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What changed in BARRETT BUSINESS SERVICES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BARRETT BUSINESS SERVICES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+155 added−150 removedSource: 10-K (2024-03-01) vs 10-K (2023-03-06)

Top changes in BARRETT BUSINESS SERVICES INC's 2023 10-K

155 paragraphs added · 150 removed · 127 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeHuman 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. The number of employees at any given time may vary significantly due to business conditions at customer or client companies.
Biggest changeBy 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. 7 Human Capital 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.
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. • Penetrate new markets.
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 and acquiring talent at the branch level to support expansion into new markets. • Penetrate new markets.
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 5 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.
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 5 the risks of accident or injury associated with the industries in which client companies operate and in monitoring clients’ compliance with workplace safety requirements.
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 8 address the obligations and responsibilities of nontraditional employers. In addition, the definition of "employer" under these laws is not uniform.
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.
In doing so, business teams focus on the objectives of each business owner and deliver planning, guidance and resources in support of those objectives. Tier 1: Tactical Alignment The first stage focuses on the mutual setting of expectations and is essential to a successful client relationship.
In doing so, business teams focus on the objectives of each business owner and deliver planning, guidance and resources in support of those objectives. 2 Tier 1: Tactical Alignment The first stage focuses on the mutual setting of expectations and is essential to a successful client relationship.
We support clients with a local presence in 68 markets throughout the United States. 2 Services Overview BBSI’s core purpose is to advocate for business owners, particularly in the small and mid-sized business segment.
We support clients with a local presence in 68 markets throughout the United States. Services Overview BBSI’s core purpose is to advocate for business owners, particularly in the small and mid-sized business segment.
We have PEO client services agreements with a diverse array of customers, including electronics manufacturers, various light-manufacturing industries, agriculture-based companies, transportation and shipping enterprises, food processors, telecommunications companies, public utilities, general contractors in various construction-related fields, restaurant franchises, and professional services firms. None of our clients individually represented more than 1% of our total revenues in 2022.
We have PEO client services agreements with a diverse array of customers, including electronics manufacturers, various light-manufacturing industries, agriculture-based companies, transportation and shipping enterprises, food processors, telecommunications companies, public utilities, general contractors in various construction-related fields, restaurant franchises, and professional services firms. None of our clients individually represented more than 1% of our total revenues in 2023.
Business Organization 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.
Business Organization 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 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.
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.
Approximately 16% 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.
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.
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 84% of the Company’s workers’ compensation exposure is covered through the insured program.
Our business growth has three primary sources: 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.
Our business growth has three primary sources: 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, CPAs, and other business professionals who can facilitate an introduction to prospective clients.
The insights gained through our own growth, along with the trends we see in working with more than 7,770 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.
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.
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; • it typically has fewer in-house resources than larger businesses and, as a result, is generally more dependent on external resources; • we generally experience a relatively high client retention rate and lower client acquisition costs within this market segment; and • we have found that small to mid-sized businesses are responsive to quality of service when selecting a PEO or staffing services provider. 4 Competition The business environment in which we operate is characterized by intense competition and fragmentation.
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; • it typically has fewer in-house resources than larger businesses and, as a result, is generally more dependent on external resources; • we generally experience a relatively high client retention rate and lower client acquisition costs within this market segment; and • we have found that small to mid-sized businesses are responsive to quality of service when selecting a PEO or staffing services provider.
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.
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”).
Regulatory and Legislative Environment We are subject to the laws and regulations of the jurisdictions within which we operate, including those governing self-insured employers under the workers' compensation systems in Oregon, Maryland, and Colorado, as well as in Washington for staffing and management employees.
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. 8 Regulatory and Legislative Environment We are subject to the laws and regulations of the jurisdictions within which we operate, including those governing self-insured employers under the workers' compensation systems in Oregon, Maryland, and Colorado, as well as in Washington for staffing and management employees.
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.
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.
We face additional competition from regional providers and we may in the future also face competition from new entrants to the field, including other staffing services companies, payroll processing companies and insurance companies. The principal competitive factors in the business environment in which we operate are price and level of service.
We face additional competition from regional providers and we may in the future also face competition from new entrants to the field, including other staffing services companies, payroll processing companies and insurance companies.
PEO 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 provide our PEO clients access to human resource advisors, retirement plans, a learning management system and our web-based technology platform, myBBSI.
PEO 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 believe that our growth is attributable to our ability to provide small and mid-sized companies with the resources and knowledge base of a large employer delivered through a local operations team. Our level of integration with each client business provides us an additional competitive advantage.
The principal competitive factors in the business environment in which we operate are price and level of service. 4 We believe that our growth is attributable to our ability to provide small and mid-sized companies with the resources and knowledge base of a large employer delivered through a local operations team.
We match 100% of contributions by management and staffing employees up to 3% of each participating employee's annual compensation and 50% of the employee's contributions up to an additional 2% of annual compensation.
We make matching contributions to the 401(k) plan under a safe harbor provision, which are immediately 100% vested. We match 100% of contributions by management and staffing employees up to 3% of each participating employee's annual compensation and 50% of the employee's contributions up to an additional 2% of annual compensation.
Our qualified staffing and management employee benefit plans include our 401(k) plan. Beginning in 2023, qualified employees may enroll upon reaching 21 years of age and completing six months of service. We make matching contributions to the 401(k) plan under a safe harbor provision, which are immediately 100% vested.
Employees covered under a PEO arrangement may participate in our 401(k) plan at the sole discretion of the PEO client. Our qualified staffing and management employee benefit plans include our 401(k) plan. Beginning in 2023, qualified employees may enroll upon reaching 21 years of age and completing six months of service.
