Barrett Business Services
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017Commission File Number 0-21886 BARRETT BUSINESS SERVICES, INC.(Exact name of registrant as specified in its charter) Maryland 52-0812977(State or other jurisdiction of (IRS Employerincorporation or organization) Identification No.) 8100 NE Parkway Drive, Suite 200 Vancouver, Washington 98662(Address of principal executive offices) (Zip Code) (360) 828-0700(Registrant's telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, Par Value $0.01 Per Share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerginggrowth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the ExchangeAct. Large accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐Smaller reporting company ☐Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒State the aggregate market value of the common equity held by non-affiliates of the registrant: $402,103,034 at June 30, 2017Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: ClassOutstanding at March 1, 2018Common Stock, Par Value $.01 Per Share7,304,085 Shares DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive Proxy Statement for the 2018 Annual Meeting of Stockholders are hereby incorporated by reference in Part III of Form 10-K.BARRETT BUSINESS SERVICES, INC.2017 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS PART I PageItem 1. Business 2 Item 1A. Risk Factors 9 Item 1B. Unresolved Staff Comments 17 Item 2. Properties 17 Item 3. Legal Proceedings 18 Item 4. Mine Safety Disclosures 18 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18 Item 6. Selected Financial Data 20 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30 Item 8. Financial Statements and Supplementary Data 30 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 30 Item 9A. Controls and Procedures 30 Item 9B. Other Information 34 PART III Item 10. Directors, Executive Officers and Corporate Governance 34 Item 11. Executive Compensation 34 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 34 Item 13. Certain Relationships and Related Transactions, and Director Independence 34 Item 14. Principal Accountant Fees and Services 34 PART IV Item 15. Exhibits and Financial Statement Schedules 35 Item 16. Form 10-K Summary 35 Financial Statements F -1 Signatures Exhibit Index - 1 -Item 1.BUSINESSGeneralCompany BackgroundBarrett Business Services, Inc. (“BBSI,” the “Company,” “our” or “we”), is a leading provider of business management solutions for small and mid-sized companies. The Company has developed a management platform that integrates a knowledge-based approach from the managementconsulting industry with tools from the human resource outsourcing industry. This platform, through the effective leveraging of human capital,helps our business owner clients run their businesses more effectively. We believe this platform, delivered through a decentralized organizationalstructure, differentiates BBSI from our competitors. BBSI was incorporated in Maryland in 1965.Certain statements below contain forward-looking information that is subject to risks and uncertainties. See “Forward-Looking Information” in Item 7of Part II of this report and “Risk Factors” in Item 1A of Part I of this report.Business StrategyOur strategy is to align local operations teams with the mission of small and mid-sized business owners, driving value to their business. To do so,BBSI: •partners with business owners to leverage their investment in human capital through a high-touch, results-oriented approach; •brings predictability to each client organization through a three-tiered management platform; and •enables business owners to focus on their core business by reducing organizational complexity and maximizing productivity.Business OrganizationWe 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 comprise senior level professionals with expertise in human resources,organizational development, risk mitigation and workplace safety, and various types of administration, including payroll. These teams areresponsible for growth of their operations, and for providing strategic leadership, guidance and expert consultation to our client companies. Thedecentralized structure fosters autonomous decision-making in which business teams deliver plans that closely align with the objectives of eachbusiness owner client. This structure also provides a means of incubating talent to support increased growth and capacity. We support clients withemployees located in 24 states and the District of Columbia through a network of 58 branch locations in California, Oregon, Utah, Washington,Idaho, Arizona, Colorado, Maryland, North Carolina, Delaware, Nevada, Pennsylvania and Virginia. We also have several smaller recruitinglocations in our general market areas, which are under the direction of a branch office.BBSI believes that making significant investments in the best 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 profitsharing. At the branch level, profit sharing is in direct correlation to client performance, reinforcing a culture focused on achievement of clientgoals.- 2 -Services OverviewBBSI’s core purpose is to advocate for business owners, particularly in the small and mid-sized business segment. Our evolution from anentrepreneurially run company to a professionally managed organization has helped to form our view that all businesses experience inflectionpoints at key stages of growth. The insights gained through our own growth, along with the trends we see in working with more than 5,600companies each day, define our approach to guiding business owners through the challenges associated with being an employer. BBSI’s businessteams align with each business owner client through a structured three-tiered progression. In doing so, business teams focus on the objectives ofeach business owner and deliver planning, guidance and resources in support of those objectives.Tier 1: Tactical AlignmentThe first stage focuses on the mutual setting of expectations and is essential to a successful client relationship. It begins with a process ofassessment and discovery in which the business owner’s business objectives, attitudes, and culture are aligned with BBSI’s processes, controlsand culture. This stage includes an implementation process, which addresses the administrative components of employment.Tier 2: Dynamic RelationshipThe second stage of the relationship emphasizes organizational development as a means of achieving each client’s business objectives. There isa focus on process improvement, development of best practices, supervisor training and leadership development.Tier 3: Strategic CounselWith an emphasis on advocacy on behalf of the business owner, the third stage of the relationship is more strategic and forward-looking with agoal of cultivating an environment in which all efforts are directed by the mission and long-term objectives of the business owner.In addition to serving as a resource and guide, BBSI has the ability to provide workers’ compensation coverage as a means of meeting statutoryrequirements and protecting our clients from employment-related injury claims. Through our third-party administrators, we provide claimsmanagement services for our clients. We work aggressively to manage and reduce job injury claims, identify fraudulent claims and structureoptimal work programs, including modified duty.Categories of ServicesWe report financial results in two categories of services: Professional Employer Services (“PEO”) and Staffing. During 2017, we supported inexcess of 5,600 PEO clients and approximately 188,000 employees. This compares to more than 4,900 PEO clients and approximately 171,000employees during 2016. See Item 7 of this Report for information regarding the percentages of total net revenues provided by our PEO and staffingservices for each of the last three fiscal years, and our consolidated financial statements incorporated into Item 8 of Part II of this Report forinformation regarding revenues, net income and total assets in our single reportable segment.PEOWe 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 and certain other administrative functions for the client’s existing workforce. The client maintainsphysical care, custody and control of their workforce, including the authority to hire and terminate employees.- 3 -Staffing and RecruitingOur staffing services include on-demand or short-term staffing assignments, contract staffing, direct placement, and long-term or indefinite-termon-site management. On-site management employees are BBSI management employees who are based on the client-site and whose jobs are toassist BBSI staffing employees. Our recruiting experts maintain a deep network of professionals from which we source candidates. Through anassessment process, we gain an understanding of the short and long-term needs of our clients, allowing us to identify and source the right talentfor each position. We then conduct a rigorous screening process to help ensure a successful hire.Clients and Client ContractsOur business is typically characterized by long-term relationships that result in recurring revenue. The terms and conditions applicable to our clientrelationships are set forth in a client services agreement, which typically provides for an initial term of one year with renewal for additional one-yearperiods, but generally permits cancellation by either party upon 30 days’ written notice. In addition, we may terminate the agreement at any timefor specified breach of contract, including nonpayment or failure to follow our workplace safety recommendations.The client services agreement also provides for indemnification by the client against losses arising out of any default by the client under theagreement, including failure to comply with any employment-related, health and safety, or immigration laws or regulations. Our client serviceagreement requires that clients enter into a co-employment arrangement and maintain comprehensive liability coverage in the amount of $1.0million for acts of their employees. It is nevertheless possible that claims not satisfied through indemnification or insurance may be assertedagainst us, which could adversely affect our results of operations.We have 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, generalcontractors in various construction-related fields, and professional services firms. None of our clients individually represented more than 1% of ourtotal revenues in 2017.Market OpportunityAs a company that aligns with the mission of business owners by providing resources and guidance to small and mid-size businesses, BBSIbelieves its growth is driven by the desire of business owners to focus on mission-critical functions, reduce complexity associated with theemployment function, mitigate costs and maximize their investment in human capital. Our integrated management platform has enabled us tocapitalize on these needs within the small to mid-size business sector.The small and mid‑sized business segment is particularly attractive because: •it is large, continues to offer significant growth opportunity and remains underserved by professional services companies; •it typically has fewer in-house resources than larger businesses and, as a result, is generally more dependent on externalresources; •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 servicesprovider.- 4 -CompetitionThe business environment in which we operate is characterized by intense competition and fragmentation. BBSI is not aware of reliable statisticsregarding the number of its competitors, but certain large, well-known companies typically compete with us in the same markets and also havegreater financial and marketing resources than we do, including Automatic Data Processing, Inc., ManpowerGroup, Inc., Kelly Services, Inc.,Insperity, Inc., TriNet Group, Inc., Robert Half International Inc. and Paychex, Inc. We face additional competition from regional providers and wemay in the future also face competition from new entrants to the field, including other staffing services companies, payroll processing companiesand insurance companies. The principal competitive factors in the business environment in which we operate are price and level of service.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 largeemployer delivered through a local operations team. Our level of integration with each client business provides us an additional competitiveadvantage.Growth StrategyWe believe our clients are our best advocates and powerful drivers of referral-based growth. In each market, operations teams provide expertise,consultation and support to our clients, driving growth and supporting retention. We anticipate that by adding business teams to existing branches,we can achieve incremental growth in those markets, driven by our reputation and by client referrals. While in most markets business developmentefforts are led by area managers, in some markets our sales efforts are further supported by business development managers.Our business growth has three primary sources: referrals from existing clients, direct business-to-business sales efforts by our area managers andan extensive referral network. Partners in our referral network include insurance brokers, financial advisors, attorneys, CPA’s, and other businessprofessionals who can facilitate an introduction to prospective clients. These referral partners facilitate introductions to business owners on ourbehalf, typically in exchange for a fee equal to a small percentage of payroll.We see two key drivers to our growth: •Increase market share in existing markets. We seek to support, strengthen and expand branch office operations through theongoing development of business teams. We believe that strengthening and expanding the operations of each location is anefficient and effective means of increasing market share in the geographic areas in which we do business, and that our businessteams serve a dual purpose: 1) Delivering high-quality service to our clients, thereby supporting client business growth andretention, and driving client referrals, and 2) Incubating talent at the branch level to support expansion into new markets. •Penetrate new markets. We intend to open additional branch offices in new geographic markets as opportunities arise. We havedeveloped a strategic approach to geographic expansion, which will serve as a guide for determining if and when to enter newmarkets. We believe our decentralized organizational model built on teams of senior-level professionals allows us to incubate talentto support our expansion efforts.- 5 -Workers’ CompensationThrough our client services agreement, BBSI has the ability to provide workers’ compensation coverage to its clients. We provide this coveragethrough a variety of methods, all of which are subject to rigorous underwriting to assess financial stability, risk factors and cultural alignmentrelated to safety and the client’s desire to improve their operations. In providing this coverage, we are responsible for complying with applicablestatutory requirements for workers' compensation coverage.Risk mitigation is also an important contributor to our principal goal of helping business owners operate their business more efficiently. It is in themutual interests of the client and BBSI to commit to workplace safety and risk mitigation. We maintain clear guidelines for our area managers andrisk management consultants, directly tying their continued employment to their diligence in understanding and addressing the risks of accident orinjury associated with the industries in which client companies operate and in monitoring clients’ compliance with workplace safety requirements.Elements of Workers' Compensation SystemState law (and for certain types of employees, federal law) generally mandates that an employer reimburse its employees for the costs of medicalcare and other specified benefits for injuries or illnesses, including catastrophic injuries and fatalities, incurred in the course and scope ofemployment. Most states require employers to maintain workers' compensation insurance or otherwise demonstrate financial responsibility to meetworkers' compensation obligations to employees. The benefits payable for various categories of claims are determined by state regulation and varywith the severity and nature of the injury or illness and other specified factors. In return for this guaranteed protection, workers' compensation is anexclusive remedy and employees are generally precluded from seeking other damages from their employer for workplace injuries. In many states,employers who meet certain financial and other requirements are permitted to self-insure.Insurance Coverage for Workers' CompensationThe Company is a self-insured employer with respect to workers' compensation coverage for all of its employees (including employees co-employed through our client service agreements) working in Colorado, Maryland and Oregon. In the state of Washington, state law allows only theCompany's staffing services and internal management employees to be covered under the Company's self-insured workers' compensationprogram.Regulations governing self-insured employers in each jurisdiction typically require the employer to maintain surety bonds, surety deposits ofgovernment securities, letters of credit or other financial instruments to cover workers' claims in the event the employer is unable to pay for suchclaims.BBSI was self-insured as to worker’s compensation claims in California from 1995 until December 31, 2014. Effective January 1, 2015, theCompany stopped maintaining a certificate to self-insure in the state of California, and it now maintains policies with Chubb Limited (“Chubb”) forall California-based clients, along with clients in Delaware, Virginia, Pennsylvania, North Carolina, New Jersey, West Virginia, Idaho, and theDistrict of Columbia. The arrangement with Chubb, known as a fronted program, provides BBSI a licensed, admitted insurance carrier to issuepolicies on behalf of BBSI.Our wholly owned, fully licensed captive insurance company incorporated in Arizona, Associated Insurance Company for Excess (“AICE”),provides reinsurance coverage up to $5.0 million per occurrence, except in Maryland and Colorado, where our retention per occurrence is $1.0million and $2.0 million, respectively. The Company maintains excess workers’ compensation insurance coverage with Chubb between $5.0 millionand statutory limits per occurrence, except in Maryland, where coverage with Chubb is between $1.0 million and statutory limits per occurrence,and in Colorado, where the coverage with Chubb is between $2.0 million and statutory limits per occurrence.Overall, this approach results in a per occurrence retention on a consolidated basis of $5.0 million for most claims. In light of the per occurrenceretention, we may experience significant workers' compensation costs from catastrophic claims, should they occur.- 6 -AICE provides us with access to an alternative mechanism for insurance coverage, as well as certain income tax benefits arising from the abilityto accelerate the tax deduction of certain accruals for workers' compensation claims.The Company also operates a wholly owned insurance company, Ecole Insurance Company (“Ecole”). Ecole is a fully licensed insurance companyholding a certificate of authority from the Arizona Department of Insurance. Ecole provides workers’ compensation coverage to the Company’semployees working in Arizona, Utah and Nevada. The Company maintains additional reinsurance coverage for Ecole with Chubb between $5.0million and statutory limits per occurrence.Claims ManagementAs a result of our status as a self-insured employer in four states and our retention arrangements, our workers' compensation expense is tieddirectly to the incidence and severity of covered workplace injuries. We seek to contain our workers' compensation costs through an aggressiveapproach to claims management. We use managed-care systems to reduce medical costs and keep time-loss costs to a minimum by assigninginjured workers, whenever possible, to short-term assignments which accommodate the workers' physical limitations. We believe that theseassignments minimize both time actually lost from work and covered time-loss costs. We engage third-party claims administrators ("TPAs") toprovide the primary claims management expertise. Typical claims management procedures include performing thorough and prompt on-siteinvestigations of claims filed by employees, working with physicians to encourage efficient medical management of cases, denying questionableclaims and attempting to negotiate early settlements to eliminate future adverse development of claims costs. We also maintain a corporate-widepre-employment drug screening program and a post-injury drug test program. We believe our claims management program has resulted in areduction in the frequency of fraudulent claims and in accidents in which the use of illicit drugs appears to have been a contributing factor.Employees and Employee BenefitsAt December 31, 2017, we had 124,212 total employees, including 8,753 staffing services employees, 114,775 employees under our client serviceagreements, 679 managerial, sales and administrative employees (together, “management employees”), and 5 executive officers. The number ofemployees at any given time may vary significantly due to business conditions at customer or client companies. We believe our employeerelations are good.We offer various qualified employee benefit plans to our employees, including those employees for whom we are the administrative employer in aco-employment arrangement who so elect. Employees covered under a PEO arrangement may participate in our 401(k) plan at the sole discretionof the PEO client. Our qualified staffing and management employee benefit plans include our 401(k) plan, in which employees may enroll uponreaching 21 years of age and completing 1,000 hours of service in a 12 consecutive month period. 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 employeesup to 3% of each participating employee's annual compensation and 50% of the employee's contributions up to an additional 2% of annualcompensation. We may also make discretionary contributions to the 401(k) plan, which vest over six years and are subject to certain legal limits,at the sole discretion of our Board of Directors.We also offer a cafeteria plan under Section 125 of the Internal Revenue Code and group health, life insurance and disability insurance plans toqualified staffing and management employees. Generally, qualified employee benefit plans are subject to provisions of both the Internal RevenueCode and the Employee Retirement Income Security Act of 1974 ("ERISA"). In order to qualify for favorable tax treatment under the InternalRevenue Code, qualified plans must be established and maintained by an employer for the exclusive benefit of its employees.