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Temp Staffing Obligations for Workers Comp

Workers compensation coverage is state mandated insurance that gives employees access to medical care for work-related injuries. Temporary staffing agencies are not exempt from providing this coverage to its employees. They are responsible for ensuring that employees have adequate coverage based on the work being completed.

Obligations of Temp Staffing Agencies

Not only are temporary staffing agencies responsible for providing workers comp insurance, but they must also periodically assess the safety environment of client locations. Representatives from the staffing agency should complete an initial assessment before placing employees in an assignment.

Temporary employees are entitled to safe work environments. They should receive any personal protective equipment that is necessary to perform duties safely. Subsequent visits from agency representatives are usually needed to make sure there are no general safety or health concerns.

When an assessment reveals an unsafe area, the staffing agency should request that the client correct the hazard. Additionally, the agency should inform temporary employees of the hazard and take reasonable measures for protection. This includes removing temps from the job site if the hazard is not corrected promptly.

In addition to assessments, the staffing agency should provide general safety and health training for temporary employees. Typically, staffing agencies provide general training; employers are responsible for site-specific training.

OSHA policy places responsibility on the entity that controls and directs daily work activities onsite to provide personal protective equipment, or PPE. In some situations, this can be flexible based on contract agreements between the employer and staffing agency.

Responsibilities of temporary staffing agencies also include training updates with safety assessments. Generic training should be given that covers an overview of appropriate topics for the work site. It is also important for agencies to maintain records that document when training, and to what degree, training was provided.

Additionally, temporary staffing agencies should minimize their exposure to client behavior. They have a right to remove temporary employees from unsafe work conditions. They can also establish standards to determine when a host site addresses potential hazards properly.

Risk Classification of Temporary Workers

One of the issues most temporary staffing agencies encounter is properly classifying workers according to job risks. The workers compensation system uses job categories to classify risk potential and determine the insurance coverage amount.

Typically, insurance companies use a three or four digit coding system assigned by the National Council on Compensation Insurance, Inc. or the state agency. These classification codes determine the price and provisions of the workers comp insurance policy for temporary employees.

Each state outlines specific standards for agencies to follow. Knowing the type of work a temp will perform is crucial to understanding associated risks. Office workers pose less risk exposure than workers in a manufacturing plant or warehouse.

Importance of Proper Classification

With nearly 10,000 class codes, proper classification of temporary employees can seem confusing and overwhelming. Typically, class codes are separated by industry and job titles within each industry. For various reasons, each staffing agency must ensure that the right classification is assigned. Grouping all temporary employees may seem like an easy solution to streamline payroll; however, this only complicates matters when a workers' compensation claim is filed.

Compliance with Applicable Laws

Temporary staffing agencies are subject to state and federal laws related to employer obligations. Compliance requires employers to provide and pay premiums for workers compensation. Covered temporary employees should receive medical coverage, monetary benefits and rehabilitation treatments to address the disease or illness caused by work.

Workers Comp Coverage

Generally, temporary agencies are required to maintain a workers' compensation insurance policy. However, state laws may differ on who is directly responsible for a workplace injury when the employee is injured on a work site. All temporary employees must receive treatment; which party is responsible for paying varies from state to state.

Criteria for Maintaining Coverage

Nevertheless, temporary agencies must follow the same criteria for maintaining coverage as regular employers whenever an employee is injured. The eligibility test for coverage is:

  • Workers compensation is provided through an insurance policy
  • Injured person is employed by the temp agency
  • Employee suffered a work-related injury

Classification Audits

Different issues may trigger a worker classification audit. An independent contractor filing for unemployment benefits or failing to report income taxes properly can prompt an audit. Some temporary employees may challenge their classification if employees performing similar tasks receive higher compensation. These reveal a continuous issue with misclassification of workers that exposes agencies to risks.

Misclassification of Employees

One of the key issues in workers compensation coverage is the misclassification of employees. This is a particular concern for temporary staffing agencies that must purchase an insurance policy. Incorrect classification codes can lead to the insurance company underwriting polices and issuing rates that are insufficient based on the agency's level of exposure.

For the most part, the insurance rate is based on the employee's occupation. Reporting a loss with inaccurate information will distort the rating structure. An agency may learn that they have either overpaid or underpaid for workers compensation coverage.

Complex compliance issues may arise when staffing agencies misclassify their temporary employees. Since there is no national definition of what constitutes an independent contractor or employee, states can test the employer-employee relationship differently. Each establishes its legal provision related to worker classification that may clash for agencies with a national presence.

Contrast this with classifying employees correctly. Not only will employees receive adequate coverage, but staffing agencies can avoid penalties that may arise from misclassification.

Recently, proper worker classification has received closer state and federal attention. Most states have adopted new worker classification laws to address these issues; others are considering changes that impose stricter classification and reporting rules. Congress is also considering legislation to address the issues while high-profile litigation may set legal precedent.

Exclusive Remedy

Some states allow injured employees to sue an employer beyond the basic workers comp benefits. In these cases, the client can be protected from risks when there is a contractual indemnification clause between the agency and client. Generally, the protection stands when the temporary agency can pay the indemnification.

Some clients may verify whether the staffing agency has an endorsement on its workers compensation policy. With either an alternate employer or temporary service contractor endorsement, the staffing agency could indemnify the client for workplace injuries.

When the contract includes an exclusive remedy clause, both the client and staffing agency are protected against legal action by the injured employee. Two conditions allow the client to attain special employer status: the client supervises the employee and the employee consents to the arrangement.

Other states do not allow the client to escape legal responsibility for an employee's injuries. Technically, the client controls the work environment and is directly responsible for employee safety. Still, there is a shared responsibility for protecting temporary employees in a work environment. Staffing agencies can reinforce this condition with thorough assessments before sending employees to the work site.

Keeping Accurate Records

Recordkeeping is an important tool for staffing agencies. They should document accurately:

  • Where temporary employees work
  • Type of work performed
  • Number of hours worked
  • Rate of pay
  • Job classification
  • Gross pay and payroll deductions

Generally, this information helps to set the premium rates for the workers compensation insurance policy. Records should also include personal identifying information such as the employee's name, social security number, date hired and/or terminated, whether compensation was hourly, salary or commission.

Hours Worked

Insurance premiums for temporary staffing agencies change continuously due to the nature of the business. The number of employees and hours worked can change during any given period. Reporting work hours includes hourly and salaried temporary employees. Commission-based employee hours can be calculated based on actual hours worked or a standard 40 hour work week.

Work Order System

Many staffing agencies use a work order system to manage their work flow of providing temporary services. These work orders should coincide with the number of employees on the assignment. Information in the order should include job classification, start date, pay rate and number of employees for the order. This ensures accurate workers compensation coverage.

Direct Hiring of Temporary Employees

Hiring a temporary employee through a direct-hire agreement obligates the client to cover the employee. Just like the staffing agency, the client must cover the employee under the guidelines set by the state workers comp agency.

Since each state manages its own program, the agency and client should verify the requirements for hiring temps as permanent employees. More often than not, temporary employees will receive the same treatment. However, they may not receive full-time benefits while working as a temp even if the client intends to hire them permanently.

Conclusion

Accidents can happen at any time in the workplace even when the staffing agency and work sites take necessary precautions. Workers compensation insurance provides a safety net when unavoidable or careless incidences occur.

Changing dynamics of business can make it harder to discern the real employer in the employee/employer relationship. More companies are using temporary employees, yet their obligation to provide a safe work environment has not changed. Neither has the current role of staffing agencies in training employees and properly assessing working conditions.