What changed in this filing

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Item 1. Business

2024-03-01 compared with 2023-03-06 · 119 added, 157 removed, 333 unchanged (45% of the section changed)

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Barrett Business Services, Inc.

(“BBSI,”

the “Company,”

“our”

or “we”), is a leading provider of business management solutions for small and mid-sized companies.

(“BBSI,” the “Company,” “our” or “we”), is a leading provider of business management solutions for small and mid-sized companies.

The Company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry.

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Certain statements below contain forward-looking information that is subject to risks and uncertainties.

See “Forward-Looking Information”

in Item 7 of Part II of this report and “Risk Factors”

in Item 1A of Part I of this report.

See “Forward-Looking Information” in Item 7 of Part II of this report and “Risk Factors” in Item 1A of Part I of this report.

Business Strategy

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We operate a decentralized delivery model using operationally-focused business teams, typically located within 50 miles of our client companies.

These teams are led by senior level business generalists and include senior level professionals with expertise in human resources, organizational development, risk mitigation and workplace safety, recruiting, and various types of administration, including payroll and benefits.

These teams are led by experienced business generalists and include senior level professionals with expertise in human resources, organizational development, risk mitigation and workplace safety, recruiting, employee benefits, and various types of administration, including payroll.

These teams are responsible for growth and profitability of their operations, and for providing strategic leadership, guidance and expert consultation to our client companies.

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Services Overview

BBSI’s core purpose is to advocate for business owners, particularly in the small and mid-sized business segment.

Our evolution from an entrepreneurially run company to a professionally managed organization has helped to form our view that all businesses experience inflection points at key stages of growth.

The insights gained through our own growth, along with the trends we see in working with more than 8,000 companies each day, define our approach to guiding business owners through the challenges associated with being an employer.

BBSI’s business teams align with each business owner client through a structured three-tiered progression.

In doing so, business teams focus on the objectives of each business owner and deliver planning, guidance and resources in support of those objectives.

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The first stage focuses on the mutual setting of expectations and is essential to a successful client relationship.

It begins with a process of assessment and discovery in which the business owner’s business objectives, attitudes, and culture are aligned with BBSI’s processes, controls and culture.

This stage includes an implementation process, which addresses the administrative components of employment.

Dynamic Relationship

The second stage of the relationship emphasizes organizational development as a means of achieving each client’s business objectives.

There is a focus on process improvement, development of best practices, supervisor training and leadership development.

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With an emphasis on advocacy on behalf of the business owner, the third stage of the relationship is more strategic and forward-looking with a goal of cultivating an environment in which all efforts are directed by the mission and long-term objectives of the business owner.

In addition to serving as a resource and guide, BBSI can provide workers’

compensation coverage as a means of meeting statutory requirements and protecting our clients from employment-related injury claims.

In addition to serving as a resource and guide, BBSI can provide workers’ compensation coverage as a means of meeting statutory requirements and protecting our clients from employment-related injury claims.

Through our third-party administrators, we provide claims management services for our clients.

We work to manage and reduce job injury claims, identify fraudulent claims and structure optimal work programs, including modified duty.

In 2023, BBSI began offering employee benefit programs to our clients.

The employee benefit programs are designed to provide strategic value to our clients through access to best-in-class plans and service.

Benefit plans available to clients include medical, dental and vision plans, flexible spending accounts and health savings accounts, life insurance and voluntary accident coverage, critical illness and disability coverage, among others.

Categories of Services

We report financial results in two categories of services:

Professional Employer Services (“PEO”) and Staffing.

See Item 7 of Part II of this Report for information regarding the percentages of total net revenues provided by our PEO and staffing services for each of the last three fiscal years, and our consolidated financial statements in Item 8 of Part II of this Report for information regarding revenues, net income and total assets in our single reportable segment.

We enter into a client services agreement to establish a co-employment relationship with each client company, assuming responsibility for payroll, payroll taxes, workers’

compensation coverage (if elected) and certain other administrative functions for the client’s existing workforce.

We enter into a client services agreement to establish a co-employment relationship with each client company, assuming responsibility for payroll, payroll taxes, workers’ compensation and benefits coverage (if elected) and certain other administrative functions for the client’s existing workforce.

We provide our PEO clients access to human resource advisors, retirement plans, a learning management system and our web-based technology platform, myBBSI.

In addition, we're launching our fully-insured health and welfare benefits offering in 2023.

We refer to employees of our PEO clients as worksite employees (“WSEs”).

The client maintains physical care, custody and control of the WSEs, including the authority to hire and terminate employees.

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Our recruiting experts maintain a deep network of professionals from which we source candidates.

Through an assessment process, we gain an understanding of the short and long-term needs of our clients, allowing us to identify and source the right talent for each position.

Through an assessment process, we gain an understanding of the short and

long-term needs of our clients, allowing us to identify and source the right talent for each position.

We then conduct a rigorous screening process to help ensure a successful hire.