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. Clients and Client Contracts Our PEO business is typically characterized by long-term relationships that result in recurring revenue.
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 3 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.
During 2022, we supported in excess of 7,700 PEO clients with total average WSEs of 122,001. 3 Staffing and Recruiting Our staffing services include on-demand or short-term staffing assignments, contract staffing, direct placement, and long-term or indefinite-term on-site management.
During 2023, we supported in excess of 8,000 PEO clients with total average WSEs of 124,306. Staffing and Recruiting Our staffing services include on-demand or short-term staffing assignments, contract staffing, direct placement, and long-term or indefinite-term on-site management. On-site management employees are BBSI management employees who are based on the client-site and whose jobs are to assist BBSI staffing employees.
We offer various qualified employee benefit plans to our employees, including those employees for whom we are the administrative employer in a co-employment arrangement with a PEO client that so elects. Employees covered under a PEO arrangement may participate in our 401(k) plan at the sole discretion of the PEO client.
This information is used by management to make improvements as we continuously strive to be an employer of choice. We offer various qualified employee benefit plans to our employees, including those employees for whom we are the administrative employer in a co-employment arrangement with a PEO client that so elects.
We believe our employee relations with management employees are good. 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.
The number of employees at any given time may vary significantly due to business conditions at customer or client companies. We believe our employee relations with management employees are good. 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.
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 7 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. We seek feedback from employees regarding our benefits package through employee surveys.
This transaction reduced the Company’s outstanding workers’ compensation liabilities and trust account balances by $115.7 million. 6 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.
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. 6 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.
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.
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.
As such, we strive to be an employer of choice and promote the health, welfare and safety of our employees. This involves promoting diversity and treating all employees with dignity and respect, while providing our management employees with fair, market-based, competitive and equitable compensation.
This involves promoting diversity and treating all employees with dignity and respect, while providing our management employees with fair, market-based, competitive and equitable compensation. We motivate our management employees through a compensation package that includes a competitive base salary and the opportunity for profit sharing.
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.
We provide our PEO clients access to human resource advisors, retirement plans, a learning management system and our web-based technology platform, myBBSI. 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.
We work to manage and reduce job injury claims, identify fraudulent claims and structure optimal work programs, including modified duty. Categories of Services We report financial results in two categories of services: Professional Employer Services (“PEO”) and Staffing.
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.
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On-site management employees are BBSI management employees who are based on the client-site and whose jobs are to assist BBSI staffing employees. Our recruiting experts maintain a deep network of professionals from which we source candidates.
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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.
Removed
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”).
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Clients and Client Contracts Our PEO business is typically characterized by long-term relationships that result in recurring revenue.
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This transaction reduced the Company’s outstanding workers’ compensation liabilities by $53.1 million. 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.
Added
Competition The business environment in which we operate is characterized by intense competition and fragmentation.
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We also provide a comprehensive benefits package as well as an employee stock purchase plan. We seek feedback from employees regarding our benefits package through employee surveys. This information is used by management to make improvements as we continuously strive to be an employer of choice.
Added
Our level of integration with each client business provides us an additional competitive advantage.
Removed
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.
Added
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.
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No additional premiums may be charged if claims develop adversely under the 2022-2023 Policy and the 2023-2024 Policy.
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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.
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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.
Added
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.
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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.
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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.
Added
However, in 2023 we began offering sponsored benefits, including healthcare coverage, to eligible PEO client employees as part of our PEO service offering.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges 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. Our business is heavily regulated in most jurisdictions in which we operate.
Biggest changeAny 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. 18 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.
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” section: • 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; • imposition of significant fines or penalties or other adverse action by regulatory authorities against the Company; • adverse developments in legal proceedings involving claims against the Company; • our failure to meet financial projections or achieve financial results anticipated by analysts; or • changes in our Board of Directors or management.
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” section: • 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; • imposition of significant fines or penalties or other adverse action by regulatory authorities against the Company; • adverse developments in legal proceedings involving claims against the Company; 19 • our failure to meet financial projections or achieve financial results anticipated by analysts; or • changes in our Board of Directors or management.
As such, we are subject to several risks inherent to our status as the administrative employer, including without limitation: • claims of misconduct or negligence on the part of our employees, discrimination or harassment claims against our employees, or claims by our employees of discrimination or harassment by our clients; • immigration-related claims; • claims relating to violations of wage, hour and other workplace regulations; • claims relating to employee benefits, entitlements to employee benefits, or errors in the calculation or administration of such benefits; and • possible claims relating to misuse of customer confidential information, misappropriation of assets or other similar claims.
As such, we are subject to several risks inherent to our status as the administrative employer, including without limitation: • claims of misconduct or negligence on the part of our employees, discrimination or harassment claims against our employees, or claims by our employees of discrimination or harassment by our clients; • immigration-related claims; • claims relating to violations of wage, hour and other workplace regulations; • claims relating to employee benefits, entitlements to employee benefits, or errors in the calculation or administration of such benefits; and 14 • possible claims relating to misuse of customer confidential information, misappropriation of assets or other similar claims.
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. We could be subject to reduced revenues, increased costs, liability claims, or harm to our reputation as a result of data theft, cyberattacks or other security vulnerabilities.
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. 11 We could be subject to reduced revenues, increased costs, liability claims, or harm to our reputation as a result of data theft, cyberattacks or other security vulnerabilities.
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. If any of these effects were to occur, our operating results and financial condition could be materially adversely affected.
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 12 decrease our profitability or competitiveness. If any of these effects were to occur, our operating results and financial condition could be materially adversely affected.
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. 14 We may be exposed to employment‑related claims and costs and periodic litigation that could adversely affect our business and results of operations.
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.
