What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-03-01 · 259 added, 175 removed, 885 unchanged (33% of the section changed)

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Workers’ compensation costs consist primarily of premiums paid to third-party insurers, claims reserves, claims administration fees, legal fees, medical cost containment (“MCC”) expense, state administrative agency fees, third-party broker commissions, and risk manager payroll, as well as costs associated with operating our two wholly owned insurance companies, Associated Insurance Company for Excess (“AICE”) and Ecole Insurance Company (“Ecole”).

Selling, general and administrative expenses represent both branch office and corporate-level operating expenses.

Branch operating expenses consist primarily of branch office staff payroll and personnel related costs, advertising, rent, office supplies, professional and legal fees and branch incentive compensation.

Corporate-level operating expenses consist primarily of executive and office staff payroll and personnel related costs, professional and legal fees, travel, occupancy costs, information systems costs, and executive and corporate staff incentive compensation.

Selling, general and administrative expenses consist primarily of payroll and personnel related costs, incentive compensation, information systems costs, rent and professional and legal fees.

Depreciation and amortization represent depreciation of property and equipment, leasehold improvements, software and internally developed software costs.

Property, equipment, software and

internally developed software costs are depreciated using the straight-line method over their estimated useful lives, which range from 3 to 39 years.

Property, equipment, software and internally developed software costs are depreciated using the straight-line method over their estimated useful lives, which range from 3 to 39 years.

Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life.

Critical Accounting Policies and Estimates

Critical Accounting Estimate

We have identified the following accounting estimate as critical to our business and the understanding of our results of operations.

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Actual results may differ from these estimates.

Workers' Compensation Reserves

We recognize our liability for the ultimate payment of incurred claims and claims adjustment expenses by establishing a reserve that represents our estimates of future amounts necessary to pay claims and related expenses with respect to workplace injuries that have occurred.

Workers' Compensation Costs

For all claims incurred under the Company’s workers’ compensation programs, we record an estimate for the total amount of workers’ compensation costs, which represents the amount necessary to pay claims and related expenses, including premiums to third-party insurers, with respect to workplace injuries that have occurred under our various workers’ compensation insurance programs.

When a claim involving a probable loss is reported, our independent third-party administrator for workers’ compensation claims (“TPA”) establishes a case reserve for the estimated amount of ultimate loss.

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The adequacy of such case reserves depends in part on the professional judgment of the TPA to evaluate the economic consequences of each claim properly and comprehensively.

Our reserves include an additional component for potential future increases in the cost to finally resolve open injury claims and claims incurred in prior periods but not reported (together, "IBNR") based on actuarial estimates provided by the Company’s independent actuary.

IBNR reserves, unlike specific case reserves, do not apply to a specific claim but rather apply to the entire population of claims arising from a specific time period.

Our estimate of ultimate losses includes an additional component for potential future increases in the cost to finally resolve open injury claims and claims incurred in prior periods but not reported (together, "IBNR") based on actuarial estimates provided by the Company’s independent actuary.

IBNR does not apply to a specific claim but rather applies to the entire population of claims arising from a specific time period.

IBNR primarily covers costs relating to:

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• Claims that have occurred but have not yet been reported to us.

The process of estimating unpaid claims and claims adjustment expense involves a high degree of judgment and is affected by both internal and external events, including changes in claims handling practices, modifications in reserve estimation procedures, changes in individuals involved in the reserve estimation process, inflation, trends in the litigation and settlement of pending claims, and legislative changes.

The process of estimating claims and claims adjustment expense involves a high degree of judgment and is affected by both internal and external events, including changes in claims handling practices, modifications in reserve estimation procedures, changes in individuals involved in the reserve estimation process, inflation, trends in the litigation and settlement of pending claims, and legislative changes.

Our estimates are based on actuarial analyses and informed judgment, derived from individual experiences and expertise applied to multiple sets of data and analyses.

We consider significant facts and circumstances known both at the time that loss reserves are initially established and as new facts and circumstances become known.

Due to the inherent uncertainty underlying loss reserve estimates, the expenses incurred through final resolution of our liability for our workers’ compensation claims will likely vary from the related loss reserves at the reporting date.

Therefore, as specific claims are paid out in the future, actual paid losses may be materially different from our current loss reserves.

Due to the inherent uncertainty underlying loss estimates, the ultimate expense incurred will likely vary from the related loss estimate at the reporting date.

Therefore, as specific claims are paid out in the future, actual paid losses may be materially different from our current loss estimates.

A basic premise in most actuarial analyses is that historical data and past patterns demonstrated in the incurred and paid historical data form a reasonable basis upon which to project future outcomes, absent a material change.

Significant structural changes to the available data can materially impact the reserve estimation process.

To the extent a material change affecting the ultimate claim liability becomes known,

such change is quantified to the extent possible through an analysis of internal company data and, if available and when appropriate, external data.

Significant structural changes to the available data can materially impact the estimation process.

To the extent a material change affecting the ultimate claim amount becomes known, such change is quantified to the extent possible through an analysis of internal company data and, if available and when appropriate, external data.

Actuaries exercise a considerable degree of judgment in the evaluation of these factors and the need for such actuarial judgment is more pronounced when faced with material uncertainties.

We believe that the amounts recorded for our estimated liabilities for workers’ compensation claims, which are based on informed judgment, analysis of data, actuarial estimates, and analysis of other trends associated with the Company’s historical universe of claims data, are reasonable.

To illustrate the sensitivity of changes in our estimate of workers’ compensation costs, a 5% increase in estimated ultimate losses for 2024 would result in a $0.5 million increase in workers’ compensation expense, and a 5% decrease in estimated ultimate losses would result in a $7.1 million decrease to workers’ compensation expense.

This asymmetric impact on workers’ compensation expense is due to our insured program, which limits our expense if claim costs increase but passes through savings if claim costs are lower than expected.

We believe that the amounts that we have recorded for our estimated workers’ compensation costs are reasonable.

Nevertheless, adjustments to such estimates will be required in future periods if the development of claim costs varies materially from our estimates, and such future adjustments may be material to our results of operations.