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Our PEO business is typically characterized by long-term relationships that result in recurring revenue.

The terms and conditions applicable to our client relationships are set forth in a client services agreement, which typically provides for an initial term of one year with renewal for additional one-year periods, but generally permits cancellation by either party upon 30 days’

written notice.

In addition, in most cases we may terminate the agreement at any time for certain breaches of contract, including nonpayment or failure to follow our workplace safety recommendations.

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Our integrated management platform has enabled us to capitalize on these needs within the small to mid-size business sector.

The small and mid‑sized business segment is particularly attractive because:

• it is large, continues to offer significant growth opportunity and remains underserved by professional services companies;

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referrals from existing clients, direct business-to-business sales efforts by our area managers and business development managers, and an extensive referral network.

Partners in our referral network include insurance brokers, financial advisors, attorneys, CPA’s, and other business professionals who can facilitate an introduction to prospective clients.

Partners in our referral network include insurance brokers, financial advisors, attorneys, CPAs, and other business professionals who can facilitate an introduction to prospective clients.

These referral partners facilitate introductions to business owners on our behalf, typically in exchange for a fee equal to a small percentage of payroll.

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We believe that strengthening and expanding the operations of each location is an efficient and effective means of increasing market share in the geographic areas in which we do business, and that our business teams serve a dual purpose:

1) Delivering high-quality service to our clients, thereby supporting client business growth and retention, and driving client referrals, and 2) Incubating talent at the branch level to support expansion into new markets.

1) Delivering high-quality service to our clients, thereby supporting client business growth and retention, and driving client referrals, and 2) Incubating and acquiring talent at the branch level to support expansion into new markets.

• Penetrate new markets.

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As part of this effort to expand geographically, we have become licensed to provide PEO services nationwide.

Workers’

Through our client services agreement, BBSI can provide workers’

compensation coverage to its clients.

We provide this coverage through a variety of methods, all of which are subject to rigorous underwriting to

assess financial stability, risk factors and cultural alignment related to safety and the client’s desire to improve their operations.

Workers’ Compensation

Through our client services agreement, BBSI can provide workers’ compensation coverage to its clients.

We provide this coverage through a variety of methods, all of which are subject to rigorous underwriting to assess financial stability, risk factors and cultural alignment related to safety and the client’s desire to improve their operations.

In providing this coverage, we are responsible for complying with applicable statutory requirements for workers' compensation coverage.

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It is in the mutual interests of the client and BBSI to commit to workplace safety and risk mitigation.

We maintain clear guidelines for our area managers and risk management consultants, directly tying their continued employment to their diligence in understanding and addressing the risks of accident or injury associated with the industries in which client companies operate and in monitoring clients’

compliance with workplace safety requirements.

We maintain clear guidelines for our area managers and risk management consultants, directly tying their continued employment to their diligence in understanding and addressing

the risks of accident or injury associated with the industries in which client companies operate and in monitoring clients’ compliance with workplace safety requirements.

Elements of Workers' Compensation System

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Insured Program

The Company provides workers’

compensation coverage for client employees primarily through arrangements with fully licensed, third-party insurers (the “insured program”).

Under this program, carriers issue policies or afford coverage to the Company’s clients under a program maintained by the Company.

Approximately 83% of the Company’s workers’

compensation exposure is covered through the insured program.

The Company entered into a new arrangement for its insured program effective July 1, 2021, whereby third-party insurers assumed all risk of loss for claims incurred from July 1, 2021 to June 30, 2022 (the "2021-2022 Policy").

The 2021-2022 Policy allows for premium adjustments depending on overall policy performance.

If claims develop favorably, BBSI can participate in the savings up to $20.0 million for the twelve-month policy period.

If claims develop adversely, additional premium may be charged up to $7.5 million for the twelve-month policy period.

Effective July 1, 2022, the Company renewed the arrangement for its insured program, which now continues through June 30, 2023 (the “2022-2023 Policy”).

Under the renewed arrangement, the Company can participate in savings up to $22.5 million for the twelve-month policy period.

For the 2022-2023 Policy, no additional premium may be charged if claims develop adversely.

The 2022-2023 Policy includes a renewal commitment through June 30, 2024.

The Company provides workers’ compensation coverage for client employees primarily through arrangements with fully licensed, third-party insurers (the “insured program”).

Under this program, carriers issue policies or afford coverage to the Company’s clients under a program maintained by the Company.

Approximately 84% of the Company’s workers’ compensation exposure is covered through the insured program.

Effective July 1, 2021, the Company entered into a new arrangement for its insured program, whereby third-party insurers assumed all risk of loss for claims incurred from July 1, 2021 to June 30, 2022 (the “2021-2022 Policy”).

The arrangement for the insured program was extended for claims incurred from July 1, 2022 to June 30, 2023 (the “2022-2023 Policy”) and for claims incurred from July 1, 2023 to June 30, 2024 (the “2023-2024 Policy”).