Any changes in applicable laws and regulations may make it more difficult or expensive for us to do business, inhibit expansion of our business, or result in additional expenses that limit our profitability or decrease our ability to attract and retain clients. 18 We may find it difficult to expand our business into additional states due to varying state regulatory requirements.
Any changes in applicable laws and regulations may make it more difficult or expensive for us to do business, inhibit expansion of our business, or result in additional expenses that limit our profitability or decrease our ability to attract and retain clients. We may find it difficult to expand our business into additional states due to varying state regulatory requirements.
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 19 may establish, without further approval by the Company's stockholders, which could also adversely affect the voting power of holders of our Common Stock.
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.
Additionally, if maintaining health insurance coverage becomes significantly more costly due to claims experience or other factors, this could also have a material adverse effect on our business and results of operations. Our business is subject to risks associated with healthcare reforms.
Additionally, if maintaining health insurance coverage becomes significantly more costly due to claims experience or other factors, this could also have a material adverse effect on our business and results of operations. 15 Our business is subject to risks associated with healthcare reforms.
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 9 occurrence, except in Maryland and Colorado, where the 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.
These factors could have a material adverse effect on our results of operations and financial condition. 13 Our staffing business is vulnerable to economic fluctuations. Demand for our staffing services is sensitive to changes in the level of economic activity in the regions in which we do business.
These factors could have a material adverse effect on our results of operations and financial condition. Our staffing business is vulnerable to economic fluctuations. Demand for our staffing services is sensitive to changes in the level of economic activity in the regions in which we do business.
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 10 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.
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, 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.
We currently maintain a minimal 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. These referral firms and individuals do not have an exclusive relationship with us.
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. These referral firms and individuals do not have an exclusive relationship with us.
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 9 June 30, 2024, and the possibility of additional annual renewals.
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.
There can be no assurance that we will continue to maintain current levels of revenues. Efforts to achieve business growth intensifies pressure on retaining current clients and attracting increasing numbers of new clients. Our business is subject to risks associated with geographic market concentration. Our California operations accounted for approximately 73% of our total revenues in 2022.
There can be no assurance that we will continue to maintain current levels of revenues. Efforts to achieve business growth intensifies pressure on retaining current clients and attracting increasing numbers of new clients. Our business is subject to risks associated with geographic market concentration. Our California operations accounted for approximately 72% of our total revenues in 2023.
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 10.4% in 2022 and increased 8.4% in 2021.
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.
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.
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. 10 Risks Related to Technology To succeed, we must constantly improve our technology to meet the expectations of our clients.
Several of our existing or potential competitors have substantially greater financial, technical and marketing resources than we do, which may enable them to: • develop and expand their infrastructure and service offerings more quickly and achieve greater cost efficiencies; • invest in new technologies; • expand operations into new markets more rapidly; • devote greater resources to marketing; • compete for acquisitions more effectively and complete acquisitions more easily; and • aggressively price products and services and increase benefits in ways that we may not be able to match financially.
Several of our existing or potential competitors have substantially greater financial, technical and marketing resources than we do, which may enable them to: • develop and expand their infrastructure and service offerings more quickly and achieve greater cost efficiencies; • invest in new technologies; • expand operations into new markets more rapidly; • devote greater resources to marketing; • compete for acquisitions more effectively and complete acquisitions more easily; and • aggressively price products and services and increase benefits in ways that we may not be able to match financially. 16 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.
To attract and retain clients and satisfy their expectations, the software, hardware and networking technologies we use must be frequently and rapidly upgraded, enhanced and improved in response to technological advances, competitive pressures, client expectations, and new and changing laws.
If we fail to meet those expectations, we may lose clients and harm our business. To attract and retain clients and satisfy their expectations, the software, hardware and networking technologies we use must be frequently and rapidly upgraded, enhanced and improved in response to technological advances, competitive pressures, client expectations, and new and changing laws.
Failure to successfully implement new service offerings, including the appropriate controls, policies and procedures, information systems, and data privacy and security, could have a material adverse effect on our business, reputation, results of operations and financial condition.
We may also need to invest significant additional resources in our people, processes, controls and information security. Failure to successfully implement new service offerings, including the appropriate controls, policies and procedures, information systems, and data privacy and security, could have a material adverse effect on our business, reputation, results of operations and financial condition.
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.
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.
In August 2022, BBSI announced its plans to make certain fully insured medical and other health and welfare benefits available to qualifying worksite employees beginning in 2023. This new service offering, as well as other potential future service offerings, may introduce additional risks and uncertainties to our business.
Other Risks Related to our Business and Industry New service offerings may subject us to additional risks. In August 2022, BBSI announced its plans to make certain fully insured medical and other health and welfare benefits available to qualifying worksite employees beginning in 2023.
If we are unable to maintain these relationships or if our referral partners increase their fees or lose confidence in our services, we could face declines in our business and additional costs and uncertainties as we attempt to hire and train an internal sales force. 15 Failure to maintain health insurance coverage or significant increases in the cost of health insurance coverage could adversely affect our business and results of operations.
If we are unable to maintain these relationships or if our referral partners increase their fees or lose confidence in our services, we could face declines in our business and additional costs and uncertainties as we attempt to hire and train an internal sales force.
If we are unable to successfully identify appropriate acquisition candidates, negotiate favorable terms, and successfully integrate an acquisition, our business, financial condition, and results of operation could be materially and adversely affected. 17 Risks Related to Our Regulatory Environment We operate in a complex regulatory environment, and failure to comply with applicable laws and regulations could adversely affect our business.
If we are unable to successfully identify appropriate acquisition candidates, negotiate favorable terms, and successfully integrate an acquisition, our business, financial condition, and results of operation could be materially and adversely affected. 17 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.