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Statements in this Item or in Items 1, 1A, 3 and 9A of this report include forward-looking statements, which are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, among others, discussion of economic conditions in our market areas and their effect on revenue levels, the lingering effects of the COVID-19 pandemic on our business operations, the competitiveness of our service offerings, the availability of certain fully insured medical and other health and welfare benefits to qualifying worksite employees, our ability to attract and retain clients and to achieve revenue growth, the effect of changes in our mix of services on gross margin, labor market conditions, the adequacy of our workers' compensation reserves, the effect of changes in estimates of our future claims liabilities on our workers’ compensation reserves, including the effect of changes in our reserving practices and claims management process on our actuarial estimates, expected levels of required surety deposits and letters of credit, our ability to generate sufficient taxable income in the future to utilize our deferred tax assets, the effect of our formation and operation of two wholly owned licensed insurance subsidiaries, the risks of operation and cost of our insured program, the financial viability of our excess insurance carriers, the effectiveness of our management information systems, our relationship with our primary bank lender and the availability of financing and working capital to meet our funding requirements, litigation costs, the effect of changes in the interest rate environment on the value of our investment securities, the adequacy of our allowance for doubtful accounts, and the potential for and effect of acquisitions.

All our forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

These forward-looking statements include, among others, discussion of economic conditions in our market areas, especially in California, and their effect on revenue levels;

the competitiveness of our service offerings;

the availability of certain fully insured medical and other health and welfare benefits to qualifying worksite employees;

our ability to attract and retain clients and to achieve revenue growth;

the effect of changes in our mix of services on gross margin;

labor market conditions;

the adequacy of our workers' compensation reserves;

the effect of changes in estimates of our future claims liabilities on our workers’ compensation reserves, including the effect of changes in our reserving practices and claims management process on our actuarial estimates;

expected levels of required surety deposits and letters of credit;

the outcome of audits;

the effect of our formation and operation of two wholly owned licensed insurance subsidiaries;

the risks of operation and cost of our insured program;

the financial viability of our excess insurance carriers;

the effectiveness of our management information systems;

our relationship with our primary bank lender and the availability of financing and working capital to meet our funding requirements;

litigation costs;

the effect of changes in the interest rate environment on the value of our investment securities;

the adequacy of our allowance for expected credit losses;

and the potential for and effect of acquisitions.

All our forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors with respect to the Company include:

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difficulties associated with integrating clients into our operations;

economic trends in our service areas;

economic trends in our service areas and the potential effects of changing governmental policies and natural disasters;

the potential for material deviations from expected future workers’ compensation claims experience;

changes in the workers’ compensation regulatory environment in our primary markets;

PEO client benefit costs, particularly with regard to health insurance benefits;

security breaches or failures in the Company’s information technology systems;

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the impact of and potential changes to the Patient Protection and Affordable Care Act, escalating medical costs, and other health care legislative initiatives on our business;

the effect of conditions in the global capital markets on our investment portfolio;

the effect of changing interest rates and conditions in the global capital markets on our investment portfolio;

and the availability of capital, borrowing capacity on our revolving credit facility, or letters of credit necessary to meet state-mandated surety deposit requirements for maintaining our status as a qualified self-insured employer for workers' compensation coverage or our insured program.

Additional risk factors affecting our business are discussed in Item 1A of Part I of this report.

Additional risk factors affecting our business are discussed in Item 1A

of Part I of this report.

We disclaim any obligation to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

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Workers' compensation

The presentation of revenue on a net basis and the relative contributions of staffing and PEO services revenue can create volatility in our gross margin as a percentage of revenue.

Generally, a relative increase in PEO services revenue will result in a higher gross margin as a percentage of revenue.

Improvement in gross margin percentage occurs because incremental client services revenue dollars are reported as revenue net of all related direct payroll and safety incentive costs.

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

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Ending WSEs represents the number of unique individuals paid in the last month of the period.

Year-over-year

Years Ended December 31, 2024 and 2023

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Revenue for 2024 totaled $1,144.5 million, an increase of $75.2 million or 7.0% over 2023, which reflects an increase in the Company’s PEO service revenue of $81.1 million or 8.3% and a decrease in staffing services revenue of $5.9 million or 6.8%.

The increase in PEO services revenues was primarily attributable to an increase in average number of WSEs as well as an increase in average billing per WSE.

The increase in PEO services revenues was primarily attributable to a 4.2% increase in average number of WSEs as well as a 3.4% increase in average billing per WSE.

Gross margin for 2024 totaled $253.3 million or 22.2% of revenue compared to $242.5 million or 22.7% of revenue for 2023.

The increase in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.

The decrease in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.

Direct payroll costs for 2024 totaled $61.0 million or 5.3% of revenue compared to $65.0 million or 6.1% of revenue for 2023.

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Payroll taxes and benefits for 2024 totaled $628.5 million or 54.9% of revenue compared to $555.8 million or 52.0% of revenue for 2023.

The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to higher average payroll tax rates in 2023, in addition to PEO client benefit costs of $10.5 million related to the availability of employee benefits to our PEO clients beginning in 2023.

The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to higher average payroll tax rates in 2024 and PEO client benefit costs of $33.4 million in 2024 compared to $10.5 million in 2023.

Workers’ compensation expense for 2024 totaled $201.7 million or 17.6% of revenue compared to $206.0 million or 19.2% of revenue for 2023.

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Selling, general and administrative (“SG&A”) expenses for 2024 totaled $185.9 million or 16.2% of revenue compared to $174.8 million or 16.3% of revenue for 2023.

The increase as a percentage of revenue was primarily due to the decrease in staffing services within the mix of our customer base.

The increase of $5.2 million in SG&A expense was primarily attributable to increased employee-related costs.

The increase of $11.1 million in SG&A expense was primarily attributable to increased employee-related costs, including increased variable employee compensation and incentive pay related to stronger financial results compared to 2023.

Other income, net for 2024 totaled $11.0 million compared to other income of $8.3 million for 2023.

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Fluctuations in Quarterly Operating Results

We have historically experienced significant fluctuations in our quarterly operating results, including losses or minimal income in the first quarter of each year, and expect such fluctuations to continue in the future.

We historically have experienced significant fluctuations in our quarterly operating results, including losses or minimal income in the first quarter of each year, and expect such fluctuations to continue in the future.

Our operating results may fluctuate due to a number of factors such as seasonality, wage limits on statutory payroll taxes, claims experience for workers’ compensation, demand for our services, and competition.

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Workers’ compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims.

In addition, positive or adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the Company’s estimated workers’ compensation expense.

Positive or adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the Company’s estimated workers’ compensation expense.

Liquidity and Capital Resources

The Company's cash balance of $74.8 million, which includes cash, cash equivalents, and restricted cash, decreased $32.5 million for the twelve months ended December 31, 2023, compared to an increase of $28.7 million for the comparable period of 2022.

The decrease in cash at December 31, 2023 as compared to December 31, 2022 was primarily due to the purchase of investments and restricted investments, decreased workers' compensation claim liabilities, and repurchases of common stock partially offset by increased premium payable, net income, and proceeds from the sale and maturities of investments and restricted investments.

