Temporary Staffing Revenue — Gross Recognition (Firm is Principal, Bears Employment Risk)
Recording temporary staffing revenue on a gross basis — the staffing firm bills the client at the bill rate and separately records the temp worker's wages as cost of services, because the firm is the employer of record bearing all employment risks.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Receivable — Client (Hours × Bill Rate) | Asset (+) | 1,850,000.00 | - |
| Temporary Staffing Revenue (Gross — Firm is Principal) | Revenue (+) | - | 1,850,000.00 |
| Cost of Services — Temporary Worker Wages (Hours × Pay Rate) | Expense (+) | 1,295,000.00 | - |
| Accrued Payroll — Temp Workers (Wages Owed) | Liability (+) | - | 1,295,000.00 |
💡 Accountant's Note
Temporary staffing is one of the most significant principal vs. agent determinations in all of ASC 606. Staffing firms bill clients at the 'bill rate' (e.g., $65/hour) while paying workers the 'pay rate' (e.g., $45/hour) — the $20/hour spread ('gross margin') is the firm's economic profit. Are they the PRINCIPAL (revenue = full $65/hour bill rate) or AGENT (revenue = just the $20/hour spread)? Under ASC 606-10-55-36: the staffing firm is PRINCIPAL because: (1) it CONTROLS the service before delivery — the firm is the employer of record, it selects and assigns the worker, it manages the employment relationship, (2) it bears the CREDIT RISK of non-payment by the client, (3) it bears the EMPLOYMENT RISK — if the worker injures someone, discriminates, or underperforms, the staffing firm is the liable employer, (4) it has DISCRETION IN SETTING PRICE to the client. Therefore: GROSS revenue recognition is correct. The worker's wages, FICA taxes, workers' compensation insurance, and benefits are COST OF SERVICES — not deductions from revenue. This distinction matters enormously: Manpower's ~$19B revenue is gross staffing revenue; the actual gross margin is ~16–18% ($3B–$3.4B). Presenting on a net basis would collapse the top line to $3B.
Practitioner & Systems Framework
💻 ERP Architecture
Staffing ERP systems (Bullhorn, Salesforce for Staffing, TempWorks, Bond Adapt) track: job orders, worker assignments, hours worked (from timesheet or electronic time-tracking), bill rates, pay rates, and invoicing. Each week: timesheets are approved by the client supervisor → payroll processes workers → client is invoiced. The revenue recognition trigger is typically the timesheet approval date (or the last day of the pay period if approval is contemporaneous). For weekly pay with bi-weekly billing: a payroll accrual is needed at period-end for hours worked but not yet invoiced. The bill rate × hours worked = gross revenue; pay rate × hours = direct labor cost.
⚠️ Audit Flags
The principal vs. agent determination for staffing is the most critical revenue recognition judgment. Auditors test: (1) Does the staffing firm actually bear the employment risk? Check workers' compensation policy (firm as named insured), unemployment insurance account (firm is the charging employer), and FICA deposits (firm is making payroll tax deposits). If any of these risks are on the client (which would be unusual — closer to a professional employer organization structure), net presentation may be appropriate. (2) Are hours-based revenue accruals at period-end calculated correctly? (3) Does the gross margin percentage make sense relative to the labor market for the specific skill category?
📄 Required Documentation
Client master service agreement (bill rate schedule, overtime provisions, markup schedule by job category), worker employment records (confirming firm as employer of record), timesheet approval records (by client supervisor), payroll records (confirming firm paid worker wages), workers' compensation policy (naming staffing firm as insured employer), SUI account records (staffing firm as the rated employer), revenue recognition policy for gross vs. net determination, and period-end revenue accrual methodology.
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