These losses may exceed our insurance coverage for such incidents. In addition, our employees and clients could lose confidence in our ability to protect their personal and proprietary information, which could cause them to terminate their relationships with us.
These losses may exceed our insurance coverage for such incidents. In addition, our employees and clients could lose confidence in our ability to protect their personal and proprietary information, which could cause them to terminate their relationships with us. Any loss of confidence arising from a significant data security breach could hurt our reputation, further damaging our business.
During weak economic conditions in our markets, the level of unemployment claims tends to rise as a result of employee layoffs at our clients and lack of work in our temporary staffing pool.
Increases in unemployment claims could raise our state and federal unemployment tax rates that we may not be able to pass on to our customers. During weak economic conditions in our markets, the level of unemployment claims tends to rise as a result of employee layoffs at our clients and lack of work in our temporary staffing pool.
Some of these laws and regulations may be difficult to ascertain or interpret and may change from time to time. 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.
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. If any of these effects were to occur, our operating results and financial condition could be adversely affected.
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. If replacement coverage were unavailable or available only on significantly less favorable terms, our business and results of operations would be materially adversely affected.
If replacement coverage were unavailable or available only on significantly less favorable terms, our business and results of operations would be materially adversely affected.
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.
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.
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 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.
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.
These obligations are fixed whether or not the client makes payments to us as required by our services agreement. We attempt to mitigate this risk by invoicing our clients at the end of their specific payroll processing cycle. We also carefully monitor the timeliness of our clients' payments and impose strict credit standards on our customers.
We attempt to mitigate this risk by invoicing our clients at the end of their specific payroll processing cycle. We also carefully monitor the timeliness of our clients' payments and impose strict credit standards on our customers. If we fail to successfully manage our credit risk, our results of operations and financial condition could be materially and adversely affected.
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.
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.
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.
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.
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.
Our efforts to implement new services may place substantial additional demands on our employees, as well as our information systems and technology platforms. We may also need to invest significant additional resources in our people, processes, controls and information security.
This new service offering, as well as other potential future service offerings, may introduce additional risks and uncertainties to our business. Our efforts to implement new services may place substantial additional demands on our employees, as well as our information systems and technology platforms.
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.
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.
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.
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.
We face competition from various companies that may provide all or some of the services we offer.
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. We face competition from various companies that may provide all or some of the services we offer.
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.
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.
Removed
Risks Related to Technology To succeed, we must constantly improve our technology to meet the expectations of our clients. If we fail to meet those expectations, we may lose clients and harm our business.
Added
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.
Removed
Any loss of confidence arising from a significant data security breach could hurt our reputation, further damaging our business. 11 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.
Added
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. 13 Because we assume the obligation to make wage, tax and regulatory payments in respect of some employees, we are exposed to client credit risks.
Removed
In March 2020, the World Health Organization and the United States government declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide.
Added
Failure to maintain health insurance coverage or significant increases in the cost of health insurance coverage could adversely affect our business and results of operations. In 2023 BBSI began offering health insurance benefits as part of our PEO services.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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. 12 Other Risks Related to our Business and Industry New service offerings may subject us to additional risks.
Added
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.
Removed
If we fail to successfully manage our credit risk, our results of operations and financial condition could be materially and adversely affected. Increases in unemployment claims could raise our state and federal unemployment tax rates that we may not be able to pass on to our customers.
Added
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. Some of these laws and regulations may be difficult to ascertain or interpret and may change from time to time.
Removed
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. We face competition from several other companies.
Added
Our business is heavily regulated in most jurisdictions in which we operate.
Removed
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, 16 education and program clarity.
Removed
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.
Removed
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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur corporate headquarters occupies approximately 90 percent of the 65,300 square foot building we own in Vancouver, Washington. 20 Item 3.
Biggest changeWe own our 65,300 square foot corporate headquarters building, which is located in Vancouver, Washington. 22 Item 3.
Item 2. PR OPERTIES We operate through 43 branches. The following table shows the number of branches in each state. We also lease office space in other locations in our market areas which we use to recruit and place employees.
Item 2. PR OPERTIES We operate through 44 branches. The following table shows the number of branches in each state. We also lease office space in other locations in our market areas which we use to recruit and place employees.
Number of Offices Branches California 21 Oregon 3 Washington 3 Utah 2 Colorado 2 Idaho 2 Arizona 2 Maryland 2 Nevada 2 Delaware 1 North Carolina 1 Pennsylvania 1 Tennessee 1 On December 31, 2022, our leases had expiration dates ranging from less than one year to seven years.
Number of Offices Branches California 20 Oregon 4 Washington 4 Arizona 2 Colorado 2 Idaho 2 Maryland 2 Nevada 2 Utah 2 Delaware 1 North Carolina 1 Pennsylvania 1 Tennessee 1 On December 31, 2023, our leases had expiration dates ranging from less than one year to seven years.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 21 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30 Item 8. Financial Statements and Supplementary Data 31
Biggest changeItem 4. Mine Safety Disclosures 23 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32 Item 8. Financial Statements and Supplementary Data 33

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTotal Total Number of Approximate Dollar Value of Number of Average Price Shares Repurchased Shares that May Yet Shares Paid as Part of Publicly Be Repurchased Month Repurchased Per Share Announced Plan (1) Under the Plan (1) October 41,000 $ 81.14 41,000 $ 32,621,955 November 5,400 87.72 5,400 32,148,278 December 45,908 94.00 45,908 27,832,833 Total 92,308 92,308 (1) On February 28, 2022, the Board of Directors, authorized the repurchase of up to $75.0 million of the Company's common stock over a two-year period beginning February 28, 2022.