The Company's cash balance of $82.6 million, which includes cash, cash equivalents, and restricted cash, increased $7.7 million for the twelve months ended December 31, 2024, compared to a decrease of $32.5 million for the comparable period of 2023.

The increase in cash at December 31, 2024 as compared to December 31, 2023 was primarily due to proceeds from the sale and maturities of investments and restricted investments, increased accrued payroll and related benefits, and net income, partially offset by increased trade accounts receivable, decreased workers' compensation claim liabilities, purchases of investments and restricted investments, and repurchases of common stock.

Net cash provided by operating activities in 2024 amounted to $10.1 million, compared to net cash provided of $67.2 million for the comparable period of 2023.

In 2023, net cash provided by operating activities was primarily due to increased premium payable of $54.2 million, net income of $50.6 million, and increased accrued payroll, payroll taxes and related benefits of $12.7 million, partially offset by decreased workers’ compensation claims liabilities of $51.2 million.

Net cash used in investing activities totaled $55.2 million in 2023, compared to net cash provided of $61.2 million for the comparable period of 2022.

In 2023, net cash used in investing activities consisted primarily of purchase of investments and restricted investments of $71.1 million and purchase of property, equipment and software of $11.8 million, partially offset by proceeds from the sale and maturity of investments and restricted investments of $27.6 million.

In 2024, net cash provided by operating activities was primarily due to increased accrued payroll and related benefits of $55.2 million and net income of $53.0 million, largely offset by increased trade accounts receivable of $63.1 million and decreased workers’ compensation claims liabilities of $39.4 million.

Net cash provided by investing activities totaled $38.8 million in 2024, compared to net cash used of $55.2 million for the comparable period of 2023.

In 2024, net cash provided by investing activities consisted primarily of proceeds from the sale and maturity of investments and restricted investments of $90.8 million, partially offset by the purchases of investments and restricted investments of $37.9 million and the purchase of property, equipment and software of $14.2 million.

Net cash used in financing activities in 2024 was $41.1 million compared to net cash used of $44.6 million for the comparable period of 2023.

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Total contractual obligations

(1) As of December 31, 2023, the Company has additional operating leases that have not yet commenced of $1.0 million and remaining balances on short-term operating leases of $60,332.

(1) As of December 31, 2024, the Company has additional operating leases that have not yet commenced of $7.1 million and remaining balances on short-term operating leases of $0.06 million, included in the table above.

In January 2022, the Company paid off all of its long-term debt.

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We have audited the accompanying consolidated balance sheets of Barrett Business Services, Inc.

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

and subsidiaries (the “Company”) as of December 31, 2024 and December 31, 2023, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2025 , expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Workers' Compensation Claims Liabilities

Workers’ compensation claims liabilities represent management’s estimate of future amounts necessary to pay claims and related expenses with respect to workplace injuries that have occurred as of a given reporting date.

The estimated liability for open workers’ compensation claims is based on an evaluation of

information provided by the Company’s third-party administrators for workers’ compensation claims, coupled with an actuarial estimate of future adverse loss development with respect to reported claims and incurred but not reported claims (together, IBNR).

Workers’ compensation claims liabilities included case reserve estimates for reported losses, plus additional amounts for estimated IBNR claims, medical cost containment, legal costs, and unallocated loss adjustment expenses.

The process of arriving at an estimate of unpaid claims and claims adjustment expense involves a high degree of judgment and is affected by both internal and external events, including changes in claims handling practices, changes in reserve estimation procedures, inflation, trends in the litigation and settlement of pending claims, and legislative changes.

The Company’s estimates are based on informed judgment, derived from individual experience and expertise applied to multiple sets of data and analyses.

Workers’ compensation claims liabilities represent management’s estimate of future obligation amounts under workers’ compensation programs where the Company retains the risk.

These estimates utilize actuarial expertise and projection techniques at a given reporting date, and are based on an evaluation of information provided by the Company’s third-party administrator for workers’ compensation claims, coupled with an actuarial estimate of future loss development with respect to reported claims and incurred but not reported claims (together, “IBNR”).

The Company’s estimates are based on actuarial analysis and informed judgment, derived from individual experience and expertise applied to multiple sets of data and analyses.

The Company considers significant facts and circumstances known both at the time that loss reserves are initially established, and as new facts and circumstances become known.

Given the high degree of judgment required to estimate the value of the workers’ compensation claims liabilities, performing audit procedures to evaluate the workers’ compensation claims liabilities recorded for the year ended December 31, 2023, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.

Given the subjectivity of estimating future loss development with respect to reported claims and incurred but not reported claims, the related audit procedures to evaluate the workers’ compensation claims liabilities required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the workers’ compensation claims liabilities included the following, among others:

• We tested the effectiveness of controls related to workers’ compensation claims liabilities, including those involved in estimating the ultimate losses to be incurred for reported and unreported claims.

• We tested the underlying data that is used as inputs into the actuarial analysis, including historical claims, to evaluate whether those inputs were reasonable.

In addition, we assessed whether any changes in the business or environment, including legislative changes, interest rates, and claims handling practices, were appropriately considered in developing the estimate of ultimate losses to be incurred for reported and unreported claims.

• With the assistance of our actuarial specialists, we evaluated the methods and assumptions used by management to estimate the workers’ compensation claims liabilities by performing the following:

o Compared management’s prior-year assumptions of expected claims development and ultimate loss to actuals incurred during the current year to identify and evaluate potential bias in the determination of the workers’ compensation claims liabilities.

o Developed a range of independent estimates of the workers’ compensation claims liabilities, utilizing claim payment patterns, loss development factors, and future cost trends for workers’ compensation claims liabilities.

We compared our estimated ranges to management’s estimates.

o Read the Company’s reinsurance policies and compared the coverage and terms to the assumptions used by management.

/s/ Deloitte & Touche LLP

Our audit procedures related to the workers’ compensation claims liabilities included the following:

• We tested the effectiveness of controls related to the workers’ compensation claims liabilities, including those involving management’s estimates and ultimate loss projections.

• We tested the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were complete and accurate.

• With the assistance of our actuarial specialists, we evaluated the methods and assumptions used by management to estimate the workers’ compensation claims liabilities by:

o Performing a retrospective review, including comparing management’s prior year estimates of expected incurred losses to actual experience during the current year, to identify potential bias in the determination of the workers’ compensation claims liabilities.

o Developing a range of independent estimates of the workers’ compensation claims liabilities, and comparing our estimated ranges to management’s estimates and assessed the consistency of management’s approach.