The 2021-2022 Policy, 2022-2023 Policy, and 2023-2024 Policy allow for premium adjustments depending on overall policy performance.

If claims develop favorably, BBSI can participate in savings up to $20.0 million, $22.5 million, and $28.5 million for the 2021-2022 Policy, 2022-2023 Policy, and 2023-2024 Policy, respectively.

If claims develop adversely, additional premium may be charged up to $7.5 million under the 2021-2022 Policy.

No additional premiums may be charged if claims develop adversely under the 2022-2023 Policy and the 2023-2024 Policy.

For claims incurred under the insured program prior to July 1, 2021, the Company retains risk of loss up to the first $3.0 million per occurrence on policies issued after June 30, 2020 and $5.0 million per occurrence on policies issued before that date.

On June 29, 2020, the Company entered into a loss portfolio transfer agreement (“LPT 1”) to remove all outstanding workers’

compensation claims obligations for claims incurred under its insured program between February 1, 2014 and December 31, 2017.

This transaction reduced the Company’s outstanding workers’

compensation liabilities and trust account balances by $115.7 million.

On June 30, 2021, the Company entered into a loss portfolio transfer agreement (“LPT 2”) to remove all remaining outstanding workers’

compensation claims obligations for client policies issued under its insured program up to June 30, 2018.

This transaction reduced the Company’s outstanding workers’

compensation liabilities by $53.1 million.

On June 29, 2020, the Company entered into a loss portfolio transfer agreement (“LPT 1”) to remove all outstanding workers’ compensation claims obligations for claims incurred under its insured program between February 1, 2014 and December 31, 2017.

On June 30, 2021, the Company entered into a loss portfolio transfer agreement (“LPT 2”) to remove all remaining outstanding workers’ compensation claims obligations for client policies issued under its insured program up to June 30, 2018.

Self-Insured Programs

The Company is a self-insured employer with respect to workers' compensation coverage for all employees, including employees of PEO clients that elect to participate in our workers’

compensation program, working in Colorado, Maryland and Oregon.

The Company is a self-insured employer with respect to workers' compensation coverage for all employees, including employees of PEO clients that elect to participate in our workers’ compensation program, working in Colorado, Maryland and Oregon.

In the state of Washington, state law allows only the Company's staffing services and internal management employees to be covered under the Company's self-insured workers' compensation program.

The Company also operates a wholly owned, fully licensed insurance company, Ecole, which provides workers’

compensation coverage to client employees working in Arizona and Utah.

Approximately 17% of the Company’s workers’

compensation exposure is covered through self-insurance or Ecole (the “self-insured programs”).

For all claims incurred under the Company’s self-insured programs, the Company retains risk of loss up to the first $3.0 million per occurrence, except in Maryland and Colorado, where the Company’s retention per occurrence is $1.0 million and $2.0 million, respectively.

For claims incurred under the Company’s self-insured programs prior to July 1, 2020, the Company retains risk of loss up to the first $5.0 million per occurrence, except in Maryland and Colorado, where the retention per occurrence is $1.0 million and $2.0 million, respectively.

The Company also operates a wholly owned, fully licensed insurance company, Ecole, which provides workers’ compensation coverage to client employees working in Arizona and Utah.

Approximately 16% of the Company’s workers’ compensation exposure is covered through self-insurance or Ecole (the “self-insured programs”).

Claims Management

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We believe our claims management program has resulted in a reduction in the frequency of fraudulent claims and in accidents in which the use of illicit drugs appears to have been a contributing factor.

Sponsored Benefits

In 2023, BBSI began offering employee benefits to its PEO client employees.

As a plan sponsor, BBSI engages with third-party insurance carriers to enter into fully insured arrangements to offer a wide range of employee benefit programs to our clients, including medical, dental and vision plans, flexible spending accounts and health savings accounts, life insurance and voluntary accident coverage, and critical illness and disability coverage, among others.

As the sponsor and administrator of the PEO benefit programs, BBSI negotiates the terms of the benefit programs with third-party insurance carriers and benefit providers, pays insurance carrier premiums, and maintains the plans to comply with all applicable federal, state, and local laws and regulations.

We also provide access to benefit consultants who design benefit plans that meet the specific needs of our clients, produce tailored benefit guides that assist our worksite employees in selecting benefit products that are right for them, and we provide a custom enrollment interface through myBBSI.

We believe that the administration services and the wide array of benefit products that we offer as a plan sponsor would traditionally only be available to large organizations.

By providing our small and medium-sized business clients with access to best-in-class benefits and administration services, we are providing strategic value that improves our clients' ability to attract and retain top talent for their organizations.

Human Capital

At December 31, 2022, we had 127,141 total employees, including 122,306 WSEs under our PEO client service agreements, 4,029 staffing services employees, 802 managerial, sales and administrative employees (together, “management employees”), and 4 executive officers.