Biggest changeTotal Total Number of Approximate Dollar Value of Number of Average Price Shares Repurchased Shares that May Yet Shares Paid as Part of Publicly Be Repurchased Month Repurchased Per Share Announced Plan (1) Under the Plan (1) (in thousands) October - $ - - $ 64,083 November 12,850 108.42 12,850 62,690 December 32,950 112.54 32,950 58,982 Total 45,800 45,800 (1) On July 31, 2023, the Board of Directors authorized the repurchase of up to $75.0 million of the Company’s common stock over a two-year period beginning July 31, 2023.
The stock performance graph has been prepared assuming that $100 was invested on December 31, 2017 in our Common Stock and the indexes shown, and that dividends are reinvested.
The stock performance graph has been prepared assuming that $100 was invested on December 31, 2018 in our Common Stock and the indexes shown, and that dividends are reinvested.
The following table summarizes information related to stock repurchases during the quarter ended December 31, 2022.
The following table summarizes information related to stock repurchases during the quarter ended December 31, 2023.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock (the "Common Stock") trades on the Global Select Market segment of The Nasdaq Stock Market under the symbol "BBSI." At February 10, 2023, there were 23 stockholders of record and approximately 8,016 beneficial owners of the Common Stock.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock (the "Common Stock") trades on the Global Select Market segment of The Nasdaq Stock Market under the symbol "BBSI." At February 9, 2024, there were 25 stockholders of record and approximately 8,144 beneficial owners of the Common Stock.
As of December 31, 2022, the Company had repurchased 605,937 shares at an aggregate purchase price of $47.2 million. 21 The following graph shows the cumulative total return at the dates indicated for the period from December 31, 2017 until December 31, 2022, for our Common Stock, The Nasdaq Composite Index, and the S&P 1500 Human Resource & Employment Services Index, a published industry index that is considered reflective of the Company’s peers.
As of December 31, 2023, the Company had repurchased 161,200 shares at an aggregate purchase price of $16.0 million under the new repurchase program. 23 The following graph shows the cumulative total return at the dates indicated for the period from December 31, 2018 until December 31, 2023, for our Common Stock, The Nasdaq Composite Index, and the S&P 1500 Human Resource & Employment Services Index, a published industry index that is considered reflective of the Company’s peers.
The new repurchase program replaces the program approved in August 2019.
The new repurchase program replaces the program approved in February 2022.
The stock price performance reflected in the graph may not be indicative of future price performance. 12/17 12/18 12/19 12/20 12/21 12/22 Barrett Business Services, Inc. 100.00 89.91 143.94 110.98 114.20 156.54 NASDAQ Composite 100.00 97.16 132.81 192.47 235.15 158.65 S&P 1500 Human Resource & Employment Services Index 100.00 83.73 102.81 103.69 156.71 117.07 22
The stock price performance reflected in the graph may not be indicative of future price performance. 12/18 12/19 12/20 12/21 12/22 12/23 Barrett Business Services, Inc. 100.00 160.10 123.44 127.02 174.12 218.98 NASDAQ Composite 100.00 136.69 198.10 242.03 163.28 236.17 S&P 1500 Human Resource & Employment Services Index 100.00 122.79 123.83 187.16 139.81 148.84 24

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

40 edited+2 added−3 removed35 unchanged
Biggest changePercentage of Total Net Revenues ($ in thousands) Years Ended December 31, 2022 2021 2020 Revenues: Professional employer services $ 937,363 88.9 % $ 843,815 88.3 % $ 777,430 88.3 % Staffing services 116,963 11.1 111,351 11.7 $ 103,394 11.7 Total revenues 1,054,326 100.0 955,166 100.0 880,824 100.0 Cost of revenues: Direct payroll costs 87,944 8.3 83,821 8.8 78,380 8.9 Payroll taxes and benefits 522,392 49.5 469,888 49.2 418,793 47.5 Workers’ compensation 209,145 19.8 196,949 20.6 200,744 22.8 Total cost of revenues 819,481 77.7 750,658 78.6 697,917 79.2 Gross margin 234,845 22.3 204,508 21.4 182,907 20.8 Selling, general and administrative expenses 169,642 16.1 155,259 16.3 141,916 16.1 Depreciation and amortization 6,228 0.6 5,326 0.6 4,844 0.5 Income from operations 58,975 5.6 43,923 4.6 36,147 4.1 Other income, net 6,328 0.6 6,738 0.7 6,449 0.7 Income before income taxes 65,303 6.2 50,661 5.3 42,596 4.8 Provision for income taxes 18,035 1.7 12,582 1.3 8,831 1.0 Net income $ 47,268 4.5 % $ 38,079 4.0 % $ 33,765 3.8 % 26 We report PEO revenues net of direct payroll costs because we are not the primary obligor for wage payments to our clients’ employees.
Biggest changePercentage of Total Net Revenues ($ in thousands) Years Ended December 31, 2023 2022 2021 Revenues: Professional employer services $ 982,268 91.9 % $ 937,363 88.9 % $ 843,815 88.3 % Staffing services 87,039 8.1 116,963 11.1 111,351 11.7 Total revenues 1,069,307 100.0 1,054,326 100.0 955,166 100.0 Cost of revenues: Direct payroll costs 65,042 6.1 87,944 8.3 83,821 8.8 Payroll taxes and benefits 555,758 52.0 522,392 49.5 469,888 49.2 Workers’ compensation 205,975 19.2 209,145 19.8 196,949 20.6 Total cost of revenues 826,775 77.3 819,481 77.7 750,658 78.6 Gross margin 242,532 22.7 234,845 22.3 204,508 21.4 Selling, general and administrative expenses 174,772 16.3 169,642 16.1 155,259 16.3 Depreciation and amortization 7,110 0.7 6,228 0.6 5,326 0.6 Income from operations 60,650 5.7 58,975 5.6 43,923 4.6 Other income, net 8,338 0.8 6,328 0.6 6,738 0.7 Income before income taxes 68,988 6.5 65,303 6.2 50,661 5.3 Provision for income taxes 18,376 1.7 18,035 1.7 12,582 1.3 Net income $ 50,612 4.8 % $ 47,268 4.5 % $ 38,079 4.0 % 28 We report PEO revenues net of direct payroll costs because we are not the primary obligor for wage payments to our clients’ employees.