/s/ Meghann Hartley

Portland , Oregon

March 1, 2024

February 28, 2025

We have served as the Company's auditor since 2016.

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Accounts payable

Accrued payroll, payroll taxes and related benefits

Income taxes payable

Accrued payroll and related benefits

Payroll taxes payable

Current operating lease liabilities

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Workers' compensation claims liabilities

Safety incentives liability

Total current liabilities

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Total liabilities and stockholders' equity

(1) Prior period results have been adjusted to reflect the four -for-one stock split effected in the form of a stock dividend in June 2024.

See the Business section in Item 1 of Part I of this report for details.

The accompanying notes are an integral part of these consolidated financial statements.

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Weighted average number of diluted common shares outstanding (1)

(1) Prior period results have been adjusted to reflect the four -for-one stock split effected in the form of a stock dividend in June 2024.

See the Business section in Item 1 of Part I of this report for details.

The accompanying notes are an integral part of these consolidated financial statements.

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Balance, December 31, 2021

Common stock issued on exercise of

options and vesting of restricted stock units

Common stock issued on exercise of options,

purchase of ESPP shares and vesting of

restricted stock units and performance awards

Common stock repurchased on vesting of

restricted stock units

restricted stock units and performance awards

Share-based compensation expense

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Cash dividends on common stock ($ 0.30

Unrealized loss on investments, net of tax

Unrealized gain on investments, net of tax

Balance, December 31, 2023

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Balance, December 31, 2024

(1) Prior period results have been adjusted to reflect the four -for-one stock split effected in the form of a stock dividend in June 2024.

See the Business section in Item 1 of Part I of this report for details.

The accompanying notes are an integral part of these consolidated financial statements.

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Cash flows from operating activities:

Reconciliations of net income to net cash provided by (used in)

operating activities:

Reconciliations of net income to net cash provided by operating activities:

Depreciation and amortization

Non-cash operating lease expense

Investment amortization and losses recognized

Loss recognized on disposal of property and equipment

Investment (accretion) amortization and (gains) losses recognized

Losses recognized on disposal of property and equipment

Deferred income taxes

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Accounts payable

Accrued payroll, payroll taxes and related benefits

Accrued payroll and related benefits

Payroll taxes payable

Other accrued liabilities

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Workers' compensation claims liabilities

Safety incentives liability

Operating lease liabilities

Other assets and liabilities, net

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Purchase of property, equipment and software

Proceeds from sale of property

Proceeds from sale of property and equipment

Purchase of investments

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Proceeds from sales and maturities of restricted investments

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

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Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

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All intercompany account balances and transactions between BBSI, AICE, and Ecole have been eliminated in consolidation.

Common stock split

On June 4, 2024, we amended our Charter to increase the number of authorized shares of common stock from 20,500,000 shares to 82,000,000 shares, and our Board of Directors declared a four -for-one split of the Company’s common stock effected in the form of a stock dividend (the “2024 Stock Split”).

Each stockholder of record at the close of business on June 14, 2024 received a dividend of three additional shares of common stock for each then-held share, distributed after close of trading on June 21, 2024.

All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the 2024 Stock Split.

The shares of common stock retain a par value of $ 0.01 per share.

Accordingly, an amount equal to the par value of the increased shares resulting from the stock split was reclassified from additional paid-in capital to common stock.

Reportable segment

The Company has one operating and reporting segment.

The chief operating decision maker (our Chief Executive Officer) regularly reviews the financial information of our business at a consolidated level in deciding how to allocate resources and in assessing performance.

BBSI has one operating and reportable segment which provides business management solutions to small and mid-sized companies.

The Company’s Chief Executive Officer is the chief operating decision maker (“CODM”).

The CODM is provided financial information presented on a consolidated basis, including consolidated gross margin and consolidated net income, to assess the financial performance of the Company and to decide how to allocate resources, including by reinvesting profits into our single operating segment or pursuing other strategic initiatives, such as stock repurchases or acquisitions.

The financial information presented to the CODM, including the expense categories, is consistent with the financial information contained in these consolidated financial statements.

The accounting policies of our reportable segment are the same as those of the consolidated entity.

BBSI derives revenue exclusively in the United States and all of the Company’s long-lived assets are located in the United States.

Revenue recognition

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Direct payroll costs include salaries, wages, health insurance, and employee out-of-pocket expenses incurred incidental to employment.

We also present revenue net of safety incentives, because these incentives represent consideration payable to customers.

Cost of revenues

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Direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages.

Payroll taxes and benefits consist of the employer's portion of Social Security and Medicare taxes, federal and state unemployment taxes, and employee benefit costs, which primarily comprises health insurance premiums paid to third-party insurers and underwriting and benefit consultant payroll.

Workers' compensation costs consist primarily of premiums paid to third-party insurers, claims reserves, claims administration fees, legal fees, MCC expense, state administrative agency fees, third-party broker commissions, risk manager payroll, as well as costs associated with operating our two wholly owned insurance companies, AICE and Ecole.

Payroll taxes consist of the employer's portion of Social Security and Medicare taxes and federal and state unemployment taxes.

Benefit costs primarily comprise health insurance premiums paid to third-party carriers as part of our fully insured PEO benefits programs and underwriting and benefit consultant payroll.

Workers' compensation costs consist primarily of premiums paid to third-party insurers, claims reserves, claims administration fees, legal fees, medical cost containment (“MCC”) expense, state administrative agency fees, third-party broker commissions, risk manager payroll, as well as costs associated with operating our two wholly owned insurance companies, AICE and Ecole.

Cash and cash equivalents

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The Company classifies investments as available-for-sale.

The Company’s investments are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated other comprehensive income (loss) in stockholders' equity.

The Company’s investments are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated other comprehensive loss in stockholders' equity.

Investments are recorded as current on the consolidated balance sheets as the invested funds are available for current operations.

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In the event of a credit loss, an allowance would be recognized to the extent that the fair value of the security is less than the present value of the expected future cash flows.

Realized gains and losses on sales of investments are included in investment income in our consolidated statements of operations.

Realized gains and losses on sales of investments are included in investment income, net in our consolidated statements of operations.

Investment income, net in the consolidated statements of operations includes interest income of $ 10.9 million, $ 9.1 million, and $ 6.8 million for the years ended December 31, 2024, 2023 and 2022 , respectively.

Restricted cash and investments

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These investments are categorized as available-for-sale.

They are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

They are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated other comprehensive loss in stockholders’ equity.

Restricted cash and investments are classified as current and noncurrent on the consolidated balance sheets based on the nature of the restriction.