- 7 -The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Acts”) subject usto potential penalties unless we offer to our employees minimum essential healthcare coverage that is affordable. Because each PEO client isconsidered to be the sole employer in the application of any rule or law included within the scope of the Acts, we do not offer health care coverageto the employees of our PEO clients. However, in order to comply with the employer mandate provision of the Acts, we offer health care coverageto all eligible staffing employees and management employees eligible for coverage under the Acts.Regulatory and Legislative IssuesWe are subject to the laws and regulations of the jurisdictions within which we operate, including those governing self-insured employers under theworkers' compensation systems in Oregon, Maryland, and Colorado, as well as in Washington for staffing and management employees. We arealso subject to laws and regulations governing our two wholly owned insurance companies in Arizona. While the specific laws and regulations varyamong these jurisdictions, they typically require some form of licensing and often have statutory requirements for workplace safety and notice ofchange in obligation of workers’ compensation coverage in the event of contract termination. Although compliance with these requirementsimposes some additional financial risk, particularly with respect to those clients who breach their payment obligation to us, such compliance hasnot had a material adverse effect on our business to date.Our operations are affected by numerous federal and state laws relating to labor, tax and employment matters. Through our client servicesagreement, we assume certain obligations and responsibilities as the administrative employer under federal and state laws. Since many of thesefederal 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 ofnontraditional employers. In addition, the definition of "employer" under these laws is not uniform.As an employer, we are subject to all federal statutes and regulations governing our employer-employee relationships. Subject to the discussion ofrisk factors below, we believe that our operations are in compliance in all material respects with applicable federal statutes and regulations.Additional InformationOur filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, periodic reports on Form 8-K and amendmentsto these reports, are accessible free of charge at our website at http://www.barrettbusiness.com as soon as reasonably practicable after they areelectronically filed with the SEC. By making this reference to our website, we do not intend to incorporate into this report any information containedin the website. The website should not be considered part of this report.Materials that the Company files with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE., Washington,DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC alsomaintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers withpublicly traded securities, including the Company. - 8 -Item 1A.RISK FACTORSIn addition to other information contained in this report, the following risk factors should be considered carefully in evaluating our business.Risks Relating to Our Business and IndustryOur consolidated retention for workers' compensation claims is $5.0 million per occurrence under our insurance arrangement withChubb in the majority of states in which we operate.We maintain our consolidated retention at $5.0 million per occurrence, except in Colorado and Maryland where our retention is at $2.0 million and$1.0 million per occurrence, respectively, due to regulatory requirements. The Company maintains its excess workers’ compensation insurancecoverage with Chubb through our AICE subsidiary. Additionally, Ecole’s retention is at $5.0 million per occurrence for coverage in Arizona, Nevadaand Utah. Thus, the Company has financial risk for most workers' compensation claims under $5.0 million on a per occurrence basis. This level ofper occurrence retention may result in higher workers’ compensation costs to us with a corresponding negative effect on our operating results andfinancial condition.Adverse developments in the market for excess workers' compensation insurance could lead to increases in our costs.To manage our financial exposure in the event of catastrophic injuries or fatalities, we maintain excess workers' compensation insurance. Changesin the market for excess workers' compensation insurance may lead to limited availability of such coverage, additional increases in our insurancecosts or further increases in the amount for which we retain financial risk, any of which may have a material adverse effect on our results ofoperations and financial condition.Our ability to continue our business operations under our present service model is dependent on maintaining workers' compensationinsurance coverage.Our arrangement with Chubb to provide workers’ compensation coverage to BBSI’s PEO clients in California, Delaware, Virginia, Pennsylvania,North Carolina, New Jersey, West Virginia, Idaho and the District of Columbia extends through February 1, 2019, with the possibility of additionalannual renewals. If Chubb is unwilling or unable to renew our arrangement in the future, we would need to seek alternative coverage. If replacementcoverage were unavailable or available only on significantly less favorable terms, our business and results of operations would be materiallyadversely affected.Failure to manage the severity and frequency of workplace injuries will increase our workers’ compensation expenses.Significant increases in the relative frequency or severity of workplace injuries due to failures to accurately assess potential risks or assureimplementation of effective safety measures by our clients may result in increased workers’ compensation claims expenses, with a correspondingnegative effect on our results of operations and financial condition.- 9 -Our investment portfolio is subject to market and credit risks, which could adversely impact our financial condition or results ofoperations.We seek to hold a diversified portfolio of high-quality investments that is managed by a professional investment advisory firm in accordance withour investment policy and routinely reviewed by management and approved by the risk management committee. However, our investments aresubject to general economic conditions and market risks as well as risks inherent to particular securities, including credit and liquidity risks. Ourportfolio consists primarily of debt securities and is subject to the risk that certain investments may default or become impaired due todeterioration in the financial condition of one or more issuers of the securities. Although our investment strategy is designed to preserve ourcapital, we cannot be certain that our investment objectives will be achieved, and we could incur substantial realized and unrealized investmentlosses in future periods.We may be unable to draw on our revolving credit facility in the future.As discussed in more detail in “Note 6. Revolving Credit Facility and Long-Term Debt” to the consolidated financial statements incorporated intoItem 8 of Part II of this report, our Credit Agreement with our principal bank, Wells Fargo Bank, National Association (the “Bank”), which expiresJuly 1, 2018, provides for a revolving credit facility with a borrowing capacity of up to $25.0 million at December 31, 2017, to be used to financeworking capital. There was no outstanding balance at that date. The Credit Agreement includes a standby letter of credit agreement providing for asublimit of approximately $6.0 million in unsecured letters of credit, as well as a mortgage loan with a balance of approximately $4.4 millionsecured by our company office building in Vancouver, Washington.If our business does not perform as expected, including if we generate less revenue than anticipated from our operations or encounter significantunexpected costs, we may fail to comply with the financial covenants under our credit facilities. If we do not comply with our financial covenantsand we do not obtain a waiver or amendment from the Bank, the Bank may elect to cause all amounts owed to become immediately due andpayable or may decline to renew our credit facility. In that event, we would seek to establish a replacement credit facility with one or more otherlenders, including lenders with which we have an existing relationship, potentially on less desirable terms. There can be no guarantee thatreplacement financing would be available at commercially reasonable terms, if at all.Our business is subject to risks associated with geographic market concentration.Our California operations accounted for approximately 79% of our total revenues in 2017. As a result of the current importance of our Californiaoperations and anticipated continued growth from these operations, our profitability over the next several years is expected to be largely dependenton economic and regulatory conditions in California. If California experiences an economic downturn, or if the regulatory environment changes in away that adversely affects our ability to do business or limits our competitive advantages, our profitability and growth prospects may be materiallyadversely affected.In order to continue to grow revenues at or near current rates, we are dependent on retaining current clients and attracting new clients.The Company has experienced significant growth in recent years. Revenues increased 9.5% in 2017 and 13.5% in 2016. There can be noassurance that we will continue to grow revenues at or near current rates of growth. Maintaining rates of growth at these levels becomesincreasingly difficult as the size of the Company increases. Efforts to achieve business growth intensifies pressure on retaining current clients andattracting increasing numbers of new clients.- 10 -Economic conditions, particularly in California, may impact our ability to attract new clients and cause our existing clients to reducestaffing levels or cease operations.Weak economic conditions typically have a negative impact on small-and mid-sized businesses, which make up the majority of our clients. In turn,these businesses could cut costs, including trimming employees from their payrolls, or closing locations or ceasing operations altogether. If weakeconomic conditions were to develop, these forces may result in decreased revenues due both to the downsizing of our current clients andincreased difficulties in attracting new clients in a poor economic environment. In addition, weak economic conditions may also result in additionalbad debt expense to the extent that existing clients cease operations.Our business is subject to risks associated with healthcare reforms.The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Acts”) subject usto potential penalties unless we offer our employees minimum essential healthcare coverage that is affordable. In order to comply with theemployer mandate provision of the Acts, we offer health care coverage to all temporary and permanent employees eligible for coverage under theActs other than employees of our PEO clients, which are responsible for providing required health care coverage to their employees. Designatingemployees as eligible is complex, and is subject to challenge by employees and the Internal Revenue Service. While we believe we have properlyidentified eligible employees, a later determination that we failed to offer the required health coverage to eligible employees could result in penaltiesthat may materially harm our business. We cannot be certain that compliant insurance coverage will remain available to us on reasonable terms,and we could face additional risks arising from future changes to or repeal of the Acts or changed interpretations of our obligations under the Acts.There can be no assurance that we will be able to recover all related costs through increased pricing to our customers or that such costs will berecovered in the period in which costs are incurred, and the net financial impact on our results of operations could be significant.If we are unable to maintain our brand image and corporate reputation, our business may suffer.Our success depends in part on our ability to maintain our reputation for providing excellent service to our customers. Service quality issues,actual or perceived, even when false or unfounded, could tarnish the image of our brand and may cause customers to use other companies. Also,adverse publicity surrounding labor relations, data breaches, SEC investigations, securities class actions and the like, could negatively affect ouroverall reputation. Damage to our reputation could reduce demand for our services and thus have an adverse effect on our business, financialcondition and results of operations.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. As economicactivity slows down, companies often reduce their use of temporary employees before undertaking layoffs of permanent staff, resulting indecreased demand for staffing services. During strong economic periods, on the other hand, we often experience shortages of qualified employeesto meet customer needs, as occurred during 2017.Because we assume the obligation to make wage, tax and regulatory payments in respect of some employees, we are exposed to clientcredit 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. These obligations are fixed whether or not the client makes payments to us as required byour services agreement. We attempt to mitigate this risk by invoicing our clients at the end of their specific payroll processing cycle. We alsocarefully monitor the timeliness of our clients' payments and impose strict credit standards on our customers. If we fail to successfully manage ourcredit risk, our results of operations and financial condition could be materially and adversely affected.- 11 -Increases in unemployment claims could raise our state and federal unemployment tax rates which we may not be able to pass on to ourcustomers.During weak economic conditions in our markets, the level of unemployment claims tends to rise as a result of employee layoffs at our clients andlack of work in our temporary staffing pool. The rise in unemployment claims often results in higher state and federal unemployment tax rates,which in most instances cannot be concurrently passed on to our customers either due to existing client services agreements or competitivepricing pressures. Increases in our state and federal unemployment tax rates could have a material adverse effect on our results of operations,particularly in the early part of the calendar year when payroll tax rates are at or near their maximum.If we are determined not to be an “employer” under certain laws and regulations, our clients may stop using our services, and we maybe subject to additional liabilities.We are the administrative employer in our co-employment relationships under the various laws and regulations of the Internal Revenue Service andthe U.S. Department of Labor. If we are determined not to be the administrative employer under such laws and regulations and are therefore unableto assume our clients’ obligations for employment and other taxes, our clients may be held jointly and severally liable for payment of such taxes.Some clients or prospective clients may view such potential liability as an unacceptable risk, discouraging current clients from continuing arelationship with us or prospective clients from entering into a new relationship with us. Any determination that we are not the administrativeemployer for purposes of ERISA could also adversely affect our cafeteria benefits plan operated under Section 125 of the Internal Revenue Codeand result in liabilities to us under the plan.We may be exposed to employment‑related claims and costs and periodic litigation that could adversely affect our business and resultsof operations.We either co-employ employees in connection with our PEO client services agreements or place our employees in our customers' workplace inconnection with our staffing business. As such, we are subject to a number of 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, orclaims 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 suchbenefits; and •possible claims relating to misuse of customer confidential information, misappropriation of assets or other similar claims.If we experience significant incidents involving any of the above-described risk areas, we could face substantial out-of-pocket losses, fines ornegative publicity. In addition, such claims may give rise to litigation, which may be time consuming, distracting and costly, and could have amaterial adverse effect on our business. With respect to claims involving our co-employer relationships, although our client services agreementprovides that the client will indemnify us for any liability attributable to the conduct of the client or its employees, we may not be able to enforcesuch contractual indemnification, or the client may not have sufficient assets to satisfy its obligations to us. An increase in employment-relatedclaims against us may have a material adverse effect on our results of operations.- 12 -We are dependent upon technology services and if we experience damage, service interruptions or failures in our computer andtelecommunications systems, our client relationships and our ability to attract new clients may be adversely affected.We rely extensively on our computer systems to manage our branch network, perform employment-related services and accounting and reportingfunctions, and summarize and analyze our financial results. Our systems are subject to damage or interruption from telecommunications failures,power-related outages, computer viruses and malicious attacks, security breaches and catastrophic events. If our systems are damaged or fail tofunction properly, we may incur substantial costs to repair or replace them, experience loss of critical data and interruptions or delays in our abilityto manage our operations, and encounter a loss of client confidence. In addition, our clients’ businesses may be adversely affected by any systemor equipment failure or breach we experience. As a result, our relationships with our clients may be impaired, we may lose clients, our ability toattract new clients may be adversely affected, and we could be exposed to contractual liability. We may continue to invest in upgrades orreplacements to our existing systems or additional security measures, each of which can involve substantial costs and risks relating to installationand implementation.We depend on third-party software in order to provide our services and support our operations.Significant portions of our services and operations rely on software that is licensed from third-party vendors. The fees associated with theselicense agreements could increase in future periods, resulting in increased operating expenses. If there are significant changes to the terms andconditions of our license agreements, or if we are unable to renew these license agreements, we may be required to make changes to our vendorsor information technology systems. These changes may impact the services we provide to our clients or the processes we have in place tosupport our operations, which could have an adverse effect on our business.If our efforts to protect the security of personal information about our employees and clients are unsuccessful, we could be subject tocostly government enforcement actions and private litigation and our reputation could suffer.The nature of our business involves the receipt, storage, and transmission of personal and proprietary information about thousands of employeesand clients. If we experience a significant data security breach or fail to detect and appropriately respond to a significant data security breach, wecould be exposed to government enforcement actions and private litigation. In addition, our employees and clients could lose confidence in ourability to protect their personal and proprietary information, which could cause them to terminate their relationships with us. Any loss of confidencearising from a significant data security breach could hurt our reputation, further damaging our business.We operate in a complex regulatory environment, and failure to comply with applicable laws and regulations could adversely affect ourbusiness.Corporate human resource operations are subject to a broad range of complex and evolving laws and regulations, including those applicable topayroll practices, benefits administration, employment practices, workers’ compensation coverage, and privacy. Because our clients haveemployees in many states throughout the United States, we must perform our services in compliance with the legal and regulatory requirements ofmultiple jurisdictions. Some of these laws and regulations may be difficult to ascertain or interpret and may change from time to time. Violation ofsuch laws and regulations could subject us to fines and penalties, damage our reputation, constitute a breach of our client agreements, impair ourability to obtain and renew required licenses, and decrease our profitability or competitiveness. If any of these effects were to occur, our operatingresults and financial condition could be adversely affected.- 13 -Changes in government regulations may result in restrictions or prohibitions applicable to the provision of employment services or theimposition of additional licensing, regulatory or tax requirements.Our business is heavily regulated in most jurisdictions in which we operate. We cannot provide assurance that the states in which we conduct orseek to conduct business will not: •impose additional regulations that prohibit or restrict employment-related businesses like ours; •require additional licensing or add restrictions on existing licenses to provide employment-related services; or •increase taxes or make changes in the way in which taxes are calculated for providers of employment-related services.Any changes in applicable laws and regulations may make it more difficult or expensive for us to do business, inhibit expansion of our business, orresult in additional expenses that limit our profitability or decrease our ability to attract and retain clients.The tax status of our insurance subsidiaries could be challenged resulting in an acceleration of income tax payments.In conjunction with our workers’ compensation program, we operate two wholly owned insurance subsidiaries, AICE and Ecole. We treat the twosubsidiaries as insurance companies for federal income tax purposes with respect to our consolidated federal income tax return. If the InternalRevenue Service (“IRS”) were to determine that the subsidiaries do not qualify as insurance companies, in which insurance reserves are currentlydeductible, we could be required to make accelerated income tax payments to the IRS that we otherwise would have deferred until future periods.We may find it difficult to expand our business into additional states due to varying state regulatory requirements.Future growth in our operations depends, in part, on our ability to offer our services to prospective clients in new states, which may subject us todifferent regulatory requirements and standards. In order to operate effectively in a new state, we must obtain all necessary regulatory approvals,adapt our procedures to that state's regulatory requirements and modify our service offerings to adapt to local market conditions. As we expandinto additional states, we may not be able to duplicate in other markets the financial performance experienced in our current markets.We face competition from a number of other companies.We face competition from various companies that may provide all or some of the services we offer. Our competitors include companies that areengaged in staffing services such as Robert Half International Inc., Kelly Services, Inc., and ManpowerGroup Inc.; companies that are focused onco-employment, such as Insperity, Inc., and TriNet Group, Inc.; and companies that primarily provide payroll processing services, such asAutomatic Data Processing, Inc. and Paychex, Inc. We also face competition from information technology outsourcing firms and broad-basedoutsourcing and consulting firms that perform individual projects.