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”).
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”).
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.
Property, equipment, software and 25 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.
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. 23 Depreciation and amortization represent depreciation of property and equipment, leasehold improvements, software and internally developed software costs.
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. Depreciation and amortization represent depreciation of property and equipment, leasehold improvements, software and internally developed software costs.
Our cost of revenues for staffing services includes direct payroll costs, employer payroll-related taxes, employee benefits, and workers’ compensation costs. Direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages.
Our cost of revenues for staffing services includes direct payroll costs, employer payroll-related taxes, and workers’ compensation costs. Direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages.
Such factors with respect to the Company include: our ability to retain current clients and attract new clients; the effects of governmental orders, laws or regulations imposing requirements related to the COVID-19 pandemic; difficulties associated with integrating clients into our operations; economic trends in our service areas; the potential for material deviations from expected future workers’ compensation claims experience; changes in the workers’ compensation regulatory environment in our primary markets; security breaches or failures in the Company’s information technology systems; collectability of accounts receivable; changes in effective payroll tax rates and federal and state income tax rates; the carrying values of deferred income tax assets and goodwill (which may be affected by our future operating results); the effects of inflation on our operating expenses and those of our clients; 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; 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.
Such factors with respect to the Company include: our ability to retain current clients and attract new clients; difficulties associated with integrating clients into our operations; economic trends in our service areas; the potential for material deviations from expected future workers’ compensation claims experience; changes in the workers’ compensation regulatory environment in our primary markets; security breaches or failures in the Company’s information technology systems; collectability of accounts receivable; changes in executive management; changes in effective payroll tax rates and federal and state income tax rates; the carrying values of deferred income tax assets and goodwill (which may be affected by our future operating results); the effects of inflation on our operating expenses and those of our clients; 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; 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.
Consequently, any weakness in economic conditions, changes in the regulatory or insurance environment, or natural disasters or other major events in California could have a material adverse effect on our financial results. Our cost of revenues for PEO services includes employer payroll-related taxes and workers' compensation costs.
Consequently, weakness in economic conditions, changes in the regulatory or insurance environment, or natural disasters or other major disruptive events in California could have a material adverse effect on our financial results. Our cost of revenues for PEO services includes employer payroll-related taxes, workers’ compensation costs and employee benefits costs.
A discussion of our financial condition and results of operations for 2021 compared to 2020 can be found in Part II, Item 7.
A discussion of our financial condition and results of operations for 2022 compared to 2021 can be found in Part II, Item 7.
We therefore present for purposes of analysis gross billings and wage information for the years ended December 31, 2022, 2021 and 2020.
We therefore present for purposes of analysis gross billings and wage information for the years ended December 31, 2023, 2022 and 2021.
Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 7, 2022. 28 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.
Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 6, 2023. 30 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.
Our business is concentrated in California, and we expect to continue to derive a majority of our revenues from this market in the future. Revenues generated in our California operations accounted for 73% of our total revenues in 2022, 73% in 2021 and 75% in 2020.
Our business is concentrated in California, and we expect to continue to derive a majority of our revenues from this market in the future. Revenues generated in our California operations accounted for 72% of our total revenues in 2023, 73% in 2022 and 73% in 2021.
Percentage of Gross Billings Year Ended December 31, 2022 2021 2020 PEO and staffing wages 86.9 % 86.7 % 86.1 % Payroll taxes and benefits 7.0 % 7.2 % 7.1 % Non-GAAP gross workers' compensation 2.9 % 3.0 % 3.8 % Gross margin 3.2 % 3.1 % 3.1 % 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.
Percentage of Gross Billings Year Ended December 31, 2023 2022 2021 PEO and staffing wages 87.0 % 86.9 % 86.7 % Payroll taxes and benefits 7.2 % 7.0 % 7.2 % Workers' compensation 2.7 % 2.9 % 3.0 % Gross margin 3.1 % 3.2 % 3.1 % 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.
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”). The balance in the trust account was $188.2 million and $273.6 million at December 31, 2022 and December 31, 2021, respectively.
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”). The balance in the trust account was $210.9 million and $188.2 million at December 31, 2023 and December 31, 2022, respectively.
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. Gross margin for 2022 totaled $234.8 million or 22.3% of revenue compared to $204.5 million or 21.4% of revenue for 2021.
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. Gross margin for 2023 totaled $242.5 million or 22.7% of revenue compared to $234.8 million or 22.3% of revenue for 2022.
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. Direct payroll costs for 2022 totaled $87.9 million or 8.3% of revenue compared to $83.8 million or 8.8% of revenue for 2021.
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. Direct payroll costs for 2023 totaled $65.0 million or 6.1% of revenue compared to $87.9 million or 8.3% of revenue for 2022.
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 beginning in 2023, our ability to attract and retain clients and to achieve revenue growth, the effect of changes in our mix of services on gross margin, the effect of tight 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. 25 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 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.
