Leased Workers
Workers provided to the insured by a labor leasing firm under a long-term arrangement, whose workers comp coverage status must be clearly defined.
What It Is
Leased workers are employees who are provided to an employer (the client company) by a labor leasing firm or Professional Employer Organization (PEO) under a long-term arrangement. Unlike temporary workers who are provided for short-term assignments, leased workers typically work for the client company on an ongoing, indefinite basis but remain legal employees of the leasing firm.
The workers compensation responsibility for leased workers depends on the arrangement. In a traditional leasing arrangement, the leasing firm carries the workers comp policy covering the leased workers. In a PEO arrangement, the PEO is the co-employer and typically provides workers comp through its master policy.
The standard workers comp policy addresses leased workers through a specific exclusion — it does not automatically cover leased workers unless the policy is specifically endorsed to include them. This means the client company's workers comp policy will not respond if a leased worker is injured, unless the policy has been modified to include leased workers or the leasing firm's policy provides the coverage.
Why It Matters for Brokers
Leased worker arrangements create confusion about who is responsible for workers comp coverage. If the leasing firm's policy does not cover the workers, and the client company's policy excludes them, there is a dangerous coverage gap. Brokers must clearly establish which party's policy covers the leased workers and verify that the coverage is in place. This requires reviewing both the client company's and the leasing firm's workers comp policies.
Real-World Example
A manufacturing company leases 25 production workers through a PEO. The company assumes the PEO's workers comp covers the leased workers. A leased worker is injured and files a $190,000 workers comp claim. The PEO's policy covers the claim — but the PEO then allocates the claim experience to the client company's account within the PEO, increasing the client's future rates. The broker should have reviewed the PEO contract to understand how claims are allocated and whether the client company should carry its own workers comp for the leased workers.
Common Mistakes
- 1Assuming the leasing firm or PEO's workers comp automatically covers leased workers without verifying the coverage is in place and adequate.
- 2Not reviewing the standard workers comp policy's leased worker exclusion and determining whether an endorsement is needed.
- 3Failing to understand how the PEO allocates claims experience, which can affect the client company's future EMR and insurance costs.
How brokerageaudit.com Handles This
Policy Checker identifies leased worker exclusions and endorsements on workers comp policies. It flags any account with PEO or leasing arrangements and prompts the broker to verify that workers comp coverage for leased workers is clearly assigned. Submission Intake captures information about staffing arrangements, including PEO participation, to ensure accurate workers comp classification and coverage placement.