- 14 -Several of our existing or potential competitors have substantially greater financial, technical and marketing resources than we do, which mayenable 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.In order to compete effectively in our markets, we must target our potential clients carefully, continue to improve our efficiencies and the scopeand quality of our services, and rely on our service quality, innovation, education and program clarity. If our competitive advantages are notcompelling or sustainable, then we are unlikely to increase or sustain profits and our stock price could decline.We are dependent upon certain key personnel and recruitment and retention of key employees may be difficult and expensive.We believe that the successful operation of our business is dependent upon our retention of the services of key personnel, including our ChiefExecutive Officer, other executive officers and area managers. We may not be able to retain all of our executives, senior managers and keypersonnel in light of competition for their services. If we lose the services of one of our executive officers or a significant number of our seniormanagers, our results of operations likely would be adversely affected.We do not have an expansive in-house sales staff and therefore rely extensively on referral partners.We maintain a minimal internal professional sales force, and we rely heavily on referral partners to provide referrals to new business. In connectionwith these arrangements, we pay a fee to referral partners for new clients. These referral firms and individuals do not have an exclusiverelationship with us. If we are unable to maintain these relationships or if they increase their fees or lose confidence in our services, we could facedeclines in our business and additional costs and uncertainties as we attempt to hire and train an internal sales force.We depend on attracting and retaining qualified employees; during periods of economic growth, our costs to do so increase andattracting and retaining people becomes more difficult.Our teams of client-facing professionals are the foundation of our value proposition. Our ability to attract and retain qualified personnel could beimpaired by economic conditions resulting in lower unemployment and increases in compensation. During periods of economic growth, we faceincreased competition for retaining and recruiting qualified personnel, which in turn leads to greater advertising and recruiting costs and increasedsalary expenses. If we cannot attract and retain qualified employees, the quality of our services may deteriorate and our reputation and results ofoperations could be adversely affected.Our service agreements may be terminated on short notice, leaving us vulnerable to loss of a significant amount of customers in a shortperiod of time, if business or regulatory conditions change or events occur that negatively affect our reputation.Our client services agreements are generally terminable on 30 days’ notice by either us or our client. As a result, our clients may terminate theiragreement with us at any time, making us particularly vulnerable to changing business or regulatory conditions or changes affecting our reputationor the reputation of our industry.- 15 -Our industry has at times received negative publicity that, if it were to become more prevalent, could cause our business to decline.In the staffing and co-employment industries in which we compete, companies periodically have been tarnished by negative publicity or scandalsfrom poor business judgment or even outright fraud. If we or our industry face negative publicity, customers' confidence in the use of temporarypersonnel or co-employed workers may deteriorate, and they may be unwilling to enter into or continue our staffing or co-employment relationships.If a negative perception were to prevail, it would be more difficult for us to attract and retain customers.Changes in federal and state unemployment tax laws and regulations could adversely affect our business.In past years, there has been significant negative publicity relating to the use of staffing or PEO companies to shield employers from poorunemployment history and high unemployment taxes. New legislation enacted at the state or federal level to try to counter this perceived problemcould have a material adverse effect on our business by limiting our ability to market our services or making our services less attractive to ourcustomers and potential customers.Risks Related to Ownership of our Common StockOur stock price may be volatile or may decline, resulting in substantial losses for our stockholders.The market price of our Common Stock has been, and may continue to be, volatile for the foreseeable future. Important factors that may causeour trading price to decline include the factors listed below and other factors that may have a material adverse effect on our business or financialresults, 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 materialincrease in our workers’ compensation expense; •our failure to maintain effective internal control over financial reporting or otherwise discover additional material errors in ourfinancial reporting; •imposition of significant fines or penalties or other adverse action by the SEC or other regulatory authorities against the Company; •adverse developments in the legal proceedings described in “Item 3. Legal Proceedings”; •our failure to meet financial projections or achieve financial results anticipated by analysts; or •changes in our board of directors or management.Maryland law and our Charter and bylaws contain provisions that could make the takeover of the Company more difficult.Certain provisions of Maryland law and our Charter and bylaws could have the effect of delaying or preventing a third party from acquiring theCompany, even if a change in control would be beneficial to our stockholders. These provisions of our Charter and bylaws: •permit the Board of Directors to issue up to 500,000 shares of preferred stock with such rights and preferences, including votingrights, as the Board may establish, without further approval by the Company's stockholders, which could also adversely affect thevoting power of holders of our Common Stock; and •vest the power to adopt, alter or repeal the Company's bylaws solely in the Board of Directors; the stockholders do not have thatpower.- 16 -In addition, the Company is subject to the Maryland control share act (the “Control Share Act”). Under the Control Share Act, a person (an“Acquiring Person”) who acquires voting stock in a transaction (a “Control Share Acquisition”) which results in its holding voting power withinspecified ranges cannot vote the shares it acquires in the Control Share Acquisition unless voting rights are accorded to such control shares bythe holders of two-thirds of the outstanding voting shares, excluding the Acquiring Person and the Company's officers and directors who are alsoemployees of the Company.The Company is also subject to the provisions of Maryland law limiting the ability of certain Maryland corporations to engage in specified businesscombinations (the “Business Combination Act”). Subject to certain exceptions, the Business Combination Act prohibits a Maryland corporationfrom engaging in a business combination with a stockholder who, with its affiliates, owns 10% or more of the corporation's voting stock. Theseprovisions will not apply to business combinations that are approved by the Board of Directors before the stockholder became an interestedstockholder.Item 1BUNRESOLVED STAFF COMMENTSNone.Item 2.PROPERTIESWe operate through 58 branch offices. The following table shows the number of locations in each state in which we have offices. We also leaseoffice space in other locations in our market areas which we use to recruit and place employees. Number ofBranchOffices LocationsCalifornia 22Oregon 11Utah 5Washington 5Idaho 3Arizona 2Colorado 2Maryland 2North Carolina 2Delaware 1Nevada 1Pennsylvania 1Virginia 1 We lease office space for our branch offices. At December 31, 2017, our leases had expiration dates ranging from less than one year to sevenyears. Our corporate headquarters occupies approximately 75 percent of the 65,300 square foot building we own in Vancouver, Washington.- 17 -Item 3.LEGAL PROCEEDINGSBBSI is not subject to material legal proceedings and claims other than those which arise in the ordinary course of our business, except for thosematters discussed in “Note 12. Litigation” to the consolidated financial statements incorporated into Item 8 of Part II of this report.Item 4.MINE SAFETY DISCLOSURESNot ApplicablePART IIItem 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESOur common stock (the "Common Stock") trades on the Global Select Market segment of The Nasdaq Stock Market under the symbol "BBSI." AtMarch 1, 2018, there were 25 stockholders of record and approximately 1,525 beneficial owners of the Common Stock.The following table presents the high and low sales prices of the Common Stock and cash dividends paid for each quarterly period during the lasttwo fiscal years, as reported by The Nasdaq Stock Market. Any future determination as to the payment of dividends will be made at the discretionof the Board and will depend upon the Company's operating results, financial condition, capital requirements, general business conditions and suchother factors as the Board deems relevant. CashDividends High Low Declared 2016 First Quarter $42.80 $22.55 $0.22 Second Quarter 43.08 27.28 0.22 Third Quarter 49.75 41.06 0.22 Fourth Quarter 66.93 43.00 0.22 2017 First Quarter $66.64 $50.56 $0.25 Second Quarter 60.35 52.95 0.25 Third Quarter 59.50 44.52 0.25 Fourth Quarter 69.32 54.41 0.25 The Company maintains a Board-approved stock repurchase program which originally authorized up to 3.0 million shares of the Company’sCommon Stock to be repurchased from time to time in open market purchases. The repurchase program allowed for the repurchase ofapproximately 1.1 million shares as of December 31, 2017. No repurchases were made during the quarter ended December 31, 2017. - 18 -The following graph shows the cumulative total return at the dates indicated for the period from December 31, 2012 until December 31, 2017, forour Common Stock, The Nasdaq Composite Index, and the S&P 1500 Human Resource & Employment Services Index, a published industry indexthat is considered reflective of the Company’s peers. The stock performance graph has been prepared assuming that $100 was invested on December 31, 2012 in our Common Stock and the indexesshown, and that dividends are reinvested. The stock price performance reflected in the graph may not be indicative of future price performance. 12/12 12/13 12/14 12/15 12/16 12/17 Barrett Business Services, Inc. 100.00 245.76 74.03 120.37 181.28 185.55 NASDAQ Composite 100.00 141.63 162.09 173.33 187.19 242.29 S&P 1500 Human Resource & Employment Servicesindex 100.00 167.71 175.38 181.34 201.09 257.35 - 19 -Item 6.SELECTED CONSOLIDATED FINANCIAL DATAThe following selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and theaccompanying notes incorporated into Item 8 of Part II, “Financial Statements and Supplementary Data,” and the information contained in Item 7of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Historical results are not necessarilyindicative of future results. Year Ended December 31, 2017 2016 2015 2014 2013 (In thousands, except per share data) Statement of operations: Revenues: Professional employer service fees $758,046 $673,924 $572,286 $470,522 $393,085 Staffing services $162,386 166,662 168,555 165,833 143,881 Total revenues 920,432 840,586 740,841 636,355 536,966 Cost of revenues: Direct payroll costs 122,533 126,753 127,964 126,399 108,875 Payroll taxes and benefits 404,687 357,867 312,284 263,100 222,163 Workers' compensation 234,681 210,430 171,137 213,451 123,427 Total cost of revenues 761,901 695,050 611,385 602,950 454,465 Gross margin 158,531 145,536 129,456 33,405 82,501 Selling, general and administrative expenses 123,138 113,342 90,177 74,065 59,439 Depreciation and amortization 5,452 3,253 2,851 2,506 2,037 Income (loss) from operations 29,941 28,941 36,428 (43,166) 21,025 Other income (expense): Investment income, net 4,668 956 771 543 539 Interest expense (313) (807) (1,965) (173) (238)Loss on litigation — (3,544) — — — Other, net 82 40 (88) 152 (9)Other income (expense), net 4,437 (3,355) (1,282) 522 292 Income (loss) before income taxes 34,378 25,586 35,146 (42,644) 21,317 Provision for (benefit from) income taxes 9,208 6,787 9,652 (17,098) 5,644 Net income (loss) $25,170 $18,799 $25,494 $(25,546) $15,673 Basic income (loss) per common share $3.46 $2.60 $3.55 $(3.57) $2.21 Weighted average number of basic common shares outstanding 7,275 7,226 7,173 7,160 7,105 Diluted income (loss) per common share $3.33 $2.55 $3.47 $(3.57) $2.12 Weighted average number of diluted common shares outstanding 7,551 7,378 7,353 7,160 7,397 Cash dividends per common share $1.00 $0.88 $0.88 $0.76 $0.57 Selected balance sheet data: Cash and cash equivalents $59,835 $50,768 $25,218 $11,544 $93,557 Investments 1,873 6,317 6,082 50,887 25,696 Current assets 308,235 235,383 206,068 163,664 202,315 Current liabilities 322,255 275,164 237,393 225,302 153,988 Working capital (deficit) surplus (14,020) (39,781) (31,325) (61,638) 48,327 Total assets 682,485 581,888 483,521 443,844 305,929 Long-term workers' compensation liabilities 265,844 231,198 190,094 164,214 79,849 Long-term debt, net of current portion 4,171 4,392 — 19,833 5,053 Stockholders' equity 88,834 69,693 54,551 32,820 65,177 The net loss in 2014 is primarily due to expense associated with an increase in the Company’s reserve for workers’ compensation claims liabilitiesof approximately $104.2 million.- 20 -Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOverviewThe Company is a leading provider of business management solutions for small and mid-sized companies. The Company has developed amanagement platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resourceoutsourcing industry. This platform, through the effective leveraging of human capital, helps our business owner clients run their businesses moreeffectively. We believe this platform, delivered through a decentralized organizational structure, differentiates BBSI from our competitors.We report revenues in our financial results in two categories of services: professional employer services (“PEO”) and staffing.With our PEO clients, we enter into a co-employment arrangement in which we become the administrative employer while the client maintainsphysical care, custody and control of their workforce. Our PEO services are billed as a percentage of client payroll, with the gross amount invoicedincluding direct payroll costs, employer payroll-related taxes, workers’ compensation coverage (if provided) and a service fee. PEO customers areinvoiced following the end of each payroll processing cycle, with payment generally due on the invoice date. Revenues for PEO services excludedirect payroll billings because we are not the primary obligor for those payments.We generate staffing services revenues primarily from short-term staffing, contract staffing, on-site management and direct placement services.For staffing services other than direct placement, invoiced amounts include direct payroll, employer payroll-related taxes, workers’ compensationcoverage and a service fee. Staffing customers are invoiced weekly and typically have payment terms of 30 days. Direct placement services arebilled at agreed fees at the time of a successful placement.Our business is concentrated in California, and we expect to continue to derive a majority of our revenues from this market in the future. Revenuesgenerated in our California offices accounted for 79% of our total net revenues in 2017, 78% in 2016 and 78% in 2015. Consequently, anyweakness in economic conditions or changes in the regulatory or insurance environment in California could have a material adverse effect on ourfinancial results.Our cost of revenues for PEO services includes employer payroll-related taxes and workers' compensation costs. Our cost of revenues for staffingservices includes direct payroll costs, employer payroll-related taxes, employee benefits, and workers’ compensation costs. Direct payroll costsrepresent the gross payroll earned by staffing services employees based on salary or hourly wages. Payroll taxes and employee benefits consistof the employer's portion of Social Security and Medicare taxes, federal and state unemployment taxes and staffing services employeereimbursements for materials, supplies and other expenses, which are paid by our customer. Workers' compensation costs consist primarily of thecosts associated with our workers' compensation program, including claims reserves, claims administration fees, legal fees, medical costcontainment (“MCC”) expense, state administrative agency fees, third-party broker commissions, risk manager payroll, premiums for excessinsurance and the fronted insurance program, and costs associated with operating our two wholly owned insurance companies, AICE and Ecole.Selling, general and administrative expenses represent both branch office and corporate-level operating expenses. Branch operating expensesconsist primarily of branch office staff payroll and personnel related costs, advertising, rent, office supplies, professional and legal fees and branchincentive compensation. Corporate-level operating expenses consist primarily of executive and office staff payroll and personnel related costs,professional and legal fees, travel, occupancy costs, information systems costs, and executive and corporate staff incentive compensation.- 21 -Depreciation and amortization represent depreciation of property and equipment, leasehold improvements and capitalized software costs. Property,equipment and software are depreciated using the straight-line method over their estimated useful lives, which range from 3 to 39 years. Leaseholdimprovements are amortized using the straight-line method over the shorter of the lease term or estimated useful life. Critical Accounting Policies and EstimatesWe have identified the following accounting estimate as critical to our business and the understanding of our results of operations. For a detaileddiscussion of the application of this and other accounting policies, see “Note 1. Summary of Operations and Significant Accounting Policies” to theconsolidated financial statements incorporated into Item 8 of Part II of this report. The preparation of this Annual Report on Form 10-K requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements,and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and onvarious other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.Workers' Compensation ReservesWe recognize our liability for the ultimate payment of incurred claims and claims adjustment expenses by establishing a reserve which representsour estimates of future amounts necessary to pay claims and related expenses with respect to workplace injuries that have occurred. When aclaim involving a probable loss is reported, our independent third-party administrator for workers’ compensation claims (“TPA”) establishes a casereserve for the estimated amount of ultimate loss. The estimate reflects a judgment based on established case reserving practices and theexperience and knowledge of the TPA regarding the nature and expected amount of the claim, as well as the estimated expenses of settling theclaim, including legal and other fees and expenses of claims administration. The adequacy of such case reserves in part depends on theprofessional judgment of the TPA to properly and comprehensively evaluate the economic consequences of each claim.Our reserves include an additional component for potential future increases in the cost to finally resolve open injury claims and claims incurred inprior periods but not reported (together, "IBNR") based on actuarial estimates provided by the Company’s independent actuary. IBNR reserves,unlike specific case reserves, do not apply to a specific claim but rather apply to the entire population of claims arising from a specific time period.IBNR primarily covers costs relating to: •Future claim payments in excess of case reserves on recorded open claims; •Additional claim payments on closed claims; and •Claims that have occurred but have not yet been reported to us.The process of estimating unpaid claims and claims adjustment expense involves a high degree of judgment and is affected by both internal andexternal events, including changes in claims handling practices, modifications in reserve estimation procedures, changes in individuals involved inthe reserve estimation process, inflation, trends in the litigation and settlement of pending claims, and legislative changes.Our estimates are based on informed judgment, derived from individual experiences and expertise applied to multiple sets of data and analyses.We consider significant facts and circumstances known both at the time that loss reserves are initially established and as new facts andcircumstances become known. Due to the inherent uncertainty underlying loss reserve estimates, the expenses incurred through final resolution ofour liability for our workers’ compensation claims will likely vary from the related loss reserves at the reporting date. Therefore, as specific claimsare paid out in the future, actual paid losses may be materially different from our current loss reserves.