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Restricted cash and investments also includes investments held as part of the Company’s deferred compensation plan.

These investments are classified as trading securities and are recorded at fair value with unrealized gains and losses reported as a component of income (loss) from operations.

These investments are classified as trading securities and are recorded at fair value with unrealized gains and losses reported as a component of income from operations.

Concentration of credit risk

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Credit risk on trade accounts is minimized as a result of the large and diverse nature of our customer base.

Allowance for doubtful accounts

The Company had an allowance for doubtful accounts of $ 885,000 and $ 893,000 at December 31, 2023 and 2022, respectively.

Trade accounts receivable

PEO customers are invoiced following the end of each payroll processing cycle with payment generally due on the invoice date and staffing customers are generally invoiced weekly with payment terms of 30 days.

The balance in trade accounts receivable is comprised primarily of unbilled receivables of $ 218.8 million and $ 157.9 million at December 31, 2024 and 2023 , respectively.

The remaining balance of $ 16.6 million and $ 14.4 million in trade accounts receivable at December 31, 2024 and 2023, respectively, is primarily related to outstanding billings to PEO and staffing clients, offset by an allowance for expected credits losses of $ 0.9 million at December 31, 2024 and 2023, respectively.

Allowance for expected credit losses

The Company had an allowance for expected credit losses of $ 0.9 million at December 31, 2024 and 2023.

We make estimates of the collectability of our accounts receivable for services provided to our customers based on future expected credit losses.

Management analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customers' payment trends when evaluating the adequacy of the allowance for doubtful accounts.

If the financial condition of our customers deteriorates resulting in an impairment of their ability to make payments, additional allowances may be required.

Our allowance for doubtful accounts activity is summarized as follows (in thousands):

Our allowance for expected credit losses activity is summarized as follows (in thousands):

Balance at January 1,

Allowance for doubtful accounts

Allowance for expected credit losses

Charges to expense

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Balance at December 31,

Allowance for doubtful accounts

Allowance for expected credit losses

Our income taxes are accounted for using an asset and liability approach.

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Goodwill is recorded as the difference, if any, between the aggregate consideration paid for a business combination and the fair value of the net assets acquired.

Goodwill is not amortized but is evaluated for impairment annually, or more frequently if circumstances indicate that it is more likely than not that the fair value of the reporting unit is below its carrying value.

The Company has one reporting unit and evaluates the carrying value of goodwill annually at December 31.

Goodwill is not amortized but is evaluated for impairment annually, or more frequently if circumstances indicate that it is more likely than not that the fair value of the operating segment is below its carrying value.

The Company has one operating and reportable segment and evaluates the carrying value of goodwill annually at December 31.

No impairment has been recognized in the periods presented.

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Workers’ compensation claims liabilities

Our workers’ compensation claims liabilities do not represent an exact calculation of liability but rather management’s best estimate, utilizing actuarial expertise and projection techniques, at a given reporting date.

The estimated liability for open workers’ compensation claims is based on an evaluation of information provided by our third-party administrator for workers’ compensation claims, coupled with an actuarial estimate of future loss development with respect to reported claims and incurred but not reported claims (together, “IBNR”).

Our workers’ compensation claims liabilities do not represent an exact calculation of liability but rather management’s best estimate of future obligation amounts under workers' compensation programs where the Company retains risk.

These estimates utilize actuarial expertise and projection techniques, at a given reporting date, and are based on an evaluation of information provided by our third-party administrator for workers’ compensation claims, coupled with an actuarial estimate of future loss development with respect to reported claims and incurred but not reported claims (together, “IBNR”).

Workers’ compensation claims liabilities include case reserve estimates for reported losses, plus additional amounts for estimated IBNR claims, MCC and legal costs, unallocated loss adjustment expenses and estimated future recoveries.

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Nonetheless, actuaries exercise a considerable degree of judgment in the evaluation of these factors and the need for such actuarial judgment is more pronounced when faced with material uncertainties.

Safety incentives

We accrue for and present expected safety incentives as a reduction of revenue.

Safety incentives represent cash incentives paid to certain PEO client companies for maintaining safe work practices and minimizing workplace injuries.

The incentive is based on a percentage of annual payroll and is paid annually to customers who meet predetermined workers’ compensation claims cost objectives.

Safety incentive payments are made only after closure of all workers' compensation claims incurred during the customer’s contract period.

The safety incentive liability is estimated and accrued each month based upon contract year-to-date payroll and the then current amount of the customer’s estimated workers’ compensation claims reserves as established by us and our third-party administrator.

In July 2020, the Company began limiting its safety incentive offering in certain markets.

The Company provided $ 1.3 million and $ 2.0 million at December 31, 2023 and 2022 , respectively, as an estimate of the liability for unpaid safety incentives.

Customer deposits

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Total cash, cash equivalents and restricted cash shown in the

statement of cash flows

statements of cash flows

Basic and diluted earnings per share

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Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Estimates are used for fair value measurement of investments, allowance for doubtful accounts, deferred income taxes, carrying values for goodwill and property, equipment and software, accrued workers' compensation liabilities and safety incentive liabilities.

Estimates are used for fair value measurement of investments, allowance for expected credit losses, deferred income taxes, carrying values for goodwill and property, equipment and software, and accrued workers' compensation liabilities.

Actual results may or may not differ from such estimates.

Reclassifications

To conform to the current period’s presentation, premiums payable to third party insurance carriers of $ 18.9 million were reclassified from other accrued liabilities to current premium payable in the prior period consolidated balance sheets and premiums payable to third party insurance carriers of $ 12.1 million and $ 7.7 million were reclassified from other accrued liabilities to premium payable in the prior period consolidated statements of cash flows as of December 31, 2022 and 2021, respectively.

To conform to the current period’s presentation, the prior period balance of accrued payroll, payroll taxes and related benefits on the consolidated balance sheets of $ 234.1 million was disaggregated into accrued payroll and related benefits of $ 160.9 million and payroll taxes payable of $ 73.2 million.

In the consolidated statements of cash flows, the 2023 amount of net cash inflows from accrued payroll, payroll taxes and related benefits of $ 12.7 million was disaggregated into net cash inflows from accrued payroll and related benefits of $ 5.7 million and net cash inflows from payroll taxes payable of $ 7.0 million.

For 2022, net cash inflows from accrued payroll, payroll taxes and related benefits of $ 24.9 million was disaggregated into net cash inflows from accrued payroll and related benefits of $ 12.2 million and net cash inflows from payroll taxes payable of $ 12.7 million.

