Understanding workers' compensation claims for leased or temporary workers — who is responsible for covering injuries and how to bridge coverage gaps.
Many companies are increasingly turning to staffing agencies to meet their personnel needs for a variety of reasons, including increased workloads and high employee turnover rates. Companies that use staffing agencies can save money because they avoid selecting, hiring and training new full-time employees.
But what happens if one of the staffing agency workers is hurt on the job? Who is responsible for covering the injury? Answering these questions requires a thorough understanding of the employment relationships between the staffing agency worker and the client company.
Generally, companies are required to cover an injured employee's medical treatment and lost wages through a workers' compensation policy. This is a system of no-fault insurance that affords employees some security while recovering from work-related injuries. In exchange for these benefits, employees waive their right to sue their employers for negligence.
CGL policies protect companies when third parties (non-employees) are hurt because of the company's negligence. The issue of CGLs is particularly important for companies with staffing agency workers because it is not always clear whether an employment relationship exists.
For CGL purposes, a leased worker is an individual leased to a client company by a labor leasing firm under an agreement to perform duties related to the company's business. Leased workers are considered employees of the client company and are excluded from the client company's CGL.
A temporary worker is an individual furnished to a client company to substitute for a permanent employee on leave or to meet seasonal/short-term workload conditions. Temporary workers are considered employees of the staffing agency and are covered by the staffing agency's workers' compensation policy.
An insurance coverage gap exists when a leased employee is injured while in the client company's employ. Leased employees are considered employees for CGL purposes, but may not qualify as employees under workers' compensation regulations. This results in individuals who could sue the client company for negligence without workers' compensation limits.
1. Alternate Employer Endorsement: Client companies can negotiate with staffing agencies to include an alternate employer endorsement on the staffing agency's workers' compensation and employer liability policies. This protects the client company by providing coverage in the case of a tort action.
2. Coverage for Injury to Leased Workers: This endorsement can be added to the client company's CGL policy by changing the language that excludes leased workers from CGL coverage.
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