- 22 -A basic premise in most actuarial analyses is that historical data and past patterns demonstrated in the incurred and paid historical data form areasonable basis upon which to project future outcomes, absent a material change. Significant structural changes to the available data canmaterially impact the reserve estimation process. To the extent a material change affecting the ultimate claim liability becomes known, suchchange is quantified to the extent possible through an analysis of internal company data and, if available and when appropriate, external data.Actuaries exercise a considerable degree of judgment in the evaluation of these factors and the need for such actuarial judgment is morepronounced when faced with material uncertainties.We believe that the amounts recorded for our estimated liabilities for workers’ compensation claims, which are based on informed judgement,analysis of data, actuarial estimates, and analysis of other trends associated with the Company’s historical universe of claims data, arereasonable. Nevertheless, adjustments to such estimates will be required in future periods if the development of claim costs varies materially fromour estimates and such future adjustments may be material to our results of operations.Recent Accounting PronouncementsFor a discussion of recent accounting pronouncements and their potential effect on the Company's results of operations and financial condition,see “Note 1. Summary of Operations and Significant Accounting Policies” to the consolidated financial statements incorporated into Item 8 of PartII of this report.Forward-Looking InformationStatements in this Item or in Items 1, 1A, 3 and 9A of this report include forward-looking statements which are not historical in nature and areforward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include,among others, discussion of economic conditions in our market areas and their effect on revenue levels, the effect of changes in our mix ofservices on gross margin, the adequacy of our workers' compensation reserves, the effect of changes in estimates of our future claims liabilitieson our workers’ compensation reserves, including the effect of changes in our reserving practices and claims management process on ouractuarial estimates, the effects of recent federal tax legislation, our ability to generate sufficient taxable income in the future to utilize our deferredtax assets, the effect of our formation and operation of two wholly owned licensed insurance subsidiaries, the risks of operation and cost of ourfronted insurance program with Chubb, the financial viability of our excess insurance carriers, the effectiveness of our management informationsystems, our relationship with our primary bank lender and the availability of financing and working capital to meet our funding requirements,litigation costs and the effect of the potential resolution of any enforcement action that may be brought by the SEC Division of Enforcement, theeffect of changes in the interest rate environment on the value of our investment securities and long-term debt, the adequacy of our allowance fordoubtful accounts, and the potential for and effect of acquisitions.- 23 -All of 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 achievementsexpressed or implied by such forward-looking statements. Such factors with respect to the Company include our ability to retain current clients andattract new clients, difficulties associated with integrating clients into our operations, economic trends in our service areas, the potential formaterial deviations from expected future workers’ compensation claims experience, the workers’ compensation regulatory environment in ourprimary markets, security breaches or failures in the Company’s information technology systems, collectability of accounts receivable, thecarrying values of deferred income tax assets and goodwill (which may be affected by our future operating results), the impact of the PatientProtection and Affordable Care Act and escalating medical costs on our business, the effect of conditions in the global capital markets on ourinvestment 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 ourfronted insurance program. Additional risk factors affecting our business are discussed in Item 1A of Part I of this report. We disclaim anyobligation to update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflectfuture events or developments.Results of OperationsThe following table sets forth the percentages of total revenues represented by selected items in the Company's consolidated statements ofoperations for the years ended December 31, 2017, 2016 and 2015, included in Item 15 of this report. References to the Notes to ConsolidatedFinancial Statements appearing below are to the notes to the Company's consolidated financial statements incorporated into Item 8 of Part II ofthis report. Percentage of Total Net Revenues Years Ended December 31, 2017 2016 2015 Revenues: Professional employer service fees $758,046 82.4 % $673,924 80.2 % $572,286 77.2 %Staffing services 162,386 17.6 166,662 19.8 $168,555 22.8 Total revenues 920,432 100.0 840,586 100.0 740,841 100.0 Cost of revenues: Direct payroll costs 122,533 13.3 126,753 15.1 127,964 17.3 Payroll taxes and benefits 404,687 44.0 357,867 42.6 312,284 42.1 Workers’ compensation 234,681 25.5 210,430 25.0 171,137 23.1 Total cost of revenues 761,901 82.8 695,050 82.7 611,385 82.5 Gross margin 158,531 17.2 145,536 17.3 129,456 17.5 Selling, general and administrative expenses 123,138 13.4 113,342 13.5 90,177 12.2 Depreciation and amortization 5,452 0.6 3,253 0.4 2,851 0.4 Income from operations 29,941 3.2 28,941 3.4 36,428 4.9 Other income (expense), net 4,437 0.5 (3,355) (0.4) (1,282) (0.2) Income before income taxes 34,378 3.7 25,586 3.0 35,146 4.7 Provision for income taxes 9,208 1.0 6,787 0.8 9,652 1.3 Net income $25,170 2.7 % $18,799 2.2 % $25,494 3.4 % - 24 -We report PEO revenues net of direct payroll costs because we are not the primary obligor for wage payments to our clients’ employees. However,management believes that gross billing amounts and wages are useful in understanding the volume of our business activity and serve as animportant performance metric in managing our operations, including the preparation of internal operating forecasts and establishing executivecompensation performance goals. We therefore present for purposes of analysis gross billing and wage information for the years ended December31, 2017, 2016 and 2015. Year Ended December 31, (in thousands) 2017 2016 2015 Gross billings $5,300,684 $4,692,887 $4,016,150 PEO and staffing wages 4,469,845 3,951,021 3,375,976 Because safety incentives represent consideration payable to PEO customers, safety incentive costs are netted against PEO revenue in ourconsolidated statements of operations. Management considers safety incentives to be an integral part of our workers’ compensation programbecause they encourage client companies to maintain safe-work practices and minimize workplace injuries. We therefore present below forpurposes of analysis non-GAAP gross workers’ compensation expense, which represents workers’ compensation costs including safety incentivecosts. We believe this non-GAAP measure is useful in evaluating the total costs of our workers’ compensation program. Year Ended December 31, (in thousands) 2017 2016 2015 Workers' compensation $234,681 $210,430 $171,137 Safety incentive costs 32,940 28,033 27,297 Non-GAAP gross workers' compensation $267,621 $238,463 $198,434In monitoring and evaluating the performance of our operations, management also reviews the following ratios, which represent selected amountsas a percentage of gross billings. Management believes these ratios are useful in understanding the efficiency and profitability of our serviceofferings. Percentage of Gross Billings Year Ended December 31, 2017 2016 2015 PEO and staffing wages 84.3% 84.2% 84.1%Payroll taxes and benefits 7.6% 7.6% 7.8%Non-GAAP gross workers' compensation 5.0% 5.1% 4.9%The presentation of revenues on a net basis and the relative contributions of staffing and professional employer services revenues can createvolatility in our gross margin percentage. The general impact of fluctuations in our revenue mix is described below. •A relative increase in professional employer services revenue will result in a higher gross margin percentage. Improvement in grossmargin percentage occurs because incremental client services revenue dollars are reported as revenue net of all related direct payrolland safety incentive costs. •A relative increase in staffing revenues will typically result in a lower gross margin percentage. Staffing revenues are presented at gross with the related direct costs reported in cost of revenues. While staffing relationships typicallyhave higher margins than professional employer service relationships, an increase in staffing revenues and related costs increases theimpact of the net professional employer services revenue on gross margin percentage.- 25 -Years Ended December 31, 2017 and 2016Net income for 2017 was $25.2 million compared to net income of $18.8 million for 2016. Diluted income per share for 2017 was $3.33 compared todiluted income per share of $2.55 for 2016.Revenues for 2017 totaled $920.4 million, an increase of $79.8 million or 9.5% over 2016, which reflects an increase in the Company’sprofessional employer service fee revenue of $84.1 million or 12.5% and a decrease in staffing services revenue of $4.3 million or 2.6%. Therewas one less business day in 2017 compared to 2016.Our growth in professional employer service revenues was attributable to both new and existing customers. Due to continued strength in ourreferral channels, business from new customers during 2017 exceeded business lost from former customers. Professional employer servicerevenue from continuing customers grew 7.2% on a year-over-year basis, primarily resulting from increases in employee headcount and hoursworked. The decrease in staffing services revenue was due primarily to a decrease in revenue from continuing customers compared to the prioryear.Gross margin for 2017 totaled $158.5 million or 17.2% of revenue compared to $145.5 million or 17.3% of revenue for 2016. The decrease in grossmargin as a percentage of revenues is primarily due to increases in payroll taxes and workers’ compensation expense as a percentage ofrevenues, partially offset by a decrease in direct payroll costs.Direct payroll costs for 2017 totaled $122.5 million or 13.3% of revenue compared to $126.8 million or 15.1% of revenue for 2016. The decrease indirect payroll costs percentage was primarily due to the increase in professional employer services and the decrease of staffing services within themix of our customer base compared to 2016.Payroll taxes and benefits for 2017 totaled $404.7 million or 44.0% of revenue compared to $357.9 million or 42.6% of revenue for 2016. Theincrease in payroll taxes and benefits as a percentage of revenues is due to a $3.8 million federal unemployment tax refund recognized in the thirdquarter of 2016, the increase in professional employer services where payroll taxes and benefits are presented at gross cost, and a decrease instaffing revenue during the period.Workers’ compensation expense for 2017 totaled $234.7 million or 25.5% of revenue compared to $210.4 million or 25.0% of revenue for 2016. Theincrease in workers’ compensation expense as a percentage of revenue was primarily due to an unfavorable adjustment of $5.2 million in 2017compared to a favorable adjustment of $300,000 in 2016 due to changes in actuarial estimates of our workers’ compensation reserves related toclaims incurred in prior periods.Selling, general and administrative (“SG&A”) expenses for 2017 totaled $123.1 million or 13.4% of revenue compared to $113.3 million or 13.5% ofrevenue for 2016. The decrease as a percentage of revenues was primarily attributable to a $5.0 million decrease in total legal and accountingfees, partially offset by an increase in employee related expenses. Other income for 2017 totaled $4.4 million compared to other expense of $3.4 million for 2016. The change was attributable to a decrease inlitigation costs of $3.3 million as well as an increase in investment income of $3.7 million in 2017.Our effective income tax rate for 2017 was 26.8% compared to 26.5% for 2016. Our income tax rate typically differs from the federal statutory taxrate of 35% primarily due to federal and state tax credits. Our effective tax rate in 2017 also includes a provisional adjustment of 3.2% related to achange in the federal tax rate enacted on December 22, 2017. See “Note 9. Income Taxes” to the consolidated financial statements incorporatedinto Item 8 of Part II of this report for additional information regarding income taxes.- 26 -Years Ended December 31, 2016 and 2015Net income for 2016 was $18.8 million compared to net income of $25.5 million for 2015. Diluted income per share for 2016 was $2.55 compared todiluted income per share of $3.47 for 2015.Revenues for 2016 totaled $840.6 million, an increase of $99.7 million or 13.5% over 2015, which reflects an increase in the Company’sprofessional employer service fee revenue of $101.6 million or 17.8% and a decrease in staffing services revenue of $1.9 million or 1.1%.Our growth in professional employer service revenues was attributable to both new and existing customers. Due to continued strength in ourreferral channels, business from new customers during 2016 nearly doubled business lost from former customers. Professional employer servicerevenue from continuing customers grew 6.8% on a year-over-year basis, primarily resulting from increases in employee headcount and hoursworked. The decrease in staffing services revenue was due primarily to a decrease in revenue from continuing customers, partially offset by anincrease in net staffing revenue from new customers over lost customers.Gross margin for 2016 totaled $145.5 million or 17.3% of revenue compared to $129.5 million or 17.5% of revenue for 2015. The decrease in grossmargin percentage was primarily due to increases in workers’ compensation expense and payroll taxes and benefits, partially offset by a decreasein direct payroll costs.Direct payroll costs for 2016 totaled $126.8 million or 15.1% of revenue compared to $128.0 million or 17.3% of revenue for 2015. The decrease indirect payroll costs as a percentage of revenues was primarily due to the increase in professional employer services and the decrease of staffingservices within the mix of our customer base compared to 2015.Payroll taxes and benefits for 2016 totaled $357.9 million or 42.6% of revenue compared to $312.3 million or 42.1% of revenue for 2015. Theincrease in payroll taxes and benefits as a percentage of revenues was primarily due to the effect of growth in professional employer services,where payroll taxes and benefits are presented at gross cost.Workers’ compensation expense for 2016 totaled $210.4 million or 25.0% of revenue compared to $171.1 million or 23.1% of revenue for 2015. Theincrease in workers’ compensation expense as a percentage of revenues was primarily due to a decrease in our workers’ compensation reservesin 2015 of $13.7 million related to actuarial adjustments in that year.SG&A expenses for 2016 totaled $113.3 million, or 13.5% of revenue, compared to $90.2 million or 12.2% of revenue for 2015. The increase as apercentage of revenues was primarily attributable to an increase in employee related expenses and an $11.0 million increase in total legal andaccounting expenses, of which $8.5 million pertained to non-recurring legal and accounting costs associated with financial restatements, outsideinvestigations, and legal proceedings related to securities law issues.Other expense, net for 2016 totaled $3.4 million compared to $1.3 million for 2015. The change was primarily attributable to a $3.3 million litigationsettlement recognized in the third quarter of 2016, partially offset by a decrease in interest expense and an increase in investment income.Our effective income tax rate for 2016 was 26.5% compared to 27.5% for 2015. Our income tax rate typically differs from the federal statutory taxrate of 35% primarily due to federal and state tax credits.- 27 -Fluctuations in Quarterly Operating ResultsWe have historically experienced significant fluctuations in our quarterly operating results, including losses in the first quarter of each year, andexpect such fluctuations to continue in the future. Our operating results may fluctuate due to a number of factors such as seasonality, wage limitson statutory payroll taxes, claims experience for workers’ compensation, demand for our services, and competition. Payroll taxes, as a componentof cost of revenues, generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxesand Social Security taxes are exceeded on a per employee basis. Our revenue levels may be higher in the third quarter due to the effect ofincreased business activity of our customers’ businesses in the agriculture, food processing and forest products-related industries. In addition,revenues in the fourth quarter may be reduced by many customers’ practice of operating on holiday-shortened schedules. Workers’ compensationexpense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of suchclaims. In addition, adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in theCompany’s estimated workers’ compensation expense.Liquidity and Capital ResourcesThe Company's cash balance of $59.8 million at December 31, 2017 increased $9.1 million compared to December 31, 2016. The increase in cashwas primarily due to increased cash provided by operating activities and decreased cash used by financing activities, partially offset by anincrease in purchases of restricted and unrestricted cash and investments.Net cash provided by operating activities in 2017 amounted to $112.9 million, compared to $80.3 million for 2016. In 2017, cash flow fromoperating activities was primarily provided by net income of $25.2 million, increased workers’ compensation claims liabilities of $57.1 million, andincreased accrued payroll, payroll taxes and related benefits of $28.5 million, partially offset by increased trade accounts receivable of $10.2million.Net cash used in investing activities totaled $94.8 million in 2017, compared to $33.1 million in 2016. In 2017, cash used in investing activitiesconsisted primarily of purchases of restricted and unrestricted cash and investments of $1,084.6 million, partially offset by proceeds from salesand maturities of restricted and unrestricted cash and investments of $993.5 million.Net cash used in financing activities in 2017 was $9.0 million compared to $21.7 million for 2016. In 2017, cash was primarily used for dividendpayments of $7.3 million.The states of California, Maryland, Oregon, Washington, Colorado and Delaware required us to maintain specified financial instruments totaling$96.8 million and $135.0 million at December 31, 2017 and 2016, respectively, to cover potential workers’ compensation claims losses related tothe Company’s current and former status as a self-insured employer. At December 31, 2017, the Company provided surety bonds and standbyletters of credit totaling $96.8 million, including a California requirement of $84.8 million. Management expects the surety bonds and letters ofcredit to decrease over time as a result of a declining self-insured liability in California. The Company’s self-insured status in California ended onDecember 31, 2014.As part of its fronted workers’ compensation insurance program with Chubb, the Company makes monthly payments into a trust account (the“Chubb trust account”) to be used for the payment of future claims. The balance in the Chubb trust account was $380.6 million and $277.1 millionat December 31, 2017 and December 31, 2016, respectively. The Chubb trust account balances are included as a component of the current andlong-term restricted cash and investments in the Company’s consolidated balance sheets.The Company maintains a credit agreement (the “Agreement”) with its principal bank, Wells Fargo Bank, National Association (the “Bank”). TheAgreement provides for a $25.0 million revolving credit line, with a $6.0 million sublimit for unsecured standby letters of credit.- 28 -Advances under the revolving credit facility bear interest as selected by the Company of either (a) a daily floating rate of one month LIBOR plus1.75% or (b) a fixed rate of LIBOR plus 1.75%. The Agreement also provides for an unused commitment fee of 0.375% per year on the averagedaily unused amount of the revolving credit facility, as well as a fee of 1.75% of the face amount of each letter of credit reserved under the line ofcredit and 0.95% on standalone, fully secured letters of credit. The Company had no outstanding borrowings on its revolving credit line atDecember 31, 2017 and 2016. The revolving line of credit expires on July 1, 2018.The credit facility is collateralized by the Company’s accounts receivable and other rights to receive payment, general intangibles, inventory andequipment.The Agreement requires the satisfaction of certain financial covenants as follows: •EBITDA [net profit before taxes plus interest expense (net of capitalized interest expense), depreciation expense, and amortizationexpense] on a rolling four-quarter basis of not less than $25 million at the end of each fiscal quarter; and •ratio of restricted and unrestricted cash and investments to workers’ compensation and safety incentive liabilities of at least1.0:1.0, measured quarterly. The Agreement includes certain additional restrictions as follows: •incurring additional indebtedness is prohibited without the prior approval of the Bank, other than purchase financing (includingcapital leases) for the acquisition of assets, provided that the aggregate of all purchase financing does not exceed $1,000,000 atany time; and •the Company may not terminate or cancel any of the AICE policies without the Bank’s prior written consent.The Agreement also contains customary events of default. If an event of default under the Agreement occurs and is continuing, the Bank maydeclare any outstanding obligations under the Agreement to be immediately due and payable. At December 31, 2017, the Company was incompliance with all covenants.The Company maintains a mortgage loan with the Bank with a balance of approximately $4.4 million and $4.6 million at December 31, 2017 and2016, respectively, secured by the Company’s corporate office building in Vancouver, Washington. This loan requires payment of monthlyinstallments of $18,375, bearing interest at the one month LIBOR plus 2.0%, with the unpaid principal balance due July 1, 2022.Management expects that the funds anticipated to be generated from operations, current liquid assets, and availability under the Company’srevolving credit facility will be sufficient in the aggregate to fund the Company’s working capital needs for the next twelve months.- 29 -Contractual ObligationsThe Company's contractual obligations as of December 31, 2017 are summarized below: As of December 31, 2017 Payments Due by Period (in thousands) Less than 1 - 3 4 - 5 After Total 1 year years years 5 years Operating leases $23,671 $6,231 $9,998 $6,241 $1,201 Long-term debt 4,392 221 441 3,730 — Total contractual obligations $28,063 $6,452 $10,439 $9,971 $1,201InflationInflation generally has not been a significant factor in the Company's operations during the periods discussed above. The Company has taken intoaccount the impact of escalating medical and other costs in establishing reserves for future workers' compensation claims payments.Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company's exposure to market risk for changes in interest rates primarily relates to its investment portfolio and its outstanding borrowings onits line of credit and long-term debt. As of December 31, 2017, the Company’s investments consisted principally of approximately $184.7 million incorporate bonds, $86.2 million in mortgage backed securities, $46.2 million in U.S. treasuries, $38.0 million in U.S. government agency securities,$19.0 million in commercial paper, $16.1 million in money market funds, and $0.5 million in municipal bonds. The Company’s outstanding debttotaled approximately $4.4 million at December 31, 2017. Based on the Company's overall interest exposure at December 31, 2017, a 50 basispoint increase in market interest rates would have a $6.2 million effect on the fair value of the Company's investment portfolio. A 50 basis pointincrease would have an immaterial effect on the Company’s outstanding borrowings because of the relative size of the outstanding borrowings.Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe consolidated financial statements and notes thereto required by this item begin on page F-1 of this report, as listed in Item 15.Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.Item 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain “disclosure controls and procedures” that are designed with the objective of providing reasonable assurance that information requiredto be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulatedand communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allowtimely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizesthat any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and our management is required to apply their judgment in evaluating the cost-benefit relationship of possible controls andprocedures.- 30 -Based on their evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of December 31, 2017.Annual Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) as defined in Rules 13a-15(f)and 15d-15(f) under the Exchange Act. Our ICFR is a process designed by, or under the supervision of, our CEO and our CFO to providereasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for externalpurposes in accordance with accounting principles generally accepted in the United States of America. Management, with the participation of ourCEO and CFO, conducted an evaluation of the effectiveness of our ICFR based on the framework established in Internal Control—IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, managementhas concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.The effectiveness of the Company’s internal control over financial reporting has also been audited by Deloitte & Touche LLP, the Company’sindependent registered public accounting firm, as stated in their report included below.Changes in Internal Control over Financial ReportingManagement previously identified a material weakness in internal controls related to its information and technology systems (“IT systems”).Specifically, the Company did not maintain effective controls over user access to IT systems and changes to programs and data. The followingsteps have been implemented by the Company in 2017 to remediate the material weakness: •Established a more rigorous review process over the evaluation of user access to IT systems, including preventative reviewsduring employment changes and periodic detective reviews. •Improved the structure and governance surrounding controls over IT systems. •Implemented enhanced review procedures and analysis over the segregation of duties in IT systems. •Improved the procedures and documentation associated with program change management, including implementing improved toolsover system change logging. •Revised policies on the documentation of IT control performance and the retention of that documentation. •Replaced certain IT systems that had inherent control limitations, including the successful replacement of the staffing servicesrevenue system. As of December 31, 2017, management completed its assessment of the design and operating effectiveness of the internal controls over financialreporting, and based on this assessment, management concluded that the material weakness was remediated as of December 31, 2017.Other than the activities described above, there have been no changes in the Company’s internal control over financial reporting that occurredduring the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.- 31 -Inherent LimitationsControl systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems'objectives are being met. Further, the design of any control systems must reflect the fact that there are resource constraints, and the benefits ofall controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitationsinclude the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controlsystems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of thecontrols. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may becomeinadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.Chief Executive Officer and Chief Financial Officer CertificationsThe certifications of our CEO and CFO required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to thisreport.- 32 -REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofBarrett Business Services, Inc.Vancouver, WashingtonOpinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of Barrett Business Services, Inc. (the “Company”) and subsidiaries as of December31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financialreporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated March 6, 2018,expressed an unqualified opinion on those financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management's Report over Internal Control over FinancialReporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a publicaccounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federalsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate./s/ Deloitte & Touche LLP Portland, Oregon March 6, 2018 - 33 -Item 9B.OTHER INFORMATIONNone.PART IIIItem 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation required by this item is incorporated by reference to the information set forth under the captions "Item 1-Election of Directors," "StockOwnership by Principal Stockholders and Management--Section 16(a) Beneficial Ownership Reporting Compliance," “Background and Experienceof Executive Officers” and "Code of Ethics" in our definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant toRegulation 14A within 120 days after the end of the fiscal year covered by this report (the “Proxy Statement”).Item 11.EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference to the information set forth under the captions “Director Compensation for 2017”and “Executive Compensation” in the Proxy Statement.Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this item is incorporated by reference to the information set forth under the caption "Stock Ownership of PrincipalStockholders and Management – Beneficial Ownership Table" and “Additional Equity Compensation Plan Information” in the Proxy Statement.Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated by reference to the information set forth under the caption "Item 1-Election of Directors" and"Related Person Transactions" in the Proxy Statement.Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated by reference to the information set forth under the caption "Matters Relating to OurIndependent Registered Public Accounting Firms” in the Proxy Statement. - 34 -PART IVItem 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULESFinancial Statements and SchedulesThe Financial Statements, together with the report thereon of Deloitte & Touche LLP and Moss Adams LLP, are included on the pages indicatedbelow: PageReport of Independent Registered Public Accounting Firm – Deloitte & Touche LLP F-1Report of Independent Registered Public Accounting Firm – Moss Adams LLP F-2Consolidated Balance Sheets as of December 31, 2017 and 2016 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015 F-4 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015 F-5 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015 F-7 Notes to Consolidated Financial Statements F-8No schedules are required to be filed herewith.ExhibitsExhibits are listed in the Exhibit Index that follows the signature page of this report.Item 16.FORM 10-K SUMMARYNone. - 35 -REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors of and StockholdersBarrett Business Services, Inc.Vancouver, WashingtonOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Barrett Business Services, Inc. and subsidiaries (the "Company") as ofDecember 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, foreach of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In ouropinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016,and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accountingprinciples generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theCompany's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2018,expressed an unqualified opinion on the Company's internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company'sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, aswell as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Portland, Oregon March 6, 2018 We have served as the Company's auditor since 2016.F-1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and StockholdersBarrett Business Services, Inc. We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows ofBarrett Business Services, Inc. (the “Company”) for the year ended December 31, 2015. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on ouraudit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements of Barrett Business Services, Inc. referred to above present fairly, in all material respects, theconsolidated results of operations and cash flows for the year ended December 31, 2015, in conformity with generally accepted accountingprinciples in the United States of America. /s/ Moss Adams LLP Portland, OregonMay 25, 2016 F-2Barrett Business Services, Inc.Consolidated Balance SheetsDecember 31, 2017 and 2016(In Thousands, Except Par Value) December 31, December 31, 2017 2016 ASSETS Current assets: Cash and cash equivalents $59,835 $50,768 Trade accounts receivable, net 136,664 126,484 Income taxes receivable 1,686 — Prepaid expenses and other 5,724 3,899 Investments 674 5,675 Restricted cash and investments 103,652 48,557 Total current assets 308,235 235,383 Investments 1,199 642 Property, equipment and software, net 24,909 26,673 Restricted cash and investments 291,273 252,707 Goodwill 47,820 47,820 Other assets 3,215 9,293 Deferred income taxes 5,834 9,370 $682,485 $581,888 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $221 $221 Accounts payable 5,166 4,944 Accrued payroll, payroll taxes and related benefits 181,639 153,110 Income taxes payable — 3,041 Other accrued liabilities 9,024 7,674 Workers' compensation claims liabilities 97,673 81,339 Safety incentives liability 28,532 24,835 Total current liabilities 322,255 275,164 Long-term workers' compensation claims liabilities 265,844 231,198 Long-term debt 4,171 4,392 Customer deposits and other long-term liabilities 1,381 1,441 Total liabilities 593,651 512,195 Commitments and contingencies (Notes 6, 8 and 12) Stockholders' equity: Common stock, $.01 par value; 20,500 shares authorized, 7,301 and 7,244 shares issued and outstanding in 2017 and 2016, respectively 73 72 Additional paid-in capital 12,311 9,638 Accumulated other comprehensive loss (1,430) (3)Retained earnings 77,880 59,986 Total stockholders' equity 88,834 69,693 $682,485 $581,888 The accompanying notes are an integral part of these consolidated financial statements.F-3Barrett Business Services, Inc.Consolidated Statements of OperationsYears Ended December 31, 2017, 2016 and 2015(In Thousands, Except Per Share Amounts) Year Ended December 31, 2017 2016 2015 Revenues: Professional employer service fees$758,046 $673,924 $572,286 Staffing services 162,386 166,662 168,555 Total revenues 920,432 840,586 740,841 Cost of revenues: Direct payroll costs 122,533 126,753 127,964 Payroll taxes and benefits 404,687 357,867 312,284 Workers' compensation 234,681 210,430 171,137 Total cost of revenues 761,901 695,050 611,385 Gross margin 158,531 145,536 129,456 Selling, general and administrative expenses 123,138 113,342 90,177 Depreciation and amortization 5,452 3,253 2,851 Income from operations 29,941 28,941 36,428 Other income (expense): Investment income, net 4,668 956 771 Interest expense (313) (807) (1,965)Loss on litigation — (3,544) — Other, net 82 40 (88)Other income (expense), net 4,437 (3,355) (1,282)Income before income taxes 34,378 25,586 35,146 Provision for income taxes 9,208 6,787 9,652 Net income$25,170 $18,799 $25,494 Basic income per common share$3.46 $2.60 $3.55 Weighted average number of basic common shares outstanding 7,275 7,226 7,173 Diluted income per common share$3.33 $2.55 $3.47 Weighted average number of diluted common shares outstanding 7,551 7,378 7,353 Cash dividends per common share$1.00 $0.88 $0.88 The accompanying notes are an integral part of these consolidated financial statements.F-4Barrett Business Services, Inc.Consolidated Statements of Comprehensive IncomeYears Ended December 31, 2017, 2016 and 2015(In Thousands) Year Ended December 31, 2017 2016 2015 Net income $25,170 $18,799 $25,494 Unrealized (losses) gains on investments, net of tax of ($505), $19, and ($8) in 2017, 2016, and 2015, respectively (1,427) 28 (8)Comprehensive income $23,743 $18,827 $25,486 The accompanying notes are an integral part of these consolidated financial statements. F-5Barrett Business Services, Inc.Consolidated Statements of Stockholders' EquityYears Ended December 31, 2017, 2016 and 2015(In Thousands) Accumulated Other Additional Comprehensive Common Stock Paid-in (Loss) Retained Shares Amount Capital Income Earnings Total Balance, December 31, 2014 7,126 $71 $4,410 $(23) $28,362 $32,820 Common stock issued on exercise of options and vesting of restricted stock units 89 1 701 — — 702 Common stock repurchased on vesting of restricted stock units (12) — (465) — — (465)Share-based compensation expense — — 2,386 — — 2,386 Excess tax benefits from share-based compensation — — (68) — — (68)Cash dividends on common stock — — — — (6,310) (6,310)Unrealized loss on investments, net of tax — — — (8) — (8)Net Income — — — — 25,494 25,494 Balance, December 31, 2015 7,203 $72 $6,964 $(31) $47,546 $54,551 Common stock issued on exercise of options and vesting of restricted stock units 52 — 72 — — 72 Common stock repurchased on vesting of restricted stock units (11) — (433) — — (433)Share-based compensation expense — — 2,782 — — 2,782 Excess tax benefits from share-based compensation — — 253 — — 253 Cash dividends on common stock — — — — (6,359) (6,359)Unrealized gain on investments, net of tax — — — 28 — 28 Net Income — — — — 18,799 18,799 Balance, December 31, 2016 7,244 $72 $9,638 $(3) $59,986 $69,693 Common stock issued on exercise of options and vesting of restricted stock units 86 1 162 — — 163 Common stock repurchased on vesting of restricted stock units (29) — (1,673) — — (1,673)Share-based compensation expense — — 4,184 — — 4,184 Cash dividends on common stock — — — — (7,276) (7,276)Unrealized loss on investments, net of tax — — — (1,427) — (1,427)Net Income — — — — 25,170 25,170 Balance, December 31, 2017 7,301 $73 $12,311 $(1,430) $77,880 $88,834 The accompanying notes are an integral part of these consolidated financial statements. F-6Barrett Business Services, Inc.Consolidated Statements of Cash FlowsYears Ended December 31, 2017, 2016 and 2015(In Thousands) Year Ended December 31, 2017 2016 2015 Cash flows from operating activities: Net income $25,170 $18,799 $25,494 Reconciliations of net income to net cash from operating activities: Depreciation and amortization 5,452 3,253 2,851 Gains recognized on investments (51) (3) (2)Losses recognized on sale of property — 31 — Deferred income taxes 4,039 (1,704) 2,728 Share-based compensation 4,184 2,782 2,386 Excess tax from share-based compensation — (253) 68 Changes in certain operating assets and liabilities: Trade accounts receivable (10,180) (35,955) 12,097 Income taxes receivable (1,686) 1,038 10,521 Prepaid expenses and other (1,825) (726) 640 Accounts payable 222 1,727 498 Accrued payroll, payroll taxes and related benefits 28,529 31,767 5,506 Other accrued liabilities 1,350 1,508 (64)Income taxes payable (3,041) 3,294 506 Workers' compensation claims liabilities 57,140 51,235 30,397 Safety incentives liability 3,697 3,582 7,021 Customer deposits, long-term liabilities and other assets, net (141) (68) (16)Net cash provided by operating activities 112,859 80,307 100,631 Cash flows from investing activities: Purchase of property and equipment (3,687) (7,106) (2,996)Proceeds from sale of property — 1,459 — Purchase of investments (6,283) (264) (8,214)Proceeds from sales and maturities of investments 10,718 4,796 52,996 Purchase of restricted cash and investments (1,078,309) (185,845) (336,083)Proceeds from sales and maturities of restricted cash and investments 982,776 153,890 238,701 Net cash used in investing activities (94,785) (33,070) (55,596)Cash flows from financing activities: Proceeds from credit-line borrowings 24,899 14,868 46,106 Payments on credit-line borrowings (24,899) (14,868) (46,106)Payments on long-term debt (221) (15,220) (25,220)Common stock repurchased on vesting of restricted stock units (1,673) (433) (465)Dividends paid (7,276) (6,359) (6,310)Proceeds from exercise of stock options 163 72 702 Excess tax benefits from share-based compensation — 253 (68)Net cash used in financing activities (9,007) (21,687) (31,361)Net increase in cash and cash equivalents 9,067 25,550 13,674 Cash and cash equivalents, beginning of period 50,768 25,218 11,544 Cash and cash equivalents, end of period $59,835 $50,768 $25,218 The accompanying notes are an integral part of these consolidated financial statements. F-7Barrett Business Services, Inc.Notes to Consolidated Financial Statements Note 1 - Summary of Operations and Significant Accounting PoliciesNature of operationsBarrett Business Services, Inc. (“BBSI” or the “Company”), is a leading provider of business management solutions for small and mid-sizedcompanies. The Company has developed a management platform that integrates a knowledge-based approach from the management consultingindustry with tools from the human resource outsourcing industry. This platform, through the effective leveraging of human capital, helps ourbusiness owner clients run their businesses more effectively.We believe this platform, delivered through our decentralized organizational structure, differentiates BBSI from our competitors. The Companyoperates through a network of 58 branch offices throughout California, Oregon, Utah, Washington, Idaho, Arizona, Colorado, Maryland, NorthCarolina, Delaware, Nevada, Pennsylvania and Virginia. Approximately 79%, 78% and 78%, respectively, of our revenue during 2017, 2016, and2015 was attributable to our California operations. BBSI was incorporated in Maryland in 1965.The Company operates a wholly owned captive insurance company, Associated Insurance Company for Excess ("AICE"). AICE is a fully licensedcaptive insurance company holding a certificate of authority from the Arizona Department of Insurance. The purpose of AICE is twofold: (1) toprovide access to more competitive and cost effective insurance markets and (2) to provide additional flexibility in cost effective risk management.AICE provides the Company with reinsurance coverage up to $5.0 million per occurrence, except in Maryland and Colorado, where our retentionper occurrence is $1.0 million and $2.0 million, respectively. The Company maintains excess workers’ compensation insurance coverage withChubb Limited (“Chubb”) between $5.0 million and statutory limits per occurrence, except in Maryland, where coverage with Chubb is between $1.0million and statutory limits per occurrence, and in Colorado, where the coverage with Chubb is between $2.0 million and statutory limits peroccurrence.The Company also operates a fully licensed, wholly owned insurance company, Ecole Insurance Company (“Ecole”). Ecole is a fully licensedinsurance company holding a certificate of authority from the Arizona Department of Insurance. Ecole provides workers’ compensation coverage tothe Company’s employees working in Arizona, Utah and Nevada.Principles of consolidationThe accompanying financial statements are prepared on a consolidated basis. All intercompany account balances and transactions between BBSI,AICE, and Ecole have been eliminated in consolidation.Reportable segmentThe Company has one operating and reporting segment. The chief operating decision maker (our Chief Executive Officer) regularly reviews thefinancial information of our business at a consolidated level in deciding how to allocate resources and in assessing performance.F-8 Revenue recognitionWe recognize professional employer (“PEO”) service and staffing service revenue as services are rendered by our workforce. PEO services arenormally used by organizations to satisfy ongoing needs related to the management of human capital and are governed by the terms of a clientservices agreement which covers all employees at a particular work site. Our client services agreements have a minimum term of one year, arerenewable on an annual basis and typically require 30 days’ written notice to cancel or terminate the contract by either party. In addition, our clientservices agreements provide for immediate termination upon any default of the client regardless of when notice is given.We report PEO revenues net of direct payroll costs because we are not the primary obligor for these payments to our clients’ employees. Directpayroll costs include salaries, wages, health insurance, and employee out-of-pocket expenses incurred incidental to employment. Safetyincentives represent consideration payable to PEO customers, and therefore safety incentive costs are also netted against PEO revenue. Safetyincentives are paid to certain client companies for maintaining safe-work practices and minimizing workplace injuries. The safety incentive isbased on a percentage of annual payroll and is paid annually to clients who meet predetermined workers' compensation claims cost objectives.Cost of revenuesOur cost of revenues for PEO services includes employer payroll-related taxes and workers' compensation costs. Our cost of revenues for staffingservices includes direct payroll costs, employer payroll-related taxes, employee benefits, and workers’ compensation costs. Direct payroll costsrepresent the gross payroll earned by staffing services employees based on salary or hourly wages. Payroll taxes and employee benefits consistof the employer's portion of Social Security and Medicare taxes, federal and state unemployment taxes, and staffing services employeereimbursements for materials, supplies and other expenses, which are paid by our customer. Workers' compensation costs consist primarily ofclaims reserves, claims administration fees, legal fees, medical cost containment (“MCC”) expense, state administrative agency fees, third-partybroker commissions, risk manager payroll, premiums for excess insurance, and the fronted insurance program, and costs associated