicts with high revenue or gross-profit concentration.
- Current run-rate is stale because recent weekly billings and active temps are missing.
- Workers' comp, wage-hour, payroll tax, or public-sector compliance issues could overwhelm purchase economics.
- AR/DSO and payroll funding needs consume more cash than EBITDA implies.

## Kill criteria examples
- `hard pass`: revenue, payroll, and EBITDA do not tie to books, tax returns, bank, and payroll processor data.
- `hard pass`: material unresolved wage-hour, payroll tax, workers' comp, debarment, or public-sector compliance issues.
- `price reset`: normalized gross spread, DSO, bad debt, payroll funding, or insurance cost materially reduces EBITDA.
- `pause`: top-client durability, contract status, or change-of-control treatment is not provable.

## Evidence asks
- weekly billing/payroll export with client, worker, assignment, hours, bill rate, pay rate, taxes, burden, and invoice status
- client-level revenue and gross profit by week/month with top 25 contracts, MSAs, POs, and rate cards
- payroll processor reports, payroll tax filings, workers' comp policies, loss runs, and experience modifier support
- AR aging, collections history, bad debt, bank statements, and payroll funding facility reports
- recruiter and internal staff roster with productivity, comp, tenure, and owner role map
- compliance matters log covering wage-hour, OSHA, ACA, immigration/I-9, state agency, public-sector, and payroll tax matters
- client cohort / retention file showing starts, lapses, reactivations, and project vs recurring work

## Owner mapping
- staffing operations manager or branch manager
- payroll/compliance lead
- controller, bookkeeper, or CPA
- recruiter / sales lead
- workers' comp broker or insurer
- seller counsel for public-sector, wage-hour, and payroll-tax matters

## External triangulation when thin
- secretary of state, court, lien, and UCC searches
- workers' comp and safety databases where available
- public-sector vendor / debarment checks where relevant
- labor-market context and wage inflation only as supporting context

## Red flags
- EBITDA exceeds gross profit or margins are impossible without a definition bridge.
- Markup is shown without stating whether it is on pay rate, payroll cost, or billings.
- Client count is broad, but top-client gross profit concentration is high.
- "Recurring revenue" is used for staffing without active assignments, contracts, and weekly billing proof.
- Seller cites regulatory burden as exit reason but provides no compliance and loss-run package.