Retirement Plans for Staffing Agency Owners: W-2 Wages, QBI, and Employee Obligations

By Yarik Yarosh, CPA ·September 5, 2026 ·4 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Staffing agencies have a structural feature that makes retirement planning different from most businesses: they employ dozens or hundreds of workers on W-2 payroll, placing them at client sites. These workers are the staffing agency’s employees, and any retirement plan the agency offers must include them (subject to eligibility requirements). This creates a tension: the owner wants to maximize their own retirement contributions, but every plan that allows high owner contributions also requires employer contributions for the placed workers.

✓Key takeaway

A staffing agency owner cannot use the Solo 401(k) (too many employees). The main options are SEP IRA (uniform percentage for everyone, including the owner and every eligible placed worker), SIMPLE IRA (lower deferral cap but lower employer cost through the match structure), and Safe Harbor 401(k) with eligibility restrictions (the most common choice for agencies). The key tool is the eligibility requirement: setting a 1-year, 1,000-hour service requirement excludes placed workers who leave within their first year. In the staffing industry, where turnover is high (often 100%+ annual turnover for temporary workers), the eligibility filter dramatically reduces the number of employees who ever qualify for the plan. A cross-tested or new comparability plan can also allocate a higher percentage to the owner than to eligible workers, but requires annual nondiscrimination testing and actuarial fees. Staffing agencies are not SSTBs, so the QBI deduction is fully available, and the large W-2 payroll means the 50% of W-2 wages limitation on QBI is rarely binding.

How does turnover affect the plan cost?

Hypothetical example

Round numbers. A staffing agency has 60 placed workers at any given time. Average annual compensation per worker: $35,000. Annual turnover: 80% (48 workers leave and are replaced each year). Owner W-2 salary: $150,000.

Workers who meet the 1-year, 1,000-hour eligibility requirement: approximately 12 out of 60 (the 20% who stay more than a year). The other 48 never become eligible.

Safe Harbor 401(k) with 3% non-elective contribution:

Owner: $150,000 x 3% = $4,500
12 eligible workers: 12 x ($35,000 x 3%) = $12,600
Total employer cost: $17,100
Owner deferral: $23,500
Owner total contribution: $28,000

Without the eligibility filter (all 60 workers eligible):

60 workers: 60 x ($35,000 x 3%) = $63,000
Total employer cost: $67,500

The 1-year eligibility requirement reduces the employer cost from $67,500 to $17,100, a savings of $50,400.

Illustrative numbers only, not a real client and not advice for your facts.

What about the SEP IRA?

The SEP IRA requires a uniform percentage contribution for all eligible employees. Eligibility is more restrictive than the 401(k): the employer can require employees to have worked in at least 3 of the last 5 years, be at least 21 years old, and have earned at least $750 in the current year. The 3-of-5-year requirement is powerful for staffing agencies with high turnover: very few temp workers stay long enough to qualify.

However, the SEP IRA is employer-contribution-only (no employee deferrals). The owner’s contribution is limited to 25% of compensation, and every eligible employee receives the same percentage. If the owner contributes 25%, every eligible placed worker also receives 25%.

For a staffing agency owner earning $150,000 in W-2 salary who wants to defer $37,500 (25%), the cost for 12 eligible workers at $35,000 each would be: 12 x ($35,000 x 25%) = $105,000. That is prohibitively expensive.

In practice, the owner would reduce the contribution percentage to something affordable (5-10%), which limits the owner’s own contribution. The Safe Harbor 401(k) is almost always better because the owner’s employee deferral ($23,500) does not require any employer match for the placed workers.

What about a new comparability plan?

A new comparability (cross-tested) plan allows different contribution rates for different groups of employees, as long as the plan passes nondiscrimination testing. The owner could receive a 15-25% employer contribution while eligible placed workers receive 5%. The testing ensures that the plan provides comparable benefits across employee groups on an actuarial basis.

This structure works well when the owner is significantly older than the placed workers (the age-weighted testing gives older participants a higher allocation), and when the number of eligible employees is small (fewer employees to test against). The downside is the annual administration cost ($3,000-$5,000 for actuarial testing and TPA fees).

Related guides:

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Cite this page

Yarik Yarosh, CPA. "Retirement Plans for Staffing Agency Owners: W-2 Wages, QBI, and Employee Obligations." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/staffing-agency-retirement-plans

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.