withoperating our two wholly owned insurance companies, AICE and Ecole.Cash and cash equivalentsWe consider non-restricted short-term investments, which are highly liquid, readily convertible into cash, and have maturities at acquisition of lessthan three months to be cash equivalents for purposes of the consolidated statements of cash flows and consolidated balance sheets. TheCompany maintains cash balances in bank accounts that normally exceed FDIC insured limits. The Company has not experienced any lossesrelated to its cash concentration.InvestmentsThe Company classifies investments as trading or available-for-sale. We had no trading securities at December 31, 2017 and 2016. TheCompany’s investments are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated othercomprehensive income (loss) in stockholders' equity. Management considers available evidence in evaluating potential impairment of investments,including the duration and extent to which fair value is less than cost. Realized gains and losses on sales of investments are included ininvestment income in our consolidated statements of operations. In the event a loss is determined to be other-than-temporary, the loss will berecognized in the consolidated statements of operations.F-9 Restricted cash and investmentsThe Company holds restricted cash and investments primarily for the future payment of workers’ compensation claims. Restricted investmentshave been categorized as available-for-sale. They are reported at fair value with unrealized gains and losses, net of taxes, shown as a componentof accumulated other comprehensive income (loss) in stockholders’ equity. Management considers available evidence in evaluating potentialimpairment of restricted investments, including the duration and extent to which fair value is less than cost. Realized gains and losses on sales ofrestricted investments are included in investment income in our consolidated statements of operations. In the event a loss is determined to beother-than-temporary, the loss will be recognized in the consolidated statements of operations.Allowance for doubtful accountsThe Company had an allowance for doubtful accounts of $265,000 and $78,000 at December 31, 2017 and 2016, respectively. We make estimatesof the collectability of our accounts receivable for services provided to our customers. Management analyzes historical bad debts, customerconcentrations, customer credit-worthiness, current economic trends and changes in customers' payment trends when evaluating the adequacy ofthe allowance for doubtful accounts. If the financial condition of our customers deteriorates resulting in an impairment of their ability to makepayments, additional allowances may be required.Our allowance for doubtful accounts activity is summarized as follows (in thousands): 2017 2016 2015 Balance at January 1, Allowance for doubtful accounts $78 $268 $291 Charges to expense 192 (115) 116 Write-offs of uncollectible accounts, net of recoveries (5) (75) (139)Balance at December 31, Allowance for doubtful accounts $265 $78 $268 F-10 Income taxesOur income taxes are accounted for using an asset and liability approach. This requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at theapplicable tax rates. A valuation allowance is recorded against deferred tax assets if, based on the weight of the available evidence, it is morelikely than not that some or all of the deferred tax assets will not be realized. The factors used to assess the likelihood of realization include theCompany’s forecast of the reversal of temporary differences, future taxable income and available tax planning strategies that could beimplemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect theultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings.The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application ofcomplex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability ofsustaining uncertain tax positions. The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the taxpositions will be sustained on examination by the tax authorities. The tax benefit is measured based on the largest benefit that has a greater than50% likelihood of being realized upon ultimate settlement. As facts and circumstances change, we reassess these probabilities and record anychanges in the consolidated financial statements as appropriate. The Company recognizes interest and penalties related to unrecognized taxbenefits in income tax expense.Goodwill and intangible assetsGoodwill is recorded as the difference, if any, between the aggregate consideration paid for a business combination and the fair value of the netassets acquired. Goodwill is not amortized but is evaluated for impairment annually, or more frequently if circumstances indicate that it is morelikely than not that the fair value of the reporting unit is below its carrying value. The Company has one reporting unit and evaluates the carryingvalue of goodwill annually at December 31. No impairment has been recognized in the periods presented.Property, equipment and softwareProperty, equipment and software are stated at cost. Expenditures for maintenance and repairs are charged to selling, general and administrativeexpenses as incurred and expenditures for additions and improvements are capitalized. The cost of assets sold or otherwise disposed of and therelated accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is reflected in the consolidated statements ofoperations.Depreciation of property, equipment and software is calculated using either straight-line or accelerated methods over estimated useful lives of therelated assets or lease terms, as follows: YearsBuildings 39Office furniture and fixtures 7Computer hardware and software 3-10Leasehold improvements Shorter of lease term or estimated useful lifeF-11 Impairment of long-lived assetsLong-lived assets, such as property, equipment and software and acquired intangibles subject to amortization, are reviewed for impairmentannually, or whenever events or changes in circumstances indicate that the remaining estimated useful life may warrant revision or that thecarrying amount of an asset may not be recoverable. Some of the events or changes in circumstances that would trigger an impairment reviewinclude, but are not limited to, significant under-performance relative to expected and/or historical results, significant negative industry or economictrends or knowledge of transactions involving the sale of similar property at amounts below the carrying value.Assets are grouped for measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flowsof other assets. If the carrying amount of an asset group exceeds the estimated undiscounted future cash flows expected to be generated by theasset group, then an impairment charge is recognized to the extent the carrying amount exceeds the asset group’s fair value. In determining fairvalue, management considers current results, trends, future prospects, and other economic factors.LeasesThe Company leases office facilities and equipment under operating leases. For significant lease agreements that provide for escalating rentpayments or free-rent occupancy periods, the Company recognizes rent expense on a straight-line basis over the non-cancelable lease term.Deferred rent is included in other accrued liabilities and customer deposits and other long-term liabilities in the consolidated balance sheets.Workers’ compensation claims liabilitiesOur workers’ compensation claims liabilities do not represent an exact calculation of liability but rather management’s best estimate, utilizingactuarial expertise and projection techniques, at a given reporting date. The estimated liability for open workers’ compensation claims is based onan evaluation of information provided by our third-party administrators for workers’ compensation claims, coupled with an actuarial estimate offuture adverse loss development with respect to reported claims and incurred but not reported claims (together, “IBNR”). At December 31, 2017and December 31, 2016, workers' compensation claims liabilities included case reserve estimates for reported losses, plus additional amounts forestimated IBNR claims, MCC and legal costs, and unallocated loss adjustment expenses. These estimates are reviewed at least quarterly andadjustments to estimated liabilities are reflected in current operating results as they become known.The process of arriving at an estimate of unpaid claims and claims adjustment expense involves a high degree of judgment and is affected by bothinternal and external events, including changes in claims handling practices, changes in reserve estimation procedures, inflation, trends in thelitigation and settlement of pending claims, and legislative changes.Our estimates are based on informed judgment, derived from individual experience and expertise applied to multiple sets of data and analyses. Weconsider significant facts and circumstances known both at the time that loss reserves are initially established and as new facts andcircumstances become known. Due to the inherent uncertainty underlying loss reserve estimates, the expenses incurred through final resolution ofour liability for our workers’ compensation claims will likely vary from the related loss reserves at the reporting date. Therefore, as specific claimsare paid out in the future, actual paid losses may be materially different from our current loss reserves.The Company’s independent actuary provides management with an estimate of the current and long-term portions of our total workers’compensation claims, which is an important factor in our process for estimating workers' compensation claims liabilities. The current portionrepresents the independent actuary’s best estimate of payments the Company will make related to workers’ compensation claims over the ensuingtwelve months.F-12 A basic premise in most actuarial analyses is that historical data and past patterns demonstrated in the incurred and paid historical data form areasonable basis upon which to project future outcomes, absent a material change. Significant structural changes to the available data canmaterially impact the reserve estimation process. To the extent a material change affecting the ultimate claim liability becomes known, suchchange is quantified to the extent possible through an analysis of internal Company data and, if available and when appropriate, external data.Nonetheless, actuaries exercise a considerable degree of judgment in the evaluation of these factors and the need for such actuarial judgment ismore pronounced when faced with material uncertainties.Safety incentives liabilitySafety incentives represent cash incentives paid to certain PEO client companies for maintaining safe-work practices and minimizing workplaceinjuries. The incentive is based on a percentage of annual payroll and is paid annually to customers who meet predetermined workers’compensation claims cost objectives. Safety incentive payments are made only after closure of all workers' compensation claims incurred duringthe customer’s contract period. The safety incentive liability is estimated and accrued each month based upon contract year-to-date payroll andthe then current amount of the customer’s estimated workers’ compensation claims reserves as established by us and our third partyadministrator. The Company provided $28.5 million and $24.8 million at December 31, 2017 and 2016, respectively, as an estimate of the liabilityfor unpaid safety incentives.Customer depositsWe require deposits from certain PEO customers to cover a portion of our accounts receivable due from such customers in the event of default ofpayment.Comprehensive income (loss)Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to theCompany's stockholders.Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. generally accepted accounting principles(“GAAP”) are included in comprehensive income (loss), but excluded from net income (loss) as these amounts are recorded directly as anadjustment to stockholders' equity. Our other comprehensive income (loss) comprises unrealized holding gains and losses on our available-for-saleinvestments.Statements of cash flowsInterest paid during 2017, 2016, and 2015 did not materially differ from interest expense. Income taxes paid (received) by the Company totaled$9.9 million, $4.2 million and $($4.1) million in 2017, 2016, and 2015, respectively.F-13 Basic and diluted earnings per shareBasic earnings per share are computed based on the weighted average number of common shares outstanding for each year using the treasurymethod. Diluted earnings per share reflect the potential effects of the exercise of outstanding stock options and the issuance of stock associatedwith outstanding restricted stock units. Basic and diluted shares outstanding are summarized as follows (in thousands): Year Ended December 31, 2017 2016 2015 Weighted average number of basic shares outstanding 7,275 7,226 7,173 Effect of dilutive securities 276 152 180 Weighted average number of diluted shares outstanding 7,551 7,378 7,353 ReclassificationsDue to the adoption of Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes, prior year amountshave been reclassified to conform to the current year presentation. Such reclassifications had no impact on the Company’s financial condition,operating results, cash flows or stockholders’ equity.Accounting estimatesThe preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the reporting periods. Management bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are used for fairvalue measurement of investments, allowance for doubtful accounts, deferred income taxes, carrying values for goodwill and property andequipment, accrued workers' compensation liabilities and safety incentive liabilities. Actual results may or may not differ from such estimates.F-14 Recent accounting pronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The coreprinciple of the update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amountthat reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The update also requiresdisclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenueand cash flows arising from contracts with customers.In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” The update defersthe effective date of ASU 2014-09 by one year, requiring public business entities to apply the guidance in ASU 2014-09 to annual reporting periodsbeginning after December 15, 2017, including interim reporting periods within that reporting period.In March, April and May 2016, the FASB issued the following ASUs: ASU No. 2016-08, “Principal versus Agent Considerations - ReportingRevenue Gross versus Net;” ASU No. 2016-10, “Identifying Performance Obligations and Licensing”; and ASU No. 2016-12, “Narrow-ScopeImprovements and Practical Expedients.” The amendments in these updates do not change the core principles of the guidance in ASU 2014-09.The effective date and transition requirements for these updates are the same as the effective date and transition requirements in ASU 2015-14.We have adopted ASU 2014-09 and all related ASUs effective January 1, 2018 using the modified retrospective method. We have determined thatthere are no material changes to our revenue recognition policies or to our consolidated financial statements as a result of adopting the standard. In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” The amendments in this update simplifythe presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent on the consolidatedbalance sheets. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15,2016, and interim periods within those years. The Company adopted this standard in the first interim period for the year ending December 31, 2017.The adoption of this standard resulted in a current to noncurrent adjustment to the Company’s current deferred tax asset balance of $25.2 millionat December 31, 2016.In February 2016, the FASB issued ASU No. 2016-02, “Leases.” The core principle is that a lessee should recognize the assets and liabilities thatarise from leases, including operating leases. Under the new guidance, a lessee should recognize in the statement of financial position a liability tomake lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leaseswith a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize leaseassets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have notsignificantly changed from previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, andinterim periods within those years. The Company is currently evaluating the standard and the impact on its consolidated financial statements andfootnote disclosures.In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation.” The amendments in this update simplify severalaspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equityor liabilities, and classification on the statement of cash flows. The amendments in this update are effective for fiscal years beginning afterDecember 15, 2016, and interim periods within those years. The Company adopted this standard in the first interim period for the year endingDecember 31, 2017, resulting in an immaterial amount of excess tax benefit being recognized in income tax benefit on the consolidated statementof operations, which was classified along with other income tax cash flows as an operating activity on the statement of cash flows.F-15 In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows: Restricted Cash.” The amendments in this update require thata statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described asrestricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents shouldbe included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement ofcash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within thoseyears. The Company is adopting this standard in the first interim period for the year ending December 31, 2018. The Company’s balance ofrestricted cash, which is within restricted cash and investments under current and non-current assets on the consolidated balance sheets, was$70.6 million for the period ended December 31, 2017.In March 2017, the FASB issued ASU No. 2017-08, “Premium Amortization on Purchased Callable Debt.” The amendments in this update shortenthe amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized tothe earliest call date. Under current GAAP, premiums and discounts on callable debt securities generally are amortized to the maturity date. Theamendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Theamendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. As ofDecember 31, 2017, the amendments in this update would not have a material impact on the Company. Note 2 - Concentration of Credit RiskFinancial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents, investments, restricted cashand investments, and trade accounts receivable. We limit investment of cash equivalents and investments to financial institutions with high creditratings. Credit risk on trade accounts is minimized as a result of the large and diverse nature of our customer base.At December 31, 2017, we had concentrations of credit risk as follows: •$184.7 million, at fair value, in corporate bonds. •$86.2 million, at fair value, in mortgage backed securities. •$46.2 million, at fair value, in U.S. treasuries. •$38.0 million, at fair value, in U.S. government agency securities. •$19.0 million, at fair value, in commercial paper. •$16.1 million, at fair value, in money market funds. F-16 Note 3 - Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date.All of our financial instruments are recognized in our consolidated balance sheets. Carrying values approximate fair value of most financial assetsand liabilities. Investments and restricted cash and investments are recorded at market value. The interest rates on our investments approximatecurrent market rates for these types of investments.In determining the fair value of our financial assets, the Company predominately uses the market approach. In determining the fair value of all itscorporate bonds, mortgage backed securities, U.S. treasuries, U.S. government agency securities, commercial paper, money market funds,municipal bonds, and asset backed securities, the Company utilizes non-binding quotes provided by our investment brokers.Factors used in determining the fair value of our financial assets and liabilities are summarized into three levels as established in the fair valuehierarchy framework. The three levels of the fair value hierarchy are described below.Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.Level 2 – Inputs to the valuation methodology include: •Quoted prices for similar assets or liabilities in active markets; •Quoted prices for identical or similar assets or liabilities in inactive markets; •Inputs other than quoted prices that are observable for the asset or liability; •Inputs that are derived principally from or corroborated by observable market data by correlation or other means.Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.F-17 In determining the fair value measurement of our financial assets, the fair value measurement level within the hierarchy is based on the lowestlevel input and is applied to each financial asset. Valuation techniques are used to maximize the use of observable inputs and minimize the use ofunobservable inputs.The following table summarizes the Company’s investments at December 31, 2017 and 2016 measured at fair value on a recurring basis (inthousands): December 31, 2017 December 31, 2016 Gross Gross Unrealized Unrealized Recorded Gains Recorded Cost (Losses) Basis Cost (Losses) Basis Current: Cash equivalents: Money market funds $121 $— $121 $1,943 $— $1,943 U.S. treasuries 100 — 100 — — — Total cash equivalents 221 — 221 1,943 — 1,943 Investments: Corporate bonds 400 — 400 225 (1) 224 U.S. treasuries 199 — 199 — — — U.S. government agency securities 65 — 65 — — — Municipal bonds 10 — 10 713 1 714 Certificates of deposit — — — 4,737 — 4,737 Total current investments 674 — 674 5,675 — 5,675 Long term: Investments: Mortgage backed securities 577 (5) 572 — — — Corporate bonds 419 (2) 417 567 (1) 566 U.S. treasuries 202 (2) 200 — — — Asset backed securities 10 — 10 — — — Municipal bonds — — — 76 — 76 Total long term investments 1,208 (9) 1,199 643 (1) 642 Restricted cash and investments (1): Corporate bonds 184,808 (953) 183,855 2,886 2 2,888 Mortgage backed securities 86,240 (595) 85,645 — — — U.S. treasuries 45,833 (143) 45,690 834 — 834 U.S. government agency securities 38,168 (222) 37,946 — — — Commercial paper 18,973 — 18,973 — — — Money market funds 16,018 — 16,018 284,593 — 284,593 Municipal bonds 472 (14) 458 2,069 (6) 2,063 Certificates of deposit — — — 6,047 — 6,047 Total restricted cash and investments 390,512 (1,927) 388,585 296,429 (4) 296,425 Total investments $392,615 $(1,936) $390,679 $304,690 $(5) $304,685 (1) Included in restricted cash and investments within the consolidated balance sheet as of December 31, 2017 is restricted cash and long termworkers' compensation deposits of $6.3 million, which is excluded from the table above. Restricted cash and investments are classified as currentand noncurrent on the balance sheet based on the nature of the restriction. F-18 The following table summarizes the Company's financial assets measured at fair value on a recurring basis by fair value hierarchy level (inthousands): December 31, 2017 December 31, 2016 Total Total Recorded Recorded Basis Level 1 Level 2 Level 3 Other (1) Basis Level 1 Level 2 Level 3 Other (1) Cash equivalents: Money market funds $121 $— $— $— $121 $1,943 $— $— $— $1,943 U.S. treasuries 100 — 100 — — — — — — Investments: Corporate bonds 817 — 817 — — 790 — 790 — — Mortgage backed securities 572 — 572 — — — — — — — U.S. treasuries 399 — 399 — — — — — — — U.S. government agency securities 65 — 65 — — — — — — — Municipal bonds 10 — 10 — — 790 — 790 — — Asset backed securities 10 — 10 — — — — — — Certificates of deposit — — — — — 4,737 — 4,737 — — Restricted cash and investments: Corporate bonds 183,855 — 183,855 — — 2,888 — 2,888 — — Mortgage backed securities 85,645 — 85,645 — — — — — — — U.S. treasuries 45,690 — 45,690 — — 834 — 834 — — U.S. government agency securities 37,946 — 37,946 — — — — — — — Commercial paper 18,973 — 18,973 — — — — — — — Money market funds 16,018 — — — 16,018 284,593 — — — 284,593 Municipal bonds 458 — 458 — — 2,063 — 2,063 — — Certificates of deposit — — — — — 6,047 — 6,047 — — Total investments $390,679 $— $374,540 $— $16,139 $304,685 $— $18,149 $— $286,536 (1) Investments in money market funds measured at fair value using the net asset value per share practical expedient are not subject to hierarchylevel classification disclosure. The Company invests in money market funds that seek to maintain a stable net asset value. These investmentsinclude commingled funds that comprise high-quality short-term securities representing liquid debt and monetary instruments where the redemptionvalue is likely to be the fair value. Redemption is permitted daily without written notice. F-19 Note 4 - Property, Equipment and SoftwareProperty, equipment and software consist of the following (in thousands): December 31, 2017 2016 Buildings $15,431 $15,250 Office furniture and fixtures 10,303 8,693 Computer hardware and software 15,056 15,719 Aircraft and other 1,129 4,856 41,919 44,518 Less accumulated depreciation and amortization (18,500) (19,335) 23,419 25,183 Land 1,490 1,490 $24,909 $26,673 Note 5 - Workers' Compensation ClaimsThe following table summarizes the aggregate workers' compensation reserve activity (in thousands): Years Ended December 31, 2017 2016 2015 Beginning balance Workers' compensation claims liabilities $312,537 $255,675 $225,278 Add: claims expense accrual Current period 154,091 137,852 122,740 Prior periods 5,159 (301) (13,683) 159,250 137,551 109,057 Less: claim payments related to Current period 19,537 20,180 17,517 Prior periods 82,573 69,626 61,143 102,110 89,806 78,660 Add: change in claims incurred in excess of retention limits (6,160) 9,117 — Ending balance Workers' compensation claims liabilities $363,517 $312,537 $255,675 Incurred but not reported (IBNR) $202,227 $158,169 $127,792 Ratio of IBNR to workers' compensation claims liabilities 56% 51% 50% The Company is a self-insured employer with respect to workers' compensation coverage for all of its employees (including employees co-employed through our client service agreements) working in Colorado, Maryland and Oregon, except as described below. In the state ofWashington, state law allows only the Company's staffing services and internal management employees to be covered under the Company's self-insured workers' compensation program.Effective January 1, 2015, the Company stopped maintaining a certificate to self-insure in the state of California, and it now obtains policies fromChubb Limited (“Chubb”) for all California-based clients along with clients in Delaware, Virginia, Pennsylvania, North Carolina, New Jersey, WestVirginia, Idaho and the District of Columbia. The arrangement with Chubb, known as a fronted program, provides BBSI a licensed, admittedinsurance carrier to issue policies on behalf of BBSI. The risk of loss up to the first $5.0 million per occurrence is retained by BBSI through areinsurance agreement. Chubb assumes credit risk should BBSI be unable to satisfy its indemnification obligations.F-20 As part of its fronted workers’ compensation insurance program with Chubb, the Company makes monthly payments into a trust account (“theChubb trust account”) to be used for the payment of future claims. The balance in the Chubb trust account was $380.6 million and $277.1 million atDecember 31, 2017 and December 31, 2016, respectively. The Chubb trust account balances are included as a component of the current and long-term restricted cash and investments in the Company’s consolidated balance sheets.The states of California, Maryland, Oregon, Washington, Colorado and Delaware required us to maintain specified investment balances or otherfinancial instruments totaling $96.8 million and $135.0 million at December 31, 2017 and 2016, respectively, to cover potential workers’compensation claims losses related to the Company’s current and former status as a self-insured employer. At December 31, 2017, the Companyprovided surety bonds and standby letters of credit totaling $96.8 million, including a California requirement of $84.8 million.The Company provided a total of $363.5 million and $312.5 million at December 31, 2017 and 2016, respectively, as an estimated future liability forunsettled workers' compensation claims liabilities. Of this amount, $3.0 million and $9.1 million at December 31, 2017 and 2016, respectively,represent case reserves incurred in excess of the Company’s retention. The accrual for costs incurred in excess of retention limits is offset by areceivable from excess insurance carriers of $3.0 million and $9.1 million at December 31, 2017 and 2016, respectively, included in other assetson the consolidated balance sheets.Note 6 - Revolving Credit Facility and Long-Term DebtThe Company maintains a credit agreement (the “Agreement”) with its principal bank, Wells Fargo Bank, National Association (the “Bank”).The Agreement provided for a $25.0 million revolving credit line, with a $6.0 million sublimit for standby letters of credit, at December 31, 2017. Ofthe $6.0 million sublimit for standby letters of credit, $5.9 million was used at December 31, 2017. Advances under the revolving credit facility bearinterest, as selected by the Company, of either (a) a daily floating rate of one month LIBOR plus 1.75% or (b) a fixed rate of LIBOR plus 1.75%.The Agreement also provides for an unused commitment fee of 0.375% per year on the average daily unused amount of the revolving creditfacility, as well as a fee of 1.75% of the face amount of each letter of credit reserved under the line of credit and 0.95% on standalone, fullysecured letters of credit. The Company had no outstanding borrowings on its revolving credit line at December 31, 2017 and 2016. The line ofcredit expires on July 1, 2018.The credit facility is collateralized by the Company’s accounts receivable and other rights to receive payment, general intangibles, inventory andequipment.The Agreement requires the satisfaction of certain financial covenants as follows: •EBITDA [net profit before taxes plus interest expense (net of capitalized interest expense), depreciation expense, and amortizationexpense] on a rolling four-quarter basis of not less than $25 million at the end of each fiscal quarter; and •ratio of restricted and unrestricted cash and investments to workers’ compensation and safety incentive liabilities of at least1.0:1.0, measured quarterly.The Agreement includes certain additional restrictions as follows: •incurring additional indebtedness is prohibited without the prior approval of the Bank, other than purchase financing (includingcapital leases) for the acquisition of assets, provided that the aggregate of all purchase financing does not exceed $1,000,000 atany time; and •the Company may not terminate or cancel any of the AICE policies without the Bank’s prior written consent.F-21 The Agreement also contains customary events of default. If an event of default under the Agreement occurs and is continuing, the Bank maydeclare any outstanding obligations under the Agreement to be immediately due and payable. At December 31, 2017, the Company was incompliance with all covenants.The Company maintains a mortgage loan with the Bank with a balance of approximately $4.4 million and $4.6 million at December 31, 2017 and2016, respectively, secured by the Company’s corporate office building in Vancouver, Washington. This loan requires monthly principal paymentsof $18,375 plus interest at a rate of one month LIBOR plus 2.00%, with the unpaid principal balance due July 1, 2022.Note 7 - 401(k) Savings PlanWe have a 401(k) Retirement Savings Plan for the benefit of our eligible employees. All staffing and management employees 21 years of age orolder become eligible to participate in the savings plan upon completion of 1,000 hours of service in a consecutive 12-month period following theinitial date of employment. Employees covered under a PEO arrangement may participate in the plan at the sole discretion of the PEO client. Thedetermination of discretionary Company contributions to the plan, if any, is at the sole discretion of our Board of Directors. No discretionaryCompany contributions were made to the plan for the years ended December 31, 2017, 2016 and 2015.We make matching contributions to the 401(k) plan under a safe harbor provision, whereby the Company matches 100% of contributions bymanagement and staffing employees up to 3% of each participating employee's annual cash compensation and 50% of the employee'scontributions up to an additional 2% of annual cash compensation. Participants' interests in Company safe harbor contributions to the plan are fullyvested when payments are made.Note 8 - CommitmentsOur operating lease agreements require minimum annual payments as follows (in thousands): Year Ending December 31, 2018 $6,231 2019 5,483 2020 4,515 2021 3,864 2022 2,377 Thereafter 1,201 $23,671 Rent expense was approximately $4.9 million, $4.5 million, and $4.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.F-22 Note 9 - Income TaxesThe Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. The Tax Act, which has provisions that will affect 2017and 2018, lowers the U.S. statutory corporate tax rate from 35% to 21%; eliminates the corporate alternative minimum tax (“AMT”) and changeshow existing AMT credits can be realized; creates a new limitation on deductible interest expense; and changes the rules related to uses andlimitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. We have made reasonable estimates of theimpact of the Tax Act and recorded provisional amounts in our financial statements as of December 31, 2017. We recorded provisional taxexpense for the impact of the Tax Act of approximately $1.1 million, which is primarily due to the remeasurement of federal net deferred tax assetsresulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%. Due to the complexity and timing of the Tax Act,we may make adjustments to the provisional amounts as we complete our analysis of the Tax Act and interpret additional guidance as it becomesavailable.The provision (benefit) for income taxes from operations is as follows (in thousands): Year Ended December 31, 2017 2016 2015 Current: Federal $5,080 $6,442 $5,833 State 89 2,030 921 5,169 8,472 6,754 Deferred: Federal 6,310 85 1,854 State (2,271) (1,770) 1,044 4,039 (1,685) 2,898 Total provision $9,208 $6,787 $9,652 Deferred income tax assets and liabilities consist of the following components (in thousands): December 31, 2017 2016 Deferred income tax assets: Workers' compensation claims liabilities $8,124 $11,477 MCC accrual 3,390 4,561 Safety incentives payable — 7,779 Deferred compensation 1,040 — Equity based compensation 811 991 Tax effect of unrealized losses, net 523 (17)Alternative minimum tax credit carryforward 1,815 1,648 State credit carryforward 988 868 State loss carryforward 2,715 — Other 354 796 19,760 28,103 Less valuation allowance 264 216 19,496 27,887 Deferred income tax liabilities: Tax depreciation in excess of book depreciation (3,220) (5,319)Tax amortization of goodwill (9,558) (13,191)Other (884) (7) (13,662) (18,517)Net deferred income tax assets $5,834 $9,370F-23 The effective tax rate for operations differed from the U.S. statutory federal tax rate due to the following: Year Ended December 31, 2017 2016 2015 Statutory federal tax rate 35.0 % 35.0 % 35.0 %State taxes, net of federal benefit (4.0) 1.1 4.3 Valuation allowance on capital loss carryforward and state tax credit carryforward — — (2.1) Adjustment for final positions on filed returns (1.1) 0.2 (3.5) Nondeductible expenses and other, net 1.5 1.8 6.1 Federal tax-exempt interest income — — (0.1) Federal and state tax credits (7.7) (11.6) (14.3) Change in federal tax rate 3.2 — — Other, net (0.1) — 2.1 26.8 % 26.5 % 27.5 % The realization of a significant portion of net deferred tax assets is based in part on our estimates of the timing of reversals of certain temporarydifferences and on the generation of taxable income before such reversals.Under ASC 740, “Income Taxes,” management evaluates the realizability of the deferred tax assets on a quarterly basis under a “more-likely thannot” standard. As part of this evaluation, management reviews all evidence both positive and negative to determine if a valuation allowance isneeded. One component of this analysis is to determine whether the Company was in a cumulative loss position for the most recent 12 quarters.The Company was in a cumulative income position for the 12 quarters ended at both December 31, 2017 and December 31, 2016.The Company is subject to income taxes in U.S. federal and multiple state and local tax jurisdictions. The Internal Revenue Service is examiningthe Company’s federal tax returns for the years ended December 31, 2011, 2012, 2013 and 2014. In the major jurisdictions where it operates, theCompany is generally no longer subject to income tax examinations by tax authorities for years before 2011. As of December 31, 2017, 2016 and2015, the Company had no unrecognized tax benefits.A portion of the consolidated income the Company generates is not subject to state income tax. Depending on the percentage of this income ascompared to total consolidated income, the Company's state effective rate could fluctuate from expectations.At December 31, 2017, the Company did not have a federal general business tax credit carry forward. The Company had an alternative minimumtax credit carry forward of approximately $1.8 million which will not expire until utilized or refunded.At December 31, 2017, the Company had state net operating loss carry forwards of approximately $39.7 million, which begin to expire in tax yearsending on or after December 31, 2025, unless utilized. F-24 Note 10 - Stock Incentive PlansThe Company's 2015 Stock Incentive Plan (the "2015 Plan"), which provides for share-based awards to Company employees, non-employeedirectors and outside consultants or advisors, was approved by stockholders on May 27, 2015. The number of shares of common stock reservedfor issuance under the 2015 Plan is 1,000,000, of which the maximum number of shares for which incentive stock options may be granted is900,000. The 2015 Plan replaced the Company’s 2009 Stock Incentive Plan (the “2009 Plan”), and no new share-based awards may be grantedunder the 2009 Plan. The number of shares available for grant at December 31, 2017 is 693,686. Outstanding option awards under all the plansgenerally expire ten years after the date of grant.Share-based compensation expense included in selling, general and administrative expenses during the years ended December 31, 2017, 2016and 2015, was $4.2 million, $2.8 million and $2.4 million, respectively. Related income tax benefits for the years ended December 31, 2017, 2016and 2015, were $1.5 million, $1.1 million and $948,000, respectively.Stock OptionsStock options are generally exercisable in four equal annual installments beginning one year following the date of grant.A summary of the status of the Company’s stock options at December 31, 2017, together with changes during the periods then ended, ispresented below: Weighted Weighted average Aggregate average remaining intrinsic Number exercise contractual value of options price term (years) (in thousands) Outstanding at December 31, 2016 303,200 $17.89 — — Options exercised (10,800) 15.08 — — Outstanding at December 31, 2017 292,400 17.99 3.57 13,596 Exercisable at December 31, 2017 228,650 16.46 3.15 $10,982 No stock options were granted during 2017. The weighted average fair value of stock options granted for the years ended December 31, 2016 and2015 was $17.10 and $10.76, respectively. There were no stock options granted with an exercise price below market price during 2016 and 2015. The intrinsic value of stock options exercised for the years ended December 31, 2017, 2016 and 2015 was $479,000, $113,000 and $1.1 million,respectively. The fair value of stock options vested for the years ended December 31, 2017, 2016 and 2015 was $328,000, $319,000 and$383,000, respectively. As of December 31, 2017, unrecognized compensation expense related to stock options was $414,000 with a weightedaverage remaining amortization period of 1.5 years. Restricted Stock UnitsRestricted stock units vest in four equal annual installments beginning one year following the date of grant.The following table presents restricted stock unit activity: Weighted Average Grant Date Units Fair Value Nonvested at December 31, 2016 228,875 $42.48 Granted 81,792 57.29 Vested (46,894) 43.66 Cancelled/Forfeited (29,390) 43.71 Nonvested at December 31, 2017 234,383 $47.26 F-25 The total fair value of restricted stock units vested during the years ended December 31, 2017, 2016 and 2015 was $3.3 million, $1.9 million and$1.7 million, respectively. As of December 31, 2017, unrecognized compensation expense related to restricted stock units was $9.1 million with aweighted average remaining amortization period of 2.8 years.Note 11 - Stock Repurchase ProgramThe Company maintains a stock repurchase program approved by the Board of Directors, which authorizes the repurchase of shares from time totime in open market purchases. The repurchase program currently allows for the repurchase of approximately 1.1 million additional shares as ofDecember 31, 2017. No share repurchases were made under the repurchase program during 2017 and 2016.Note 12 - LitigationBBSI received a subpoena from the San Francisco office of the Division of Enforcement of the Securities and Exchange Commission (the “SEC”)in April 2016 in connection with the SEC’s inquiry into reported errors in our financial statements. The Company previously received a subpoenafrom the SEC in May 2015 in connection with the SEC’s investigation of the Company’s accounting policies with regard to its workers’compensation reserves. Although the investigation continues, the Company has engaged in discussions with the Division of Enforcement staffconcerning the potential resolution of any enforcement action that the Division may recommend. BBSI was also advised by the United StatesDepartment of Justice in June 2016 that it had commenced an investigation. The Company continues to cooperate with the investigations.On June 17, 2015, Daniel Salinas (“Salinas”) filed a shareholder derivative lawsuit against BBSI and certain of its officers and directors in theCircuit Court for Baltimore City, Maryland. The complaint alleges breaches of fiduciary duty, unjust enrichment and other violations of law andseeks recovery of various damages, including the costs and expenses incurred in connection with BBSI’s reserve strengthening process, reservestudy and consultants, the cost of stock repurchases by BBSI in October 2014, compensation paid to BBSI’s officers, and costs of negotiatingBBSI’s credit facility with its principal lender, as well as the proceeds of sales of stock by certain of BBSI’s officers and directors during 2013 and2014. On September 28, 2015, BBSI and the individual defendants filed motions to dismiss the derivative suit and a motion to stay pendingresolution of another lawsuit which was settled in the fourth quarter of 2016. On December 4, 2015, Salinas filed an opposition to each motion. OnJanuary 27, 2016, the defendants filed a reply to the opposition brief. On February 11, 2016, Judge Michel Pierson heard oral argument on themotions. A decision has not been issued.Management is unable to estimate the probability or the potential range of loss arising from the legal actions described above.F-26 BBSI is subject to other legal proceedings and claims that arise in the ordinary course of our business. Management does not expect the amountof ultimate liability with respect to other currently pending or threatened actions to materially affect BBSI’s consolidated financial position or resultsof operations.Note 13 - Quarterly Financial Information (Unaudited)(in thousands, except per share amounts) Quarter Ended March 31 June 30 September 30 December 31 Year ended December 31, 2017 Revenues $209,997 $225,574 $240,135 $244,726 Cost of revenues 199,547 181,360 185,218 195,776 Gross margin 10,450 44,214 54,917 48,950 Net (loss) income (11,227) 11,126 14,785 10,486 Basic (loss) income per common share (1.55) 1.53 2.03 1.44 Diluted (loss) income per common share (1.55) 1.47 1.96 1.38 Year ended December 31, 2016 Revenues $190,968 $203,417 $225,103 $221,098 Cost of revenues 180,581 161,164 175,544 177,761 Gross margin 10,387 42,253 49,559 43,337 Net (loss) income (8,003) 8,522 10,233 8,047 Basic (loss) income per common share (1.11) 1.18 1.41 1.11 Diluted (loss) income per common share (1.11) 1.16 1.38 1.08 Note 14 - Subsequent EventsWe have evaluated events and transactions occurring after the balance sheet date through our filing date and noted no events that are subject torecognition or disclosure. F-27SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized. BARRETT BUSINESS SERVICES, INC. Registrant Date: March 6, 2018 By:/s/ Gary E. Kramer Gary E. KramerVice President-Finance, Treasurer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities indicated on the 6th day of March, 2018.Principal Executive Officer and Director: /s/ Michael L. Elich President and Chief ExecutiveOfficer and DirectorMichael L. Elich Principal Financial and Accounting Officer: /s/ Gary E. Kramer Vice President-Finance, Treasurer andSecretaryGary E. Kramer Majority of Directors: /s/ Thomas J. Carley DirectorThomas J. Carley /s/ Thomas B. Cusick DirectorThomas B. Cusick /s/ James B. Hicks DirectorJames B. Hicks, Ph.D. /s/ Jon L. Justesen DirectorJon L. Justesen /s/ Anthony Meeker Chairman of the Board and DirectorAnthony Meeker /s/ Vincent P. Price DirectorVincent P. Price  EXHIBIT INDEX** 3.1Charter of the Registrant, as amended, through March 27, 2012. Incorporated by reference to Exhibit 3.1 to the Registrant's QuarterlyReport on Form 10-Q for the quarter ended March 31, 2012.3.2Bylaws of the Registrant, as amended through December 17, 2015. Incorporated by reference to Exhibit 3.2 to the Registrant’s CurrentReport on Form 8-K filed on December 22, 2015.4.1Standby Letter of Credit Agreement dated as of September 18, 2012 between the Registrant and Wells Fargo. Incorporated byreference to Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “2012 ThirdQuarter 10-Q”).4.2Amended and Restated Credit Agreement between the Registrant and Wells Fargo Bank, National Association, dated as of June 30,2017. Incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10‑Q for the quarter ended June 30, 2017(the "2017 Second Quarter 10-Q").4.3Security Agreement: Specific Rights to Payment dated as of June 14, 2013, between the Registrant and Wells Fargo. Incorporated byreference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.4.4Second Amended and Restated Third Party Security Agreement: Specific Rights to Payment dated as of December 29, 2014, betweenAssociated Insurance Company for Excess (“AICE”) and Wells Fargo. Incorporated by reference to Exhibit 4.7 to the Registrant'sAnnual Report on Form 10‑K for the year ended December 31, 2014.4.5First Amendment to Second Amended and Restated Third Party Security Agreement: Specific Rights to Payment dated as of August27, 2015, between AICE and Wells Fargo. Incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Qfor the quarter ended March 31, 2016 (the “2016 First Quarter 10-Q”).4.6Second Amendment to Second Amended and Restated Third Party Security Agreement: Specific Rights to Payment dated as ofDecember 30, 2015, between AICE and Wells Fargo. Incorporated by reference to Exhibit 4.4 to the 2016 First Quarter 10-Q.4.7Third Amendment to Second Amended and Restated Third Party Security Agreement: Specific Rights to Payment dated as of April 15,2016, between AICE and Wells Fargo. Incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q forthe quarter ended June 30, 2016.4.8Revolving Line of Credit Note dated December 28, 2016, of the Registrant. Incorporated by reference to Exhibit 4.8 to the Registrant’sAnnual Report on Form 10-K for the year ended December 31, 2016 (the “2016 10-K”).4.9Amended and Restated Term Note 1 dated June 30, 2017, of the Registrant. Incorporated by reference to Exhibit 4.2 to the 2017Second Quarter 10-Q.The Registrant has incurred additional long-term indebtedness as to which the amount involved is less than 10 percent of theRegistrant's total assets. The Registrant agrees to furnish copies of the instruments relating to such indebtedness to the Commissionupon request.10.1Second Amended and Restated 1993 Stock Incentive Plan of the Registrant. Incorporated by reference to Exhibit 10.1 to theRegistrant’s Annual Report on Form 10-K for the year ended December 31, 2001.