Guide to Insurance for US Staffing Agencies

Staffing agencies face unique insurance challenges because they act as intermediaries between clients and candidates. Unless you are using an Employer of Record, staffing agencies are employing workers while they work for end clients. This means that events involving their employees expose the staffing agency to all sorts of insurance risks. This guide covers what insurance you will need as a staffing agency in the US. Some of these insurance coverages are legally required, and some will be required by your clients. A comprehensive insurance package is different for each staffing agency so you should consult with your broker or your Employer of Record for guidance.

Essential Insurance Policies for Staffing Agencies

Workers' Compensation

Workers' compensation insurance covers the cost of medical expenses and lost wages for an employee injured due to work-related activities. Prior to workers' compensation, employees would need to sue employers in court to get their injury costs covered. The states realized this was very inefficient, so they moved to an insurance model and made it mandatory. Workers' compensation is mandatory in every US state except Texas.

For staffing agencies, workers' compensation premiums are determined by class codes, which are based on the client's facility or industry and not normally on the employee’s role. For example, an engineering worker in a manufacturing facility could be classified under a higher-risk code due to the general risks associated with that environment, compared to the same role in an office. Misclassification can result in higher premiums or audits.

Most states use the National Council on Compensation Insurance (NCCI) to manage these codes and set rates, making it easier to operate across multiple states. However, some states, such as California and New York, have their own systems, and four states (Ohio, North Dakota, Washington, and Wyoming) have monopolistic systems, requiring employers to buy workers' compensation directly from the state. This complicates compliance for agencies operating nationally.

A significant challenge for staffing agencies is securing competitive national coverage, as many insurers require several years of claims history before offering favorable rates. Without this history, agencies may need to rely on an Employer of Record (EOR) like Ascen for coverage.

Employer's Liability Insurance

Employer’s Liability Insurance (EL) acts as an extension of workers' compensation. While not mandatory, it can provide additional coverage related to employee injuries.

Every so often, an employee's injury may lead to other third-party claims that are not covered by workers' compensation insurance. For example, an employee may be injured while operating a machine that was not properly maintained. The injured worker may decide to sue the equipment manufacturer. In turn, the manufacturer could file a lawsuit against the staffing agency, arguing contributory negligence for failing to keep the machine in safe working condition.

This is where Employer Liability steps in and covers this third-party claim related to the injury. Many workers' compensation carriers will include EL insurance as part of their package, but some will not, so it's important to know if you have it for third-party lawsuits associated with an injury.

General Liability Insurance

General liability (also called "Commercial General Liability" or "CGL") covers third-party lawsuit claims against bodily injury, property damage, and any personal injury directly relayed to agency operations. This can be any incident on agency premises or during staffing assignments. 

Some examples of CGL claims are the following:

Bodily Injury: A temporary worker at a construction site accidentally drops equipment, injuring another worker. The injured party may file a claim against the staffing agency, holding them responsible for providing the worker. General liability insurance would handle legal costs and any damages.

Property Damage: If a worker supplied by the agency accidentally breaks valuable machinery at a client’s facility, the client could sue for the repair costs. The staffing agency’s general liability policy would cover these damages.

Reputational Harm: Suppose a client accuses the staffing agency of defamation due to misrepresentation in marketing materials or contract disputes. The policy would help cover legal defense and potential settlement costs.

Professional Liability Insurance (PLI)

Professional Liability Insurance (sometimes called "Errors and Omissions" insurance) protects your staffing agency from claims arising from negligence or errors. 

Here are some examples of Professional Liability claims that could affect your staffing agency:

Executive Placement: A healthcare company hired a staffing agency to find a Chief Compliance Officer. After hiring the candidate, the company discovered they lacked the advertised qualifications and made costly errors. The company sued the agency for the costs of terminating the candidate and resolving compliance issues.

Temporary Worker Theft: A manufacturing plant hired temporary workers through a staffing agency. One of the workers was caught stealing, and further investigation revealed the agency failed to disclose the worker’s criminal history. The plant sued the agency for misrepresentation and the value of stolen goods.

Data Entry Project: A marketing firm hired a staffing agency for experienced data entry workers. The client dismissed several workers for lacking the necessary skills, leading to missed deadlines and lost bonuses. The firm sued the agency for lost revenues due to inadequate staffing.

Medical Professional Liability Insurance (MPLI)

MPLI works similarly to Professional Liability Insurance. However, it extends to healthcare professionals. If you work in healthcare, this is essential as it helps cover you against claims specific to medical malpractice. 

One example of an MPLI claim is if a healthcare staffing agency's nurse makes a medication administration error, resulting in serious harm to a patient. The patient’s family could sue both the hospital and the staffing agency for medical negligence, resulting in an insurance claim for the agency.

Medical Professional Liability Insurance is sometimes legally required in states where healthcare staffing agencies need to be licensed, so it's important to know the state rules where you operate. Many staffing agencies think their normal professional liability insurance covers medical staffing, but it often explicitly excludes medical staffing, which is why a specific policy may be required. One of the harder parts about MPLI is it is expensive and harder for newer agencies to get, which often means your agency will need to use a solution like Employer of Record to get started.

Cyber Liability Insurance

Almost every modern business depends on some form of online system, and cyber liability insurance protects against losses that may occur due to data breaches and cyberattacks. 

Cyber Liability covers anything from the costs of notifying your employees to forensic investigations to find the source of a breach. 