At December 31, 2023, we had 130,513 total employees, including 126,446 WSEs under our PEO client service agreements, 3,224 staffing services employees, 839 managerial, sales and administrative employees (together, “management employees”), and 4 executive officers.

The number of employees at any given time may vary significantly due to business conditions at customer or client companies.

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BBSI believes that making significant investments in the best management employee talent available allows us to leverage the value of this investment many times over.

Additionally, we believe our Company’s success depends on our ability to attract, develop and retain our workforce.

As such, we strive to be an employer of choice and promote the health, welfare and safety of our employees.

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We motivate our management employees through a compensation package that includes a competitive base salary and the opportunity for profit sharing.

At the branch level, profit sharing is in direct correlation to client WSE growth and workers’

compensation claims performance, reinforcing a culture focused on

achievement of client goals.

At the branch level, profit sharing is in direct correlation to client WSE growth and workers’ compensation claims performance, reinforcing a culture focused on achievement of client goals.

We also provide a comprehensive benefits package as well as an employee stock purchase plan.

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The Company established a Rabbi trust under which compensation deferred by participants is deposited and held separately from the Company's other assets, subject to the claims of the Company's creditors in the event of its bankruptcy or insolvency.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Acts”) subject us to potential penalties unless we offer to our employees minimum essential healthcare coverage that is affordable.

Because each PEO client is considered to be the sole employer in the application of any rule or law included within the scope of the Acts, we are not required to offer health care coverage to the WSEs of our PEO clients.

However, to comply with the employer mandate provision of the Acts, we offer health care coverage to all eligible staffing employees and management employees eligible for coverage under the Acts.

However, in 2023 we began offering sponsored benefits, including healthcare coverage, to eligible PEO client employees as part of our PEO service offering.

To comply with the employer mandate provision of the Acts for our staffing and management employees, we offer health care coverage to all staffing and management employees eligible for coverage under the Acts.

Regulatory and Legislative Environment

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We are also subject to laws and regulations governing our two wholly owned insurance companies in Arizona.

While the specific PEO laws and regulations vary among these jurisdictions, they typically require some form of licensing or registration and often have statutory requirements for workplace safety and notice of change in obligation of workers’

compensation coverage in the event of contract termination.

Although compliance with these requirements imposes some additional financial risk, particularly with respect to those clients who breach their payment obligation to us, such compliance has not had a material adverse effect on our business to date.

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Through our client services agreement, we assume certain obligations and responsibilities as the administrative employer under federal and state laws.

Since many of these federal and state laws were enacted prior to the development of nontraditional employment relationships, such as professional employer, temporary employment, and outsourcing arrangements, many of these laws do not specifically

address the obligations and responsibilities of nontraditional employers.

In addition, the definition of "employer" under these laws is not uniform.

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As such, we are subject to a variety of federal and state laws and regulations associated with data privacy and security.

For further discussion on the federal and state laws and regulations associated with data privacy and security, including protected health information ("PHI") and the related federal and state regulations such as HIPAA and the HITECH act, refer to “Risk Factors” in Item 1A of Part I of this report.

Additional Information

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In addition to other information contained in this report, the following risk factors should be considered carefully in evaluating our business.

Risks Relating to Workers’

Risks Relating to Workers’ Compensation

Our ability to continue our business operations under our present service model is dependent on maintaining workers' compensation insurance coverage.

Our arrangement with fully licensed, third-party insurers under the insured program provides workers’

compensation coverage to BBSI’s PEO clients through June 30, 2023, with committed coverage through June 30, 2024, and the possibility of additional annual renewals.

Our arrangement with fully licensed, third-party insurers under the insured program provides workers’ compensation coverage to BBSI’s PEO clients through June 30, 2024, with committed coverage through

June 30, 2024, and the possibility of additional annual renewals.

If our fully licensed third-party insurers are unwilling or unable to renew our arrangement in the future, we would need to seek coverage from a small number of alternative insurers.

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For claims incurred under the insured program prior to July 1, 2021, the Company retains risk of loss up to the first $3.0 million per occurrence on policies issued after June 30, 2020, and $5.0 million per occurrence on policies issued before that date.

For claims incurred under the Company’s self-insured programs prior to July 1, 2020, the Company retains risk of loss up to the first $5.0 million per

occurrence, except in Maryland and Colorado, where the retention per occurrence is $1.0 million and $2.0 million, respectively.

On June 29, 2020, the Company entered into a loss portfolio transfer agreement (“LPT 1”) to remove all outstanding workers’

compensation claims obligations for claims incurred under its insured program between February 1, 2014 and December 31, 2017.

On June 30, 2021, the Company entered into a loss portfolio transfer agreement (“LPT 2”) to remove all remaining outstanding workers’

compensation claims obligations for client policies issued under its insured program up to June 30, 2018.

Thus, for claims incurred before July 1, 2020, the Company has financial risk for most workers’

compensation claims under $5.0 million on a per occurrence basis, except for claims transferred under the insured program as part of LPT 1 and LPT 2.