*10.22003 Stock Incentive Plan of the Registrant (the "2003 Plan"). Incorporated by reference to Exhibit 10.1 to the Registrant’s QuarterlyReport on Form 10-Q for the quarter ended March 31, 2003.*10.32009 Stock Incentive Plan of the Registrant (the “2009 Plan”). Incorporated by reference to Exhibit 10.2 to the Registrant’s QuarterlyReport on Form 10-Q for the quarter ended June 30, 2009.*  10.42015 Stock Incentive Plan of the Registrant (the "2015 Plan"). Incorporated by reference to Exhibit 10.1 to the Registrant's CurrentReport on Form 8‑K filed on June 2, 2015.*10.5Form of Performance Share Award Agreement for Executive Officers for awards granted beginning in 2017 under the Registrant's 2015Stock Incentive Plan (the "2015 Plan"). Incorporated by reference to Exhibit 10.2 to the 2017 Second Quarter 10-Q.*10.6Form of Performance Share Award Agreement for Executive Officers for awards granted under the 2015 Plan in 2016. Incorporated byreference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (the “2016 ThirdQuarter 10-Q”).*10.7Amendment to each outstanding Performance Share Award Agreement for Executive Officers effective August 7, 2017. Incorporatedby reference to Exhibit 10.6 to the 2017 Second Quarter 10-Q.*10.8Form of Nonqualified Stock Option Agreement under the 2003 Plan. Incorporated by reference to Exhibit 10.12 to the Registrant'sAnnual Report on Form 10‑K for the year ended December 31, 2003.*10.9Form of Employee Nonqualified Stock Option Award Agreement relating to January 2009 option grants under the 2003Plan. Incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the year ended December 31,2008 (the “2008 10-K”).*10.10Form of Non-Employee Director Option Award Agreement relating to January 2009 option grants under the 2003 Plan. Incorporated byreference to Exhibit 10.18 to the 2008 10-K.*10.11Form of Employee Nonqualified Stock Option Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit 10.2 to theRegistrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (the “2010 First Quarter 10-Q”).*10.12Form of Non-Employee Director Nonqualified Stock Option Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit10.3 to the 2010 First Quarter 10-Q.*10.13Form of Employee Nonqualified Stock Option Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit 10.2 to theRegistrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (the “2011 First Quarter 10-Q”).*10.14Form of Non-Employee Director Nonqualified Stock Option Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit10.3 to the 2011 First Quarter 10-Q.*10.15Nonqualified Stock Option Award Agreement between the Registrant and Thomas J. Carley dated July 1, 2016. Incorporated byreference to Exhibit 10.5 to the 2016 Third Quarter 10-Q.*10.16Form of Incentive Stock Option Award Agreement relating to January 2009 option grants under the 2003 Plan. Incorporated byreference to Exhibit 10.16 to the 2008 10-K.*10.17Form of Incentive Stock Option Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit 10.1 to the 2010 FirstQuarter 10-Q.*10.18Form of Incentive Stock Option Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit 10.1 to the 2011 FirstQuarter 10-Q.*10.19Form of Incentive Stock Option Award Agreement relating to February 2, 2015, grants under the 2009 Plan. Incorporated by referenceto Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 10-K”).*10.20Form of Employee Restricted Stock Units Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit 10.1 to the2012 Third Quarter 10-Q.*10.21Form of Employee Restricted Stock Units Award Agreement for Executive Officers under the 2015 Plan. Incorporated by reference toExhibit 10.1 to the Registrant's Quarterly Report on Form 10‑Q for the quarter ended June 30, 2015 (the "2015 Second Quarter 10-Q").*  10.22Form of Employee Restricted Stock Units Award Agreement for Executive Officers for awards granted during 2016 under the 2015Plan. Incorporated by reference to Exhibit 10.2 to the 2016 Third Quarter 10-Q.*10.23Form of Employee Restricted Stock Units Award Agreement for Executive Officers for awards granted beginning in 2017 under the2015 Plan. Incorporated by reference to Exhibit 10.3 to the 2017 Second Quarter 10-Q.*10.24Amendment to each outstanding Employee Restricted Stock Units, Award Agreement for Executive Officers effective August 7, 2017.Incorporated by reference to Exhibit 10.5 to the 2017 Second Quarter 10-Q.*10.25Form of Non-Employee Director Restricted Stock Units Award Agreement under the 2009 Plan. Incorporated by reference to Exhibit10.2 to the 2012 Third Quarter 10-Q.*10.26Form of Non-Employee Director Restricted Stock Units Award Agreement under the 2015 Plan. Incorporated by reference toExhibit 10.2 to the 2015 Second Quarter 10‑Q.*10.27Form of Non-Employee Director Restricted Stock Units Award Agreement for awards granted during 2016 under the 2015 Plan.Incorporated by reference to Exhibit 10.3 to the 2016 Third Quarter 10-Q.*10.28Form of Non-Employee Director Restricted Stock Units Award Agreement for awards granted in 2017 under the 2015 Plan. Incorporatedby reference to Exhibit 10.4 to the 2017 Second Quarter 10-Q.*10.29Summary of compensatory arrangements for non-employee directors of the Registrant effective July 1, 2017. Incorporated by referenceto Exhibit 10.7 to the 2017 Second Quarter 10-Q.*10.30Employment Agreement between the Registrant and Michael L. Elich, dated September 25, 2001. Incorporated by reference to Exhibit10.17 to the Registrant's Registration Statement on Form S-2 (Registration No. 333-126496) filed July 11, 2005.*10.31Change in Control Employment Agreement between the Registrant and Michael L. Elich, dated April 12, 2011. Incorporated byreference to Exhibit 10.4 to the 2011 First Quarter 10-Q.*10.32Change in Control Employment Agreement between the Registrant and Gregory R. Vaughn, dated April 12, 2011. Incorporated byreference to Exhibit 10.5 to the 2011 First Quarter 10-Q.*10.33Change in Control Employment Agreement between the Registrant and Gerald R. Blotz, dated June 16, 2015. Incorporated byreference to Exhibit 10.3 to the 2015 Second Quarter 10‑Q.*10.34Change in Control Employment Agreement between the Registrant and Gary E. Kramer, dated August 19, 2016. Incorporated byreference to Exhibit 10.1 to the 2016 Third Quarter 10-Q.*10.35Change in Control Employment Agreement between the Registrant and Heather E. Gould, dated May 31, 2017. Incorporated byreference to Exhibit 10.1 to the 2017 Second Quarter 10-Q.*10.36Form of Indemnification Agreement with each outside director of Barrett Business Services, Inc. Incorporated by reference to Exhibit10.35 to the 2016 10-K.*10.37Form of Indemnification Agreement between the Registrant and each of Michael Elich, James Miller and Gregory Vaughn effective inSeptember 2015. Incorporated by reference to Exhibit 10.30 to the 2015 10-K.*10.38Indemnification Agreement between the Registrant and Michael Elich dated as of November 19, 2015. Incorporated by reference toExhibit 10.31 to the 2015 10-K.*10.39Indemnification Agreement between the Registrant and James D. Miller dated as of November 19, 2015. Incorporated by reference toExhibit 10.32 to the 2015 10-K.*10.40Death Benefit Agreement entered into by the Registrant and Michael L. Elich effective January 1, 2014. Incorporated by reference toExhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 10-K”).*  10.41Death Benefit Agreement entered into by the Registrant and Gregory R. Vaughn effective January 1, 2014. Incorporated by referenceto Exhibit 10.28 to the 2013 10-K.*10.42Death Benefit Agreement entered into by the Registrant and Gerald L. Blotz effective July 17, 2015. Incorporated by reference toExhibit 10.27 to the 2015 10-K.*10.43Death Benefit Agreement entered into by the Registrant and Gary E. Kramer effective March 15, 2017. Incorporated by reference toExhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.*10.44Death Benefit Agreement entered into by the Registrant and Heather Gould effective October 30, 2017.*10.45Barrett Business Services, Inc. Annual Cash Incentive Award Plan, Incorporated by reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K filed on March 13, 2014.*10.46Barrett Business Services, Inc., Nonqualified Deferred Compensation Plan adopted effective July 1, 2017. Incorporated by reference toExhibit 10.8 to the 2017 Second Quarter 10-Q.*21.Subsidiaries of the Registrant.23.1Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.23.2Consent of Moss Adams LLP, Independent Registered Public Accounting Firm.31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a).31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a).32.Certification pursuant to 18 U.S.C. Section 1350.99.1Description of the Registrant's capital stock. Incorporated by reference to Exhibit 99.1 to the 2015 Second Quarter 10‑Q.101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Denotes a management contract or a compensatory plan or arrangement.**Except as otherwise indicated, the SEC File Number for all exhibits is 000-21866.  EXHIBIT 10.44DEATH BENEFIT AGREEMENT Employee:Heather Gould Employer:Barrett Business Services, Inc., a Marylandcorporation Death Benefit:$800,000, paid in one lump sum as set forth below Effective Date:October 30, 2017 RECITALSA.Employee has been employed by Employer and rendered valuable services to Employer. B.In consideration for Employee's past, current, and future service to Employer, Employer desires to enterinto this Death Benefit Agreement (this "Agreement") to pay, upon Employee's death, the Death Benefit to the beneficiarydesignated by Employee. AGREEMENTFor good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 1.Beneficiary Designation1.1Beneficiary Designation. Subject to Section 1.3, Employee has the right, at any time, to designate one or morepersons or an entity as the beneficiary or beneficiaries to whom the Death Benefit will be paid in the event of Employee's death (the"Beneficiary"). Each Beneficiary designation must be in writing on the form prescribed by Employer and will be effective only when filed withEmployer during Employee's lifetime.1.2Changing Beneficiary. Subject to Section 1.3, any Beneficiary designation may be changed by Employee withoutthe consent of the previously named Beneficiary by the filing of a new designation with Employer. The filing of a new designation will cancel alldesignations previously filed. 1.3Community Property. If Employee is or becomes married and resides in Washington or any other communityproperty state, the following rules will apply:(a)Designation of a Beneficiary other than Employee's spouse will not be effective unless thespouse executes a written consent that acknowledges the effect of the designation, or it is established that consent cannot be obtained becausethe spouse cannot be located;(b)A designation may be changed by Employee with the consent of Employee's spouse as providedfor in Section 1.3(a) by the filing of a new designation with Employer;(c)If Employee's marital status changes after Employee has designated a Beneficiary, the followingwill apply:(i)If Employee is married at the time of death but was unmarried when thedesignation was made, the designation will be void unless the spouse has consented to it in the manner prescribed in Section 1.3(a);1 (ii)If Employee is unmarried at the time of death but was married when thedesignation was made:(1)The designation will be void if the spouse was named asBeneficiary unless Employee had submitted a change of beneficiary listing the former spouse as the beneficiary; and(2)The designation will remain valid if a non-spouseBeneficiary was named.(iii)If Employee was married when the designation was made and is married to adifferent spouse at death, the designation will be void unless the new spouse has consented to it in the manner prescribed above.1.4No Beneficiary Designation. In the absence of an effective Beneficiary designation, or if all designatedBeneficiaries predecease Employee, then the Death Benefit will be paid to the personal representative of Employee's estate.2.Payment of Benefit. In the event of Employee's death, Employer will pay the Death Benefit directly to Employee's Beneficiary within 60days after the date of death.3.Limitation. Notwithstanding any other provision of this Agreement, no benefit will be payable under this Agreement if Employee's deathoccurs under circumstances such that the policy on the life of Employee described in Section 5 does not pay a full death benefit, for example, inthe case of suicide or other circumstances.4.Employment Requirement. Upon termination of Employee's employment with Employer for any reason other than due to Employee'sdeath, the Death Benefit will be forfeited to Employer with no payment to Employee. For purposes of this Agreement, "employment" will includeperiods of illness or other leaves of absence authorized by Employer.5.Source of Benefits. The Death Benefit will be paid solely out of the general assets of Employer. In order to pay the Death Benefitprovided for under this Agreement, Employer may elect, in its sole discretion, to purchase a life insurance policy on the life ofEmployee. Employee will cooperate with Employer and any insurance carrier as necessary to obtain the insurance. Employer will be the owner ofany policy or policies of life insurance purchased under this Agreement, and any such policy or policies will be, and remain, a general, unpledged,and unrestricted asset of Employer. Neither Employee nor any Beneficiary or other person will have any claim against, right to, or security or otherinterest in, any specific fund, account, insurance policy, or other asset of Employer with respect to any benefits under this Agreement.6.Miscellaneous.6.1Nonassignability. Neither Employee nor any other person will have any right to commute, sell, assign, transfer,pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payableunder this Agreement, or any part of such amounts, which are, and all rights to which are, expressly declared to be unassignable andnontransferable. No part of the amounts payable will, prior to actual payment, be subject to seizure or sequestration for the payment of any debts,judgments, alimony or separate maintenance owed by Employee or any other person, nor be transferable by operation of law in the event ofEmployee's or any other person's bankruptcy or insolvency.6.2Not a Contract of Future Service. The terms and conditions of this Agreement may not be deemed to constitute acontract of future service between Employer and Employee, and Employee (or his or her Beneficiary) will have no rights against Employer exceptas may otherwise be specifically provided in this Agreement.6.3Governing Law. This Agreement will be construed and interpreted according to the laws of the State of Washington(without regard to conflict of laws principles).2 6.4Notice. Any notice or filing required or permitted to be given to Employer under this Agreement will be sufficient ifin writing and hand delivered, or sent by registered or certified mail, to the Secretary of Employer. Such notice will be deemed given as of the dateof delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.6.5Successors. This Agreement will bind and inure to the benefit of Employer and its successors and assigns. Theterm successors as used in this Section 6.5 includes any corporate or other business entity which, whether by merger, consolidation, purchase orotherwise, acquires all or substantially all of the business and assets of Employer, and successors of any such corporation or other businessentity.6.6Withholding. Employer may deduct from all payments made to a Beneficiary under this Agreement any Federal,state or local taxes required by law to be withheld with respect to such payments. [Signature Page Follows]3 The parties have executed this Death Benefit Agreement as of the date first written above. Employee: /s/ Heather Gould Heather GouldDate:10/30/2017 Employer: BARRETT BUSINESS SERVICES, INC. By: /s/ Anthony Meeker Name: Anthony MeekerTitle: Chairman of the BoardDate: 11/09/2017 4 EXHIBIT 21SUBSIDIARIES OF BARRETT BUSINESS SERVICES, INC.AT DECEMBER 31, 2017 Subsidiary Jurisdiction of Formation Associated Insurance Company for Excess ArizonaEcole Insurance Company ArizonaBBS I, LLC Oregon  EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-33487, 333-105833, 333-161592, and 333-205434 on Form S-8 ofour reports dated March 6, 2018 relating to the financial statements of Barrett Business Services, Inc. as of and for the years ended December 31,2017 and 2016, and the effectiveness of Barrett Business Services, Inc. internal control over financial reporting, appearing in this Annual Report onForm 10-K of Barrett Business Services Inc. for the year ended December 31, 2017. /s/ Deloitte & Touche LLP Portland, OregonMarch 6, 2018  EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-33487, 333-105833, 333-161592, and 333-205434) of Barrett Business Services, Inc. of our report dated May 25, 2016, relating to the consolidated statements of operations, comprehensiveincome, stockholders’ equity, and cash flows of Barrett Business Services, Inc. for the year ended December 31, 2015 appearing in this AnnualReport on Form 10-K of Barrett Business Services, Inc. for the year ended December 31, 2017. /s/ Moss Adams LLP Portland, OregonMarch 6, 2018 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICERI, Michael L. Elich, certify that: 1.I have reviewed this Annual Report on Form 10-K of Barrett Business Services, Inc.; 2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this annual report; 3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presentedin this annual report; 4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this annual report is being prepared; b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c.evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this annual report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport, based on such evaluation; and d.disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during theregistrant’s most-recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and 5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing theequivalent functions): a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financialinformation; and b.any fraud, whether or not material, that involves management or other employees who have a significant role in theRegistrant’s internal control over financial reporting. Date: March 6, 2018 /s/ Michael L. Elich Michael L. Elich Chief Executive Officer EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICERI, Gary E. Kramer, certify that: 1.I have reviewed this Annual Report on Form 10-K of Barrett Business Services, Inc.; 2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this annual report; 3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presentedin this annual report; 4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this annual report is being prepared; b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c.evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this annual report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport, based on such evaluation; and d.disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during theregistrant’s most-recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and 5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing theequivalent functions): a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financialinformation; and b.any fraud, whether or not material, that involves management or other employees who have a significant role in theRegistrant’s internal control over financial reporting. Date: March 6, 2018 /s/ Gary E. Kramer Gary E. Kramer Chief Financial Officer  EXHIBIT 32CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350In connection with the Annual Report of Barrett Business Services, Inc. (the "Company") on Form 10-K for the year ended December 31, 2017 asfiled with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned certify, pursuant to 18 U.S.C. § 1350, that:(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company. /s/ Michael L. Elich /s/ Gary E. KramerMichael L. Elich Gary E. KramerChief Executive Officer Chief Financial Officer March 6, 2018 March 6, 2018 A signed original of this written statement required by Section 906 has been provided to Barrett Business Services, Inc. and will be retained byBarrett Business Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 

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