To conform to the current period’s presentation, safety incentives liability of $ 1.3 million was reclassified to other accrued liabilities in the prior period consolidated balance sheets, and net cash outflows from safety incentives liability of $ 0.8 million and $ 2.3 million were reclassified to other accrued liabilities in the prior period consolidated statements of cash flows for the years ended December 31, 2023 and 2022, respectively.

All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the 2024 Stock Split.

To conform to the current period’s presentation, additional paid-in-capital of approximately $ 0.2 million was reclassified to common stock in the prior period consolidated balance sheets and prior periods' consolidated statements of stockholders' equity.

Recent accounting pronouncements

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In November 2023, the FASB issued ASU 2023-07, which expands annual and interim reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

All disclosure requirements under the new guidance are also required for public entities with a

single reportable segment.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

We are evaluating the impact of applying this new accounting guidance to our financial statement disclosures.

We have adopted this ASU on a retrospective basis for the annual reporting period of our fiscal year beginning January 1, 2024 with no material effects on the Company’s financial condition, results of operations, or cash flows.

ASU 2023-09, Income Taxes (Topic 740):

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In December 2023, the FASB issued ASU 2023-09, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions.

The ASU applies to all entities subject to income taxes.

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Early adoption is permitted.

We are evaluating the impact of applying this new accounting guidance to our income tax disclosures.

We plan to adopt this ASU for the annual reporting period of our fiscal year beginning January 1, 2025.

We are evaluating the impact of applying this new accounting guidance to our income tax disclosures but do not expect the adoption of this ASU to have any material effects on the Company’s financial condition, results of operations, or cash flows.

ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“DISE”)

In November 2024, the FASB iss ued ASU 2024-03, which requires disclosure of specified information about certain costs and expenses in the notes to interim and annual financial statements.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements.

We are evaluating the impact of this new accounting standard but do not expect the adoption of this ASU to have any material effects on the Company’s financial condition, results of operations, or cash flows.

Note 2 - Fair Value Measurement

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The interest rates on our investments approximate current market rates for these types of investments.

In determining the fair value of our financial assets, the Company predominately uses the market approach.

In determining the fair value of our financial assets, the Company predominantly uses the market approach.

In determining the fair value of all its corporate bonds, mortgage-backed securities, U.S.

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Corporate bonds

Asset backed securities

government agency securities

Mortgage-backed securities

Asset-backed securities

Emerging markets

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Corporate bonds

Asset backed securities

agency securities

Mortgage-backed

Asset-backed securities

Emerging markets

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Corporate bonds

Money market funds

government agency securities

Money market funds

Asset-backed securities

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The average contractual maturity of mortgage-backed securities, which are excluded from the table above, was 21 years and 23 years as of December 31, 2024 and 2023 , respectively.

The fair values and gross unrealized losses of the Company’s available for sale securities that were in an unrealized loss position as of December 31, 2024 and 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position, were as follows (in thousands):

December 31, 2024

Less than 12 months

12 months or longer

Corporate bonds

government agency securities

Mortgage-backed securities

Asset-backed securities

Total investments

Restricted investments:

Corporate bonds

Mortgage-backed securities

government agency securities

Asset-backed securities

Total restricted investments

Total investments and restricted investments

December 31, 2023

Less than 12 months

12 months or longer

Corporate bonds

government agency securities

Mortgage-backed securities

Asset-backed securities

Emerging Markets

Total investments

Restricted investments:

Corporate bonds

Mortgage-backed securities

government agency securities

Asset-backed securities

Total restricted investments

Total investments and restricted investments

We have determined that the gross unrealized losses on our investments as of December 31, 2024 and 2023 were temporary in nature.

The decline in fair value was due to changes in market interest rates, rather than credit losses.

Note 3 - Property, Equipment and Software

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Less accumulated depreciation and amortization

Total Property, Equipment and Software

We recognized $ 3.7 million, $ 3.6 million and $ 3.4 million in depreciation expense associated with our property and equipment in 2024, 2023 and 2022 , respectively.

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Prior periods

Total claims expense incurred

claim payments related to

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Prior periods

Total claim payments

Change in claims incurred in excess of retention limits

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Approximately 85 % 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 the above policies, premium amounts incurred but not paid are classified as either current or long-term based on the expected timing of the payments and are recorded in current premium payable and long-term premium payable on the consolidated balance sheets.

Effective July 1, 2021, the Company entered into a fully insured arrangement for its insured program, whereby third-party insurers assume substantially all risk of loss for claims incurred under the program.

This fully insured arrangement has been extended annually and covers claims incurred between July 1, 2021 and June 30, 2025, with an option to renew through June 30, 2026.

Each annual fully insured policy allows BBSI to participate in savings if claims develop favorably up to a maximum per policy year ranging from $ 20.5 million to $ 28.5 million, depending on the policy period.

For only the policy period from July 1, 2021 to June 30 2022, BBSI can also incur additional premium up to $ 7.5 million if claims develop adversely.

No additional premium can be charged based on claim performance for other policy years.

Premiums incurred but not paid are recorded as either current or long-term premium payable on the consolidated balance sheets based on the expected timing of the payments.

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.

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.

Claim obligations for policies issued under the insured program between February 1, 2014 and June 30, 2018 were removed through loss portfolio transfers in 2020 and 2021.

The following is a summary of the risk retained by the Company under its insured program after considering the effects of the loss portfolio transfers and current insurance arrangements:

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2021 - July 1 and after

( 1) LPT 2 excluded approximately 10 % of claims from 2018 and included an approximately offsetting amount of claims from 2019.

( 1) The loss portfolio transfers excluded approximately 10 % of claims from 2018 and included an approximately offsetting amount of claims from 2019.

The Company is required to maintain minimum collateral levels for certain policies issued under the insured program, which is held in a trust account (the “trust account”).

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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.

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.

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The Company provided a total of $ 128.4 million and $ 167.8 million at December 31, 2024 and 2023 , respectively, as an estimated future liability for unsettled workers' compensation claims liabilities.

Of this amount, $ 6.0 million and $ 3.0 million on December 31, 2023 and 2022 , respectively, represent case reserves and IBNR in excess of the Company’s retention.

The accrual for costs incurred in excess of retention limits is offset by a receivable from insurance carriers of $ 6.0 million and $ 3.0 million at December 31, 2023 and 2022 , respectively, included in other assets in the consolidated balance sheets.

Of this amount, $ 6.0 million on December 31, 2024 and 2023 , represent case reserves and IBNR in excess of the Company’s retention.

The accrual for costs incurred in excess of retention is offset by a receivable from insurance carriers of $ 6.0 million at December 31, 2024 and 2023 , included in other assets in the consolidated balance sheets.