See “Note 5 - Revolving Credit Facility and Long-Term Debt” to the consolidated financial statements included in Item 8 of Part II of this report for information regarding the Company’s credit agreement with Wells Fargo Bank, N.A. 29 Contractual Obligations The Company's contractual obligations as of December 31, 2022 are summarized below: As of December 31, 2022 Payments Due by Period (in thousands) Less than 1 - 3 4 - 5 After Total 1 Year Years Years 5 Years Operating leases (1) $ 24,624 $ 7,870 $ 10,303 $ 5,221 $ 1,230 Total contractual obligations $ 24,624 $ 7,870 $ 10,303 $ 5,221 $ 1,230 (1) As of December 31, 2022, the Company has additional operating leases that have not yet commenced of $1.7 million and remaining balances on short-term operating leases of $37,301.
See “Note 5 - Revolving Credit Facility and Long-Term Debt” to the consolidated financial statements included in Item 8 of Part II of this report for information regarding the Company’s credit agreement with Wells Fargo Bank, N.A. 31 Contractual Obligations The Company's contractual obligations as of December 31, 2023 are summarized below: As of December 31, 2023 Payments Due by Period (in thousands) Less than 1 - 3 4 - 5 After Total 1 Year Years Years 5 Years Operating leases (1) $ 24,311 $ 7,571 $ 10,171 $ 5,767 $ 802 Total contractual obligations $ 24,311 $ 7,571 $ 10,171 $ 5,767 $ 802 (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.
The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base in 2022 as compared to 2021. Payroll taxes and benefits for 2022 totaled $522.4 million or 49.5% of revenue compared to $469.9 million or 49.2% of revenue for 2021.
The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base in 2023 as compared to 2022. Payroll taxes and benefits for 2023 totaled $555.8 million or 52.0% of revenue compared to $522.4 million or 49.5% of revenue for 2022.
Net cash provided by investing activities totaled $61.2 million in 2022, compared to net cash used of $112.9 million for the comparable period of 2021.
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.
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.
To the extent a material change affecting the ultimate claim liability becomes known, 26 such change is quantified to the extent possible through an analysis of internal company data and, if available and when appropriate, external data.
Workers' compensation costs consist primarily of the costs associated with our workers' compensation program, including premiums for the insured program, claims reserves for the self-insured program, claims administration fees, legal fees, medical cost containment (“MCC”) expense, state administrative agency fees, third-party broker commissions, risk manager payroll, premiums for excess insurance, and costs associated with operating our two wholly owned insurance companies, AICE and Ecole.
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”).
Net cash provided by operating activities in 2022 amounted to $27.8 million, compared to net cash used of $15.5 million for the comparable period of 2021.
Net cash provided by operating activities in 2023 amounted to $67.2 million, compared to net cash provided of $27.8 million for the comparable period of 2022.
Year Ended December 31, 2022 % Change 2021 % Change 2020 Average WSEs 122,001 8.0 % 112,928 4.3 % 108,249 Ending WSEs 122,306 5.3 % 116,154 6.3 % 109,292 27 Years Ended December 31, 2022 and 2021 Net income for 2022 was $47.3 million compared to net income of $38.1 million for 2021.
Year Ended December 31, 2023 % Change 2022 % Change 2021 Average WSEs 124,306 1.9 % 122,001 8.0 % 112,928 Ending WSEs 126,446 3.4 % 122,306 5.3 % 116,154 29 Years Ended December 31, 2023 and 2022 Net income for 2023 was $50.6 million compared to net income of $47.3 million for 2022.
Diluted net income per share for 2022 was $6.54 compared to diluted income per share of $5.00 for 2021.
Diluted net income per share for 2023 was $7.39 compared to diluted income per share of $6.54 for 2022.
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.
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.
Results of Operations The following table sets forth the percentages of total revenues represented by selected items in the Company's consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020, included in Item 8 of Part II 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. 27 Results of Operations The following table sets forth the percentages of total revenues represented by selected items in the Company's consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021, included in Item 8 of Part II of this report.
Liquidity and Capital Resources The Company's cash balance of $107.4 million, which includes cash, cash equivalents, and restricted cash, increased $28.7 million for the twelve months ended December 31, 2022, compared to a decrease of $155.2 million for the comparable period of 2021.
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.
Net cash used in financing activities in 2022 was $60.2 million compared to net cash used of $26.9 million for the comparable period of 2021. In 2022, net cash used in financing activities primarily consisted of repurchases of common stock of $47.2 million, dividend payments of $8.5 million and the payoff of the outstanding mortgage loan balance of $3.5 million.
Net cash used in financing activities in 2023 was $44.6 million compared to net cash used of $60.2 million for the comparable period of 2022. In 2023, net cash used in financing activities primarily consisted of repurchases of common stock of $34.2 million and dividend payments of $8.1 million.
The increase in cash at December 31, 2022 as compared to December 31, 2021 was primarily due to proceeds from the sales and maturities of investments and restricted investments, net income, increased accrued payroll, payroll taxes and related benefits, and increased other accrued liabilities, partially offset by decreased workers' compensation claims liabilities, repurchase of common stock, and purchase of property, equipment and software.
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.
Other income, net for 2022 totaled $6.3 million compared to other income of $6.7 million for 2021. The decrease was primarily attributable to a decrease in investment income in 2022. Our effective income tax rate for 2022 was 27.6% compared to 24.8% for 2021.
The increase of $5.2 million in SG&A expense was primarily attributable to increased employee-related costs. Other income, net for 2023 totaled $8.3 million compared to other income of $6.3 million for 2022. The increase was primarily attributable to an increase in investment income in 2023. Our effective income tax rate for 2023 was 26.6% compared to 27.6% for 2022.
In 2022, net cash provided by operating activities was primarily due to net income of $47.3 million, increased accrued payroll, payroll taxes and related benefits of $24.9 million and increased other accrued liabilities of $15.7 million, partially offset by decreased workers’ compensation claims liabilities of $64.2 million and increased trade accounts receivable of $8.1 million.