Thus, for claims incurred before July 1, 2020, the Company has financial risk for most workers’ compensation claims under $5.0 million on a per occurrence basis, except for claims transferred under the insured program as part of LPT 1 and LPT 2.

For claims incurred between July 1, 2020 and June 30, 2021, the Company has financial risk for most workers' compensation claims under $3.0 million on a per occurrence basis.

This level of per occurrence retention may result in higher workers’

compensation costs to us with a corresponding negative effect on our operating results and financial condition.

This level of per occurrence retention may result in higher workers’ compensation costs to us with a corresponding negative effect on our operating results and financial condition.

Collateral requirements could increase beyond our ability to satisfy those requirements.

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If there are significant changes to the market for these credit products, or if we are unable to renew these agreements, we may incur increased costs or be required to deposit additional capital as collateral.

Failure to manage the severity and frequency of workplace injuries will increase our workers’

compensation expenses.

compensation claims expenses, with a corresponding negative effect on our results of operations and financial condition.

Failure to manage the severity and frequency of workplace injuries will increase our workers’ compensation expenses.

Significant increases in the relative frequency or severity of workplace injuries due to failures to accurately assess potential risks or assure implementation of effective safety measures by our clients may result in increased workers’ compensation claims expenses, with a corresponding negative effect on our results of operations and financial condition.

Risks Related to Technology

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We are dependent upon technology services, and if we experience damage, service interruptions or failures in our computer and telecommunications systems, our client relationships and our ability to attract new clients may be adversely affected.

We rely extensively on computer systems, including systems of third-party vendors, to provide service offerings to our clients, manage our branch network, perform employment-related services and

accounting and reporting functions, and summarize and analyze our financial results.

We rely extensively on computer systems, including systems of third-party vendors, to provide service offerings to our clients, manage our branch network, perform employment-related services and accounting and reporting functions, and summarize and analyze our financial results.

These systems are subject to damage or interruption from telecommunications failures, power-related outages, third-party disruptions, computer viruses and malicious attacks, security breaches and catastrophic events.

If these systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, experience loss of critical data and interruptions or delays in our ability to manage our operations and encounter a loss of client confidence.

In addition, our clients’

businesses may be adversely affected by any system or equipment failure or breach we experience.

In addition, our clients’ businesses may be adversely affected by any system or equipment failure or breach we experience.

As a result, we may suffer damage to our reputation, we may lose clients, our ability to attract new clients may be adversely affected, and we could be exposed to contractual liability.

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The fees associated with these license agreements could increase in future periods, resulting in increased operating expenses.

If there are significant changes to the terms and conditions of our license agreements, if we are unable to renew these license agreements, if the software is not up to date with current legal requirements and that causes us to be non-compliant, if the software is not updated to meet our needs as our business evolves, or if the software becomes unavailable for any other reason, we may be required to make changes to our vendors or information technology systems.

If there are significant changes to the terms and conditions of our license agreements, if we are unable to renew these license agreements, if the software is not up to date with current legal requirements such that we become non-compliant, if the software is not updated to meet our needs as our business evolves, or if the software becomes unavailable for any other reason, we may be required to make changes to our vendors or information technology systems.

These changes may impact the services we provide to our clients or the processes we have in place to support our operations, which could have an adverse effect on our business.

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Because the techniques used to obtain unauthorized access and disable or sabotage systems change frequently and may be difficult to detect for long periods of time, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventive measures.

Additionally, as our employees may work from home more frequently and access the Company's systems remotely, the Company may be exposed to heightened security risks, including the risk of cyber-attacks.

The methods and techniques used by cyber threat actors to gain entry into our network and access our computer systems, software and data will become more advanced with the use of artificial intelligence and may become increasingly difficult or impossible to detect and prevent.

As these threats continue to evolve, we may be required to invest significant additional resources to modify and enhance our information security and controls or to investigate and remediate any security vulnerabilities.

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Any loss of confidence arising from a significant data security breach could hurt our reputation, further damaging our business.

Risks Relating to the COVID-19 Pandemic

The Company’s business may be negatively affected by outbreaks of disease, such as epidemics or pandemics, including the ongoing COVID-19 pandemic.

In March 2020, the World Health Organization and the United States government declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide.

In response to the COVID-19 pandemic, preventative actions such as shelter-in-place orders, restrictions on travel, temporary closures of businesses deemed to be high-risk or non-essential, and other government mandates have affected many areas of the country, including states where BBSI and our clients operate, particularly on the West Coast.

These restrictions on business operations have significantly disrupted the U.S.

economy, including small-and mid-sized businesses, which comprise our primary client base.

As our PEO fees are based on client payroll, workforce reductions or shortages related to the pandemic could have a material adverse effect on our business.

Clients who are impacted by government restrictions and economic disruptions may experience liquidity and other financial issues, which may reduce their capacity to pay for our services.