Note 5 - Revolving Credit Facility and Long-Term Debt

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The credit facility is collateralized by the Company’s accounts receivable and other rights to receive payment.

The revolving credit facility will mature on July 1, 2026 , unless extended.

The Agreement requires the satisfaction of certain financial covenants as follows:

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• the Company may not terminate or cancel any of the AICE policies;

• if an event of default would occur, and is continuing, including on a pro forma basis, no dividends or distributions would be permitted to be paid and redemptions and repurchases of the Company’s stock would be permitted only up to $ 15 million in any rolling 12-month period.

• if an event of default occurs, and is continuing, including on a pro forma basis, no dividends or distributions would be permitted to be paid and redemptions and repurchases of the Company’s stock would be permitted only up to $ 15 million in any rolling 12-month period.

The Agreement also contains customary events of default and specified cross-defaults under the Company's workers' compensation insurance arrangements.

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The current portion of the deferred compensation plan liability was $ 1.5 million and $ 1.1 million at December 31, 2024 and 2023, respectively, and is recorded in other accrued liabilities on the consolidated balance sheets.

The fair value of the long-term portion o f this plan was $ 7.9 million and $ 6.7 million at D ecember 31, 2023 and 2022 , respectively, and is recorded in noncurrent restricted cash and investments on the consolidated balance sheets.

The fair value of the current portion of this plan was $ 1.1 million and $ 1.0 million at December 31, 2023 and 2022 , respectively, and is recorded in current restricted cash and investments on the consolidated balance sheets.

The fair value of the long-term asset portion o f this plan was $ 9.5 million and $ 7.9 million at D ecember 31, 2024 and 2023 , respectively, and is recorded in noncurrent restricted cash and investments on the consolidated balance sheets.

The fair value of the current asset portion of this plan was $ 1.5 million and $ 1.1 million at December 31, 2024 and 2023 , respectively, and is recorded in current restricted cash and investments on the consolidated balance sheets.

Note 7 - Leases

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The Company has additional operating leases of $ 7.1 million that have not commenced as of December 31, 2024 , and as such, have not been recognized in the Company’s Consolidated Balance Sheets.

These operating leases are expected to commence in 2024 with lease terms of 7 years.

These operating leases are expected to commence in 2025 with lease terms of 5 to 7 years.

Note 8 - Income Taxes

1 unchanged sentence

Year Ended December 31,

Total provision

Total current provision for income taxes

Total deferred provision for income taxes

Total provision for income taxes

Deferred income tax assets and liabilities consist of the following components (in thousands):

Deferred income tax assets:

Tax effect of unrealized losses (gains), net

Workers' compensation claims liabilities

Deferred compensation

Tax effect of unrealized losses, net

Operating lease liability

Workers' compensation claims liabilities

Equity based compensation

Total deferred income tax assets

valuation allowance

Net deferred income tax assets

Deferred income tax liabilities:

Tax depreciation in excess of book depreciation

Tax amortization of goodwill

Amortization of software and intangibles

Operating lease right-of-use

Total deferred income tax liabilities

Net deferred income taxes

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Nondeductible expenses and other, net

Federal and state tax credits

Adjustment for final positions on filed returns

Federal and state tax credits

Effective tax rate

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The Internal Revenue Service (the "IRS") is examining the Company’s federal tax returns for the years ended December 31, 2017 through 2021 .

BBSI received notice that the IRS intends to disallow certain wage-based tax credits claimed for the years 2017 through 2020 , which could result in estimated total additional taxes of $ 7.4 million and penalties of $ 1.7 million.

Tax year 2021 remains under audit;

disallowance of similar wage-based credits would result in additional estimated tax due of $ 0.6 million.

The Company disagrees with the IRS determination to disallow certain wage-based credits taken by the Company and believes that the Company has the technical merits to defend its position.

Based on management’s more-likely-than-not assessment that the position is sustainable, no reserve for the aforementioned IRS notices of disallowance of wage-based tax credits or underpayment penalties has been recorded in the financial statements.

BBSI received notices that the IRS intends to disallow certain wage-based tax credits claimed for the years 2017 through 2021 , which could result in estimated total additional taxes of $ 8.0 million and penalties of $ 1.9 million plus related interest.

The Company disagrees with the IRS determination to disallow certain wage-based credits taken by the Company and has filed U.S.

Tax Court petitions challenging these notices.

We believe that the Company has the technical merits to defend its position.

Based on management’s more-likely-than-not assessment that the Company’s position is sustainable, no reserve for the aforementioned IRS notices of disallowance of wage-based tax credits or underpayment penalties has been recorded in the financial statements.

In the major jurisdictions where it operates, the Company is generally no longer subject to income tax examinations by tax authorities for tax years before 2017.

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The Company does not anticipate any material changes to the reserve in the next 12 months.

The Company had unrecognized tax benefit of $ 0.6 million as of December 31, 2022 and no material unrecognized tax benefit as of December 31, 2021.

The Company had unrecognized tax benefit of $ 0.8 million and $ 0.6 million as of December 31, 2023 and December 31, 2022, respectively.

A portion of the consolidated income the Company generates is not subject to state income tax.

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Note 9 - Stock Incentive Plans

The 2020 Plan replaced the Company’s 2015 Stock Incentive Plan (the “2015 Plan”), and no new share-based awards may be granted under the 2015 Plan.

On June 5, 2023, the Company's stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2020 Plan from 375,000 to 725,000 .

The Company's 2020 Stock Incentive Plan (the "2020 Plan"), which provides for share-based awards to Company employees, non-employee directors and outside consultants or advisors, was approved by stockholders on May 27, 2020, and amended with stockholder approval on June 5, 2023, to increase the number of shares available for issuance under the 2020 Plan from 375,000 to 725,000 .

On June 3, 2024, the Company's stockholders approved an amendment of the Company's Amended and Restated Charter to increase the number of authorized shares of Common Stock of the Company from 20,500,000 to 82,000,000 (the "Charter Amendment").

The Company's Board of Directors proposed the Charter Amendment in part to permit a four -for-one split of the Company's common stock.

As such, the number of shares available for issuance under the 2020 Plan increased from 725,000 to 2,900,000 .

The number of shares available for grants of awards at December 31, 2024 was 862,526 .

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Stock Options

Outstanding stock options generally vest over either four or eight years and expire ten years after the date of grant.

Outstanding stock options generally vest over four or eight years and expire up to ten years after the date of grant.

