Stabilizing Workers’ Comp with a Better Staffing Model
By Jessica LaGrossa
While Mike DiManno has spent nearly 30 years in the insurance industry and 20 years in staffing, he best identifies himself as an entrepreneur. “My background has always been to try to fix broken things,” he explained. And, in his opinion, worker’s compensation and staffing in Los Angeles could be the most broken system he’s ever witnessed. But, he’s working to fix that through the unique creation of a cooperative system involving recruiters, employers, clients, and an exclusive approach to worker’s compensation.
Stabilizing Worker’s Compensation
“California has the distinction of being the most expensive state for worker’s compensation (WC),” said DiManno. “Compared to our neighboring states, in some cases it’s four to five times more expensive, while the insurance benefit is the same no matter what state you are in.”
Many business owners in the state are far too familiar with the “deny, deny, deny” approach used by lawyers, a cost representing, in some cases according to DiManno, 60-80% of claims. “This is especially true in the gray collared market where fraud and the litigation exists in the most traumatic sense,” he explained.
Add the pressure of the annual WC renewal process along with the state’s thinning market, and it becomes incredibly rare that a company actually endures. “I just saw this problem in that a staffing company works really hard to get a client on board—and then to recruit employees, bill and collect the labor—and then once a year their business is completely disrupted by the WC renewal process,” said Diamanno. “I knew that if we could ever fix that problem, it would be well received.”
And indeed, it is. Dimannno launched LA Labor Exchange (LAEX) just last year, but in its short time the cooperative endeavor and its WC safety net has already drawn the attention of industry leaders.
“We have a very unique, very special agreement with the state of California as to how to resolve disputes in our WC process,” explained DiManno. “We are part of an alternative dispute resolution program that we applied for and are approved by the department of WC that allows us a more profitable way of resolving our disputes; the bottom line is that we don’t have litigated or fraudulent claims because of this unique state approved program.”
In other words, when a LAEX employee is injured on the job and, for whatever reason, is not happy with the treatment plan and/or the insurance company’s response, LAEX enacts a resolution process that does not involve going through the state’s appeal process—which can be cumbersome and ultimately drives up expenses.
“This long term, stable WC vehicle allows us to provide a solution for staffing companies where they aren’t worrying once a year about losing their business and to create some stability for them,” explained DiManno. “In turn, this allows them to be more profitable, sell more clients, and so forth.”
How is DiManno moving beyond the WC problem and tackling staffing as well? “We are taking the stability of the WC product and putting a technology over the top that allows you to have unlimited sourcing options,” he shared.
“The market is so thin that staffing companies that have had a client, say, for five years—and have been the sole recruiter for that client—are now getting [pushed out] because the client is bringing in a second, third, even fourth staffing company because their primary vendor hasn’t been able to meet their needs,” clarified DiManno.
His answer to this growing issue is the use of a vendor management system (VMS). Typically used by large companies, DiManno is now seeing a great application in the mid-market—specifically light industrial—where warehousing companies may need large numbers of employees in short order. “Their needs for how they work with staffing companies may change dramatically from quarter to quarter,” he elaborated.
“If I have 10 vendors, but two of them are really my go-to vendors, then those two can get first crack at it,” DiManno said of the VMS. “Then I can set it so that if those two vendors can’t fill it in three days, then the order goes to the other seven, and a week later to all 10.”
The staffing company can now fill that order online with a qualified candidate. Instead of spending hours sending the orders to several different staffing companies, the request can be put into one system. “The staffing company knows exactly where to go—it all becomes consistent, in the same format, which makes for consistent billing,” added DiManno.
And, LAEX has found that there is a real opportunity for independent recruiters to utilize that network to get a higher degree of satisfaction to the client. Typically, when a staffing company receives an order for 100 employees, the order goes to the company’s local branch office where two to three people are responsible for filling those open slots. “But those people also have other duties, such as answering phones, filing, and so on,” DiManno explained. “Your whole job order is stuck with those two to three people and if they don’t fill the order, the next option is to do business with another company.”
But what if a recruiter only has to recruit? DiManno has found that the recruiter can produce a better outcome for the client because they are not distracted—they are simply working to fill those orders in a timely manner.
The concept of LAEX only works when all individual components work together cohesively. “We took on WC, built technology, and put a system together where employees, staffing professionals, and clients can all transact business in the most efficient manner possible,” DiManno elaborated.
Some people draw the analogy of LAEX to Uber. “The largest transportation company in the world owns no cars,” DiManno pointed out. “We want the largest recruiting network in the LA area with no real estate.”
By eliminating real estate—along with the duplication of wasted time and services—recruiters now do nothing but recruit. “LAEX provides a lifestyle to the recruiters that is preferable to working in a cement box in a strip center,” added DiManno.
LAEX recruiters must go through a short series of training and are paid on commission. Once under contract, they obtain access to the exchange where all job orders from clients are housed. DiManno is currently bringing on 30 new recruiters per month—about 25% part time, 75% full time.
And the job orders are abundant; some LAEX clients have as many as 900 employees and are ready to implement more. “We have more clients than we can put on at this point,” said DiManno. “We are gearing up to have enough recruiters on the exchange to handle them.”
The staffing agencies who are also clients of the exchange can now expand beyond the boundaries of their real estate. “So if they have two offices on the west side of LA, but now have a potential client that is located 100 miles away, they can service that client because they don’t need branches in the specific locations that a recruiter is working,” said DiManno.
The other stake holder in the process is the employee. “Why would they want to go to an exchange recruiter?,” asked DiManno. “The reason is that we have a better employment package than most, which includes a pension with a two year vest.”
LAEX employees receive 100% of the pension if they stay for the full two years. Contributions made toward employees who leave before two years are redistributed back into the pool for the rest of the employees. “Exchange employees whose work assignments end then want to go back to the exchange recruiter to find another exchange employer so that they can maintain their pension,” explained DiManno. “The recruiters are happy because it’s easier for them to get to the employees, the staffing companies are happy because they are getting the best employees (the bad ones are being weeded out and aren’t allowed to return), and the employees are happy because they get an extra return…it has a stickiness to it that just doesn’t exist in other agencies.”
The goal is to grow LAEX into the LA market’s central repository for employment, but Diamnno is quick to point out that LA is simply ground zero. “This is the toughest labor market in the U.S. in terms of cost,” he reiterated. “I don’t think there is another place where the labor law, WC, employment taxes, are as high as they are in LA…but, we can manage that cost better than anybody.”
LAEX offers the exclusive opportunity for agencies to simply focus on maintaining and attaining new clients; for recruiters to focus on filling orders; and for the exchange to focus on the technology while controlling the cost of WC. “If we can do it here, then we plan to plop an exchange in every major industrial hub in the US,” projected DiManno.