In response to the pandemic, federal and state government agencies have enacted numerous laws and regulatory guidelines designed to help the economy, individuals and employers, including retroactively.

Many of these legislative and regulatory changes, including the American Rescue Plan Act enacted on March 11, 2021, directly impact the Company and our clients.

Several of these programs, including the Employee Retention Tax Credit ("ERC") use payroll tax credits and other payroll tax-related reductions or deferrals as the mechanism to provide benefits to small businesses and employees.

When clients and former clients wish to claim these payroll tax credits, the tax forms must be filed through the PEO.

The guidance surrounding these programs is limited and continuously evolving.

Failure to appropriately interpret and comply with legal and regulatory changes arising from the COVID-19 pandemic could have a material adverse effect on our business and reputation.

Additionally, failure to incorporate changes to laws and regulations resulting from COVID-19 into our PEO business model may decrease our ability to attract and retain clients.

Additionally, many states have revised their workers’

compensation standards of coverage to include COVID-19 related illnesses for certain groups of workers.

While effects on the Company’s workers’

compensation exposure in the states in which we operate have been limited to date, these changes in laws and regulations or in the pattern of COVID-19 illnesses could increase our exposure to workers’

compensation claims.

As our employees may work from home more frequently and access the Company’s systems remotely, the Company may be exposed to heightened security risks, including the risk of cyber-attacks.

Additionally, if any of the Company’s key management employees are unable to perform their duties for an extended period, including as the result of illness, the Company’s business could be adversely affected.

The COVID-19 pandemic has also caused significant volatility and uncertainty in the U.S.

economy that may result in another economic downturn, which could in turn lead to increases in workers’

compensation and unemployment claims, increased unemployment taxes, increased uncollectable receivables and reductions in the value of the Company’s investment portfolio.

Continuation or exacerbation of the consequences of the pandemic is likely to have a material adverse effect on our business, cash flows, results of operations and financial condition, which may also result in our inability to comply with financial covenants under our credit facilities, our inability to obtain necessary additional financing and a decline in stockholder value.

Other Risks Related to our Business and Industry

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New service offerings, including health care benefits, may also introduce additional legislative and regulatory requirements with which we are not familiar, or from which we are currently exempt.

Violation of such laws and regulations could subject us to fines, penalties, and damages, damage our reputation, constitute a breach of our client agreements, impair our ability to obtain and renew required licenses, and decrease our profitability or competitiveness.

decrease our profitability or competitiveness.

If any of these effects were to occur, our operating results and financial condition could be materially adversely affected.

To continue to grow revenues, we are dependent on retaining current clients and attracting new clients.

The Company’s revenue growth can be volatile and is dependent on same customer sales and the addition of new clients.

Revenues increased 1.4% in 2023 and increased 10.4% in 2022.

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An economic downturn may also result in additional bad debt expense to the extent that existing clients cease operations or are otherwise unable to meet their financial obligations.

Additionally, weak economic conditions may result in higher unemployment, which is correlated with increased workers’

compensation claims.

Additionally, weak economic conditions may result in higher unemployment, which is correlated with increased workers’ compensation claims.

The spread of a highly infectious or contagious disease, and the response by federal, state, and local government agencies, including preventative actions taken such as shelter-in-place orders, restrictions on travel, temporary closures of businesses deemed to be high-risk or non-essential, and other government mandates, could create significant economic disruption that results in a material reduction in business operations, such as occurred during the COVID-19 pandemic.

As our PEO fees are based on client payroll, workforce reductions or shortages related to a future pandemic could have a material adverse effect on our business.

Clients who are impacted by government restrictions and economic disruptions may experience liquidity and other financial issues, which may reduce their capacity to pay for our services.

These factors could have a material adverse effect on our results of operations and financial condition.

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As economic activity slows down, companies often reduce their use of temporary employees before undertaking layoffs of permanent staff, resulting in decreased demand for staffing services.

On the other hand, during strong economic periods or tight labor markets due to other factors, we often experience shortages of qualified employees to meet customer needs, as occurred during 2022.

On the other hand, during strong economic periods or tight labor markets due to other factors, we often experience shortages of qualified employees to meet customer needs.

Because we assume the obligation to make wage, tax and regulatory payments in respect of some employees, we are exposed to client credit risks.

We generally assume credit risk associated with our clients’

employee payroll obligations, including liability for payment of salaries and wages (including payroll taxes), as well as retirement benefits.

We generally assume credit risk associated with our clients’ employee payroll obligations, including liability for payment of salaries and wages (including payroll taxes), as well as retirement benefits.

These obligations are fixed whether or not the client makes payments to us as required by our services agreement.

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Our service agreements may be terminated on short notice, leaving us vulnerable to a significant loss of customers in a short period of time, if business or regulatory conditions change or events occur that negatively affect our reputation.

Our client services agreements are generally terminable on 30 days’

notice by either us or our client.