A summary of the status of the Company’s stock options at December 31, 2024, together with changes during the periods then ended, is presented below:

1 unchanged sentence

Outstanding at December 31, 2023

Options granted at market price

Options exercised

1 unchanged sentence

Exercisable at December 31, 2024

No stock options were granted during the years ended December 31, 2023, 2022 and 2021.

The fair value of stock option awards as determined under the Black-Scholes option-pricing model was estimated with the following weighted-average assumptions:

Expected volatility

Risk free interest rate

Expected dividend yield

Expected term (years)

Weighted average fair value per share

The weighted average fair value of stock options granted for the year ended December 31, 2024 was $ 12.16 .

There were no stock options granted with an exercise price below market price during 2024.

No stock options were granted during 2023 or 2022.

The intrinsic value of stock options exercised for the years ended December 31, 2024, 2023 and 2022 was $ 0.6 million, $ 0.1 million, and $ 0.2 million, respectively.

The fair value of stock options vested for the year ended December 31, 2022 was $ 728,000 .

No stock options vested during the year ended December 31, 2023 or 2021.

The fair value of stock options vested for the years ended December 31, 2024 and December 31, 2022 was $ 728,000 .

No stock options vested during the years ended December 31, 2023.

As of December 31, 2024 , unrecognized compensation expense related to stock options was $ 1.3 million with a weighted average remaining amortization period of 2.1 years.

Restricted Stock Units

Restricted stock units generally vest in four equal annual installments beginning one year following the date of grant.

Restricted stock units generally vest in four equal annual installments beginning one year following the date of grant, other than restricted stock units granted to nonemployee directors since 2019, which vest one year following the date of grant.

The following table presents restricted stock unit activity:

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Nonvested at December 31, 2024

The total grant date fair value of PSUs vested during the years ended December 31, 2023, 2022 and 2021 was $ 1.6 million, $ 259,000 , and $ 276,000 , respectively.

The total grant date fair value of PSUs vested during the years ended December 31, 2024, 2023 and 2022 was $ 1.7 million, $ 1.6 million, and $ 259,000 , respectively.

Employee Stock Purchase Plan

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and various parties related to the franchisor.

Plaintiffs claimed, among other things, that BBSI and the franchisor were their joint employer with franchisee and therefore jointly responsible for the alleged wage and hour violations.

The case was subsequently removed to the United States District Court for the Eastern District of California, and on January 18, 2019, the District Court certified a class of former non-exempt employees who resided in California and worked for the franchisee in certain positions during the period from April 6, 2007 through January 19, 2019.

On November 30, 2020, the District Court granted BBSI’s motion for summary judgment to be removed from the case.

Thereafter the plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit, and on June 2, 2022, the Court of Appeals reversed the order granting summary judgment to BBSI.

The court held that there is a triable issue of fact concerning whether or not BBSI was a joint-employer under applicable California law.

BBSI intends to vigorously defend the claim, including continuing to assert its defense on the ground that it was not a joint-employer of plaintiffs.

Given the uncertainties surrounding this litigation, management is unable to estimate a potential range of loss.

In addition to the matter above, BBSI is subject to other legal proceedings and claims that arise in the ordinary course of our business.

Plaintiffs claimed, among other things, that BBSI and the franchisor were their joint employer with the franchisee and therefore jointly responsible for the alleged wage and hour violations.

BBSI continues to maintain that it was not the plaintiff's joint employer.

Notwithstanding, in January 2025, the plaintiffs and BBSI reached an agreement in principle to settle the matter, subject to the completion of definitive documentation and customary court approval.

BBSI is subject to other legal proceedings and claims that arise in the ordinary course of our business.

There are significant uncertainties surrounding litigation.

For all other

cases not discussed above, management has recorded estimated liabilities totaling $ 0.4 million in other accrued liabilities in the consolidated balance sheets.

For the matter discussed above, as well as other cases, management has recorded estimated liabilities totaling $ 1.7 million in other accrued liabilities in the consolidated balance sheets.

Note 12 - Subsequent Events

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These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors or mistakes.

Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated March 1, 2024, expressed an unqualified opinion on those financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 28, 2025, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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Portland, Oregon

March 1, 2024

February 28, 2025

OT HER INFORMATION

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DI RECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this item is incorporated by reference to the information set forth under the captions "Item 1-Election of Directors," “Background and Experience of Executive Officers” and "Code of Ethics" in our definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (the “Proxy Statement”).

The Company has adopted an insider trading policy governing the purchase, sale, and other dispositions of our securities, applicable to our directors, officers, employees, and other covered persons, as well as procedures for the repurchase of its securities.

The Company believes that its insider trading policy and repurchase procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations, and the Nasdaq Stock Market LLC listing standards applicable to the Company.

A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Form 10-K.

Additional information required by this item is incorporated by reference to the information set forth under the captions or subcaptions “Proposal 1:

Election of Directors,” “Audit and Compliance Committee,” “Background and Experience of Executive Officers," “Code of Ethics,” and “Delinquent Section 16(a) Reports” in our definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (the “Proxy Statement”).

EXE CUTIVE COMPENSATION

The information required by this item is incorporated by reference to the information set forth under the captions “Director Compensation for 2023” and “Executive Compensation” in the Proxy Statement.

The information required by this item is incorporated by reference to the information set forth under the captions “Director Compensation for 2024” and “Executive Compensation” in the Proxy Statement, other than the information under the subcaption “Pay Versus Performance.”

SE CURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

1 unchanged sentence

CER TAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the information set forth under the caption "Item 1-Election of Directors" and "Related Person Transactions" in the Proxy Statement.

The information required by this item is incorporated by reference to the information set forth under the caption "Proposal 1:

Election of Directors" and "Related Person Transactions" in the Proxy Statement.

PRIN CIPAL ACCOUNTANT FEES AND SERVICES

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Filed or Furnished Herewith

Charter of the Registrant, as amended, through May 31, 2018 .

Charter of the Registrant, as amended through June 4, 2024 .

Bylaws of the Registrant, as amended through May 27, 2020 .

38 unchanged sentences

Form of Indemnification Agreement with each outside director of Barrett Business Services, Inc.

Form of Employee Nonqualified Stock Option Award Agreement for grants under the 2020 Plan in 2024.

Insider Trading Policy .

Subsidiaries of the Registrant .

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BARRETT BUSINESS SERVICES, INC.

March 1, 2024

February 28, 2025

/s/ Anthony J.

Executive Vice President and Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 1st day of March, 2024.

Principal Executive Officer and Director:

8 unchanged sentences

/s/ Joseph S.

Vice Chairman of the Board and Director

/s/ Thomas B.

6 unchanged sentences

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 7. Management’s Discussion and Analysis