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.
Revenue for 2022 totaled $1,054.3 million, an increase of $99.2 million or 10.4% over 2021, which reflects an increase in the Company’s PEO service revenue of $93.5 million or 11.1% and an increase in staffing services revenue of $5.6 million or 5.0%.
Revenue for 2023 totaled $1,069.3 million, an increase of $15.0 million or 1.4% over 2022, which reflects an increase in the Company’s PEO service revenue of $44.9 million or 4.8% and a decrease in staffing services revenue of $29.9 million or 25.6%.
Therefore, as specific claims are paid out in the future, actual paid losses may be materially different from our current loss reserves. 24 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.
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.
Selling, general and administrative (“SG&A”) expenses for 2022 totaled $169.6 million or 16.1% of revenue compared to $155.3 million or 16.3% of revenue for 2021. The increase of $14.3 million in SG&A expense in 2022 was primarily attributable to increased employee related costs, as well as increased travel and marketing expenses due to more in-person meetings and events.
Selling, general and administrative (“SG&A”) expenses for 2023 totaled $174.8 million or 16.3% of revenue compared to $169.6 million or 16.1% of revenue for 2022. The increase as a percentage of revenue was primarily due to the decrease in staffing services within the mix of our customer base.
In 2022, net cash provided by investing activities consisted primarily of proceeds from sales and maturities of investments and restricted investments of $81.5 million, partially offset by purchase of property, equipment and software of $16.0 million, and purchase of restricted investments of $4.3 million.
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.
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.
Additional risk factors affecting our business are discussed in Item 1A of Part I of this report.
The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to the relative decrease in workers' compensation costs and an increase in federal payroll tax rates, partially offset by lower average state payroll tax rates in 2022.
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.
Workers’ compensation expense for 2022 totaled $209.1 million or 19.8% of revenue compared to $196.9 million or 20.6% of revenue for 2021. The decrease in workers’ compensation expense as a percentage of revenue was primarily due to favorable adjustments of $11.3 million related to prior period claims in 2022, compared to favorable adjustments of $9.2 million in 2021.
The decrease in workers’ compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the current year as well as favorable prior year liability and premium adjustments of $14.9 million in 2023, compared to prior year liability and premium adjustments of $13.4 million in 2022.
Year Ended December 31, (in thousands) 2022 2021 2020 Gross billings $ 7,393,808 $ 6,569,986 $ 5,924,539 PEO and staffing wages 6,425,286 5,693,903 5,098,604 Because safety incentives represent consideration payable to PEO customers, safety incentive costs are netted against PEO revenue in our consolidated statements of operations.
Year Ended December 31, (in thousands) 2023 2022 2021 Gross billings $ 7,716,152 $ 7,393,808 $ 6,569,986 PEO and staffing wages 6,711,115 6,425,286 5,693,903 In monitoring and evaluating the performance of our operations, management also reviews the following ratios, which represent selected amounts as a percentage of gross billings.
Payroll taxes and employee benefits consist of the employer's portion of Social Security and Medicare taxes, federal and state unemployment taxes and staffing services employee reimbursements for materials, supplies and other expenses, which are paid by our customer.
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.
Removed
We therefore present below for purposes of analysis non-GAAP gross workers’ compensation expense, which represents workers’ compensation costs including safety incentive costs. We believe this non-GAAP measure is useful in evaluating the total costs of our workers’ compensation program.
Added
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.
Removed
In July 2020, the Company began limiting its safety incentive offering in certain markets, resulting in a substantial reduction in safety incentive costs.
Added
Workers’ compensation expense for 2023 totaled $206.0 million or 19.3% of revenue compared to $209.1 million or 19.8% of revenue for 2022.
Removed
Year Ended December 31, (in thousands) 2022 2021 2020 Workers' compensation $ 209,145 $ 196,949 $ 200,744 Safety incentive costs 1,852 2,985 23,544 Non-GAAP gross workers' compensation $ 210,997 $ 199,934 $ 224,288 In monitoring and evaluating the performance of our operations, management also reviews the following ratios, which represent selected amounts as a percentage of gross billings.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+2 added−1 removed0 unchanged
Biggest changeBased on the Company's overall interest exposure at December 31, 2022, a 50 basis point increase in market interest rates would have a $5.9 million effect on the fair value of the Company's investment portfolio. At December 31, 2022, the Company had no outstanding borrowings on its line of credit. 30
Biggest changeWe attempt to limit our investment portfolio's exposure to market risk through low investment turnover and diversification. Based on the Company's overall interest exposure at December 31, 2023, a 50 basis point increase in market interest rates would have a $5.0 million downward effect on the fair value of the Company's investment portfolio.
Item 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates primarily relates to its investment portfolio and its outstanding borrowings on its line of credit.
Item 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates primarily relates to its investment portfolio and outstanding borrowings on its line of credit.
Removed
As of December 31, 2022, the Company’s investments consisted principally of approximately $104.0 million in corporate bonds, $57.3 million in U.S. treasuries, $53.1 million in mortgage backed securities, $41.0 million in money market funds, $31.4 million in U.S. government agency securities, $12.9 million in asset backed securities, $6.3 million in mutual funds and $2.0 million in emerging markets securities.
Added
The Company's investments and restricted investments, which are classified as available-for-sale, consist primarily of fixed-rate debt securities, the fair value of which fluctuates with prevailing interest rates. Our cash equivalents consist primarily of money market funds, which are not meaningfully impacted by interest rate risk.
Added
Outstanding borrowings on the Company's line of credit bear interest at a variable market rate, which makes the cost of borrowing on the line of credit susceptible to changing interest rates. At December 31, 2023, the Company had no outstanding borrowings on its line of credit. 32

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