Our client services agreements are generally terminable on 30 days’ notice by either us or our client.

As a result, our clients may terminate their agreement with us at any time, making us particularly vulnerable to changing business or regulatory conditions or changes affecting our reputation or the reputation of our industry.

We may be exposed to employment‑related claims and costs and periodic litigation that could adversely affect our business and results of operations.

We either co-employ employees in connection with our PEO client services agreements or place our employees in our customers' workplace in connection with our staffing business.

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We do not have an expansive in-house sales staff and therefore rely extensively on referral partners.

We currently maintain a minimal internal professional sales force, instead relying heavily on referral partners to provide referrals to new business.

We currently maintain a limited internal professional sales force, instead relying heavily on referral partners to provide referrals to new business.

In connection with these arrangements, we pay a fee to referral partners for new clients.

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In 2023 BBSI began offering health insurance benefits as part of our PEO services.

Our arrangement with third-party insurers provides health insurance coverage to BBSI’s PEO clients through December 31, 2023, with the possibility of additional annual renewals.

Our arrangement with third-party insurers provides health insurance coverage to BBSI’s PEO clients through December 31, 2024, with the possibility of additional annual renewals.

If our third-party insurers are unwilling or unable to renew our arrangement in the future, we would need to seek coverage from alternative insurers.

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Our business is subject to risks associated with healthcare reforms.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Acts”) subject us to potential penalties unless we offer our employees minimum essential healthcare coverage that is affordable.

To comply with the employer mandate provision of the Acts, we offer health care coverage to all temporary and permanent employees eligible for coverage under the Acts other than employees of our PEO clients, which are responsible for providing required health care coverage to their employees.

Designating employees as eligible is complex and is subject to challenge by employees and the Internal Revenue Service (“IRS”).

While we believe we have properly identified eligible employees, a later determination that we failed to offer the required health coverage to eligible employees could result in penalties that may materially harm our business.

Additionally, we began offering employee health and welfare benefits to our PEO clients beginning in 2023.

We cannot be certain that compliant insurance coverage will remain available to us on reasonable terms, and we could face additional risks arising from future changes to or repeal of the Acts or changed interpretations of our obligations under the Acts.

There can be no assurance that we will be able to recover all related costs through increased pricing to our customers or that such costs will be recovered in the period in which costs are incurred, and the net financial impact on our results of operations could be significant.

If new healthcare legislation or future changes to the Acts were to increase the cost of providing health care benefits, or to limit our ability to offer health care benefits to our PEO clients, our business, operating results, and financial condition could be materially adversely affected.

Failure to comply with applicable data security and privacy regulations related to our health care offering could adversely affect our business.

As BBSI began offering health benefits to our PEO clients in 2023, we have access to protected health information ("PHI") of our client employees.

Compliance with federal and state regulations such as HIPAA and the HITECH Act is required for handling this PHI.

HIPAA imposes limitations on the use and disclosure of PHI, and sets requirements for health data privacy, security, and breach notification.

Non-compliance with HIPAA can lead to penalties and fines.

Failure to appropriately comply with data security regulations could materially adversely impact our business, reputation, operating results, and financial condition.

We face competition from several other companies.

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and Paychex, Inc.

We also compete with insurance carriers and other providers of workers’

compensation insurance, and our offerings must be priced competitively with prices provided by these competitors for us to attract and retain our clients.

Maintaining competitive pricing in the workers’

compensation market could lead to reduced margins and profitability.

We also compete with insurance carriers and other providers of workers’ compensation insurance, and our offerings must be priced competitively with prices provided by these competitors for us to attract and retain our clients.

Maintaining competitive pricing in the workers’ compensation market could lead to reduced margins and profitability.

Additionally, we face competition from information technology outsourcing firms and broad-based outsourcing and consulting firms that perform individual projects.

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• aggressively price products and services and increase benefits in ways that we may not be able to match financially.

To compete effectively in our markets, we must target our potential clients carefully, continue to improve our efficiencies and the scope and quality of our services, and rely on our service quality, innovation,

education and program clarity.

If our competitive advantages are not compelling or sustainable, then we are unlikely to increase or sustain profits and our stock price could decline.

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Risks Related to Our Regulatory Environment

Failure to appropriately interpret and comply with COVID-19 relief programs could materially adversely affect our business, reputation, results of operations and financial condition.

In response to the pandemic, federal and state government agencies have enacted numerous laws and regulatory guidelines designed to help the economy, individuals and employers.

Many of these legislative and regulatory programs, including the CARES Act and the American Rescue Plan Act, directly impact the Company and our clients.

The guidance surrounding these programs can be limited and has evolved over time.

Failure to appropriately interpret and comply with legal and regulatory requirements arising from the COVID-19 pandemic could harm client relationships and result in fines, penalties, and legal or regulatory action, which could have a material adverse effect on our business and reputation.