This is especially important for staffing agencies, as you’ll have to store sensitive data for all your talent, and a cyber breach can result in costly lawsuits. Most cyber insurance requirements come from your staffing agency's end clients. Unfortunately, these limit requirements can often be very high (greater than $3 million per occurrence), so newer agencies often need to rely on their Employer of Record's cyber policy.

Umbrella Insurance

Umbrella Insurance serves as an extension of General Liability (and sometimes your Professional Liability); this essentially means if you’re facing a claim exceeding the limit your General Liability provider put in place, your Umbrella policy will step in to cover until the umbrella limit is hit. Here are two examples:

Single Claim: A temporary worker at a construction site accidentally causes a significant injury to a third party, resulting in medical costs and legal fees that exceed the limits of the agency's general liability policy. The umbrella policy would cover the additional costs beyond the primary policy’s limits.

Aggregate Claims: Over the course of a year, multiple smaller claims for property damage at various client locations reach the annual aggregate limit of the general liability policy. The umbrella policy would step in to cover any further claims for the rest of the policy year.

Staffing agencies should take out Umbrella Insurance due to the inherent risk they take through operations, often not covered in full by General Liability policies. Since staffing agency clients often have high CGL and PL limit requirements, smaller staffing agencies will often need to rely on an Employer of Record like Ascen to provide a high umbrella policy.

Hired and Non-Owned Auto Insurance

While not essential for every staffing agency, if the talent you place has to use vehicles to complete their tasks, then Hired and Non-Owned Auto Insurance is a good idea. This covers any liabilities arising from an employee operating a vehicle. 

This can protect you from having to pay for repairs or even a replacement if a vehicle is in a crash while being driven by a candidate you place. Interestingly enough, many clients will require this insurance even if no cars will be involved in their assignments in the off-chance that a claim could arise.

Crime Insurance

Crime Insurance will protect you against losses caused by theft, fraud, or other criminal acts. For staffing agencies, this can also protect you against claims from any of your employees who may commit criminal acts. While in an ideal world, your background checking system will filter out potentially harmful employees, it’s not foolproof, and Crime Insurance can help you if an employee does slip through the cracks.

Certain industries, such as retail or events, have high crime limit requirements (+$5 Million), so it's important to read your client contracts to ensure you can meet their insurance requirements.

Employment Practices Liability Insurance (EPLI)

EPLI protects your staffing agency against legal costs resulting from an employee-related lawsuit. This can include wrongful termination, discrimination, and even harassment claims. 

Due to “At-will” employment in the US, employee lawsuits are common; they may feel discriminated against if an employer terminates them without reason, and even if you prevail, you may face high legal fees. EPLI can help you cover those costs. Here are some examples of EPLI claims:

Discrimination: A temp worker alleges racial or gender discrimination by the client or staffing agency.

Harassment: A worker claims they experienced sexual harassment at a client company, with the agency failing to act.

Wrongful Termination: An employee alleges they were wrongfully terminated, possibly for reporting safety concerns.

Employers Benefit Liability Insurance

Employers Benefits Liability Insurance refers to any claims that may come against you related to employee benefits. This can cover any benefits withheld in error, which is particularly useful for staffing agencies operating at scales where mistakes are common. Here are some examples of EBL claims:

Miscommunication of Benefits: A worker claims the agency misrepresented or failed to communicate benefits, like health insurance, leading to a coverage gap.

Denial of Benefits: An employee alleges they were improperly denied benefits they were entitled to, such as 401(k) matching or vacation time.

Errors in Enrollment: The agency mistakenly failed to enroll a worker in health benefits, causing out-of-pocket medical expenses.

Common Pitfalls to Avoid

Importance of Specialized Staffing Insurance

Many policies that cover regular businesses will not include risks that are specific to staffing agencies. For example, most workers' compensation packages will not cover temporary employees, and some GL/PL insurance coverages will not cover any staffing-related work. You must find policies built specifically for staffing agencies and include protections for these risks. Given how difficult it is to source staffing-specific coverage, most newer agencies use an Employer of Record (EOR) like Ascen to hold the proper coverage for them.

Multi-State Coverage Challenges

Traditional workers' compensation packages tend to cover only one state due to the different regulations found for workers' compensation in each state. As a result, if a staffing agency operates in multiple states and is only covered in one, it can be held liable for claims out-of-state. 

It can be hard to find all-state coverage in one policy, so it’s common for staffing agencies to seek multiple policies when operating on a national scale.

Client Protection Considerations

Finally, it’s important that staffing agencies ensure their insurance also covers their clients with the limits they require, which can be very high (and expensive). Clients often require staffing agencies to name them as “additional insured” to avoid any liabilities from an agency's operation falling to them. These challenges often mean newer agencies use an EOR to hold the high-limit coverage for them as they grow.

Ascen 

Ultimately, while a comprehensive insurance policy will help mitigate your staffing agencies' risks, it’s also important to be proactive. A comprehensive background check, clear work instructions, and continuous research can all help lower the amount of risk you face. 

We created Ascen to help staffing agencies navigate the complexities of insuring a staffing agency. Ascen acts as the full, legal employer of your workers and holds the proper insurance tailored for the staffing industry, so you can work with clients without worry. Ascen also has built-in tools to help you mitigate risks, such as background checks and automatic benefits management, to keep you compliant. 

If you want to see it in action, please book a demo here.