Several of these programs, including the Employee Retention Tax Credit ("ERC"), use payroll tax credits or deferrals as the mechanism to provide benefits to small businesses and employees.

As such, when clients and former clients wish to utilize these programs, the associated tax forms must be filed through the PEO, which creates additional administrative effort for the PEO.

Because of this process, IRS review of our clients may further result in administrative effort for BBSI.

Additionally, determining eligibility for programs such as ERC is complex and is based on company-specific data that PEOs do not possess for their clients.

If the IRS denies any of our clients' claims or deems clients who have received ERC through BBSI ineligible, and if the IRS or our clients attempt to hold BBSI liable for these amounts, this could have a material adverse effect on our business, results of operation and financial condition.

We operate in a complex regulatory environment, and failure to comply with applicable laws and regulations could adversely affect our business.

Corporate human resource operations are subject to a broad range of complex and evolving laws and regulations, including those applicable to payroll practices, benefits administration, employment practices, workers’

compensation coverage, and privacy.

Because our clients have employees in many states throughout the United States, we must perform our services in compliance with the legal and regulatory requirements of multiple jurisdictions.

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If any of these effects were to occur, our operating results and financial condition could be adversely affected.

If we are determined not to be an “employer”

under certain laws and regulations, our clients may stop using our services, and we may be subject to additional liabilities.

If we are determined not to be an “employer” under certain laws and regulations, our clients may stop using our services, and we may be subject to additional liabilities.

We are the administrative employer in our co-employment relationships under the various laws and regulations of the IRS and the U.S.

Department of Labor.

If we are determined not to be the administrative employer under such laws and regulations and are therefore unable to assume our clients’

obligations for employment and other taxes, our clients may be held jointly and severally liable for payment of such taxes.

If we are determined not to be the administrative employer under such laws and regulations and are therefore unable to assume our clients’ obligations for employment and other taxes, our clients may be held jointly and severally liable for payment of such taxes.

Some clients or prospective clients may view such potential liability as an unacceptable risk, discouraging current clients from continuing a relationship with us or prospective clients from entering into a new relationship with us.

Any determination that we are not the administrative employer for purposes of ERISA could also adversely affect our cafeteria benefits plan operated under Section 125 of the Internal Revenue Code and result in liabilities to us under the plan.

Any determination that we are not the administrative employer for purposes of ERISA could also adversely affect our ability to offer health care benefits to our PEO clients by subjecting us to additional state and federal laws and regulations, and could materially adversely affect our business, financial condition, and results of operations.

Changes in government regulations may result in restrictions or prohibitions applicable to the provision of employment services or the imposition of additional licensing, regulatory or tax requirements.

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The market price of our Common Stock has been, and may continue to be, volatile for the foreseeable future.

Important factors that may cause our trading price to decline include the factors listed below and other factors that may have a material adverse effect on our business or financial results, including those described above in this “Risk Factors”

actual or anticipated fluctuations in our results of operations, including a significant slowdown in our revenue growth or material increase in our workers’

compensation expense;

• actual or anticipated fluctuations in our results of operations, including a significant slowdown in our revenue growth or material increase in our workers’ compensation expense;

• our failure to maintain effective internal control over financial reporting or otherwise discover material errors in our financial reporting;

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Certain provisions of Maryland law and our Charter and bylaws could have the effect of delaying or preventing a third-party from acquiring the Company, even if a change in control would be beneficial to our stockholders.

These provisions of our Charter and bylaws permit the Board of Directors to issue up to 500,000 shares of preferred stock with such rights and preferences, including voting rights, as the Board

may establish, without further approval by the Company's stockholders, which could also adversely affect the voting power of holders of our Common Stock.

In addition, the Company is subject to the Maryland control share act (the “Control Share Act”).

Under the Control Share Act, a person (an “Acquiring Person”) who acquires voting stock in a transaction (a “Control Share Acquisition”) which results in its holding voting power within specified ranges cannot vote the shares it acquires in the Control Share Acquisition unless voting rights are accorded to such control shares by the holders of two-thirds of the outstanding voting shares, excluding the Acquiring Person and the Company's officers and directors who are also employees of the Company.

The Company is also subject to the provisions of Maryland law limiting the ability of certain Maryland corporations to engage in specified business combinations (the “Business Combination Act”).

These provisions of our Charter and bylaws permit the Board of Directors to issue up to 500,000 shares of preferred stock with such rights and preferences, including voting rights, as the Board may establish, without further approval by the Company's stockholders, which could also adversely affect the voting power of holders of our Common Stock.

In addition, the Company is subject to the Maryland control share act (the “Control Share Act”).

The Company is also subject to the provisions of Maryland law limiting the ability of certain Maryland corporations to engage in specified business combinations (the “Business Combination Act”).

Subject to certain exceptions, the Business Combination Act prohibits a Maryland corporation from engaging in a business combination with a stockholder who, with its affiliates, owns 10% or more of the corporation's voting stock.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business