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Co-Employment and Staffing Agency Insurance Issues

Co-Employment and Staffing Agency Insurance Issues

Co-employment occurs when there is a relationship between two or more employers in which each has actual or potential legal rights and duties with respect to the same employee. Temporary staffing agencies, because they outsource workers to client companies, are a prime example of this. In a single employer/employee relationship, the employer of record bears certain responsibilities to its employees.

In many co-employment situations, these responsibilities may be shared. Because co-employment is inherent in the staffing firm/client relationship, and since both have sufficient contact with an assigned employee, each company will basically be viewed as an employer. In this type of relationship the staffing firm is viewed as the “primary employer” and bears most of the responsibility for the employee. Therefore they require staffing agency insurance coverage as a way of meeting many of these obligations.

The staffing company has certain responsibilities, including:

  • Paying wages, overtime pay and withholding taxes
  • Providing worker’s compensation
  • Benefit and pension plans
  • Ensuring civil rights compliance
  • Appropriate labor/management relations
  • Providing a safe work site
  • Has the right to hire and fire, and
  • Hears and acts on complaints from the employee about working conditions

The client, on the other hand, supervises and directs day-to-day work, controls working conditions at the work site, ensures a safe work site, including civil rights compliance by employees, and determines the length of the assignment.

Some common co-employment issues

Co-employment issues arise when the client company extends its control beyond the staffing firm/client division of tasks and takes on the role of the primary employer, as specified in the “common law” test. The IRS and many state statutes use the “20-factor” or the “common law” test, a checklist of 20 criteria, to identify the degrees of behavioral and financial control a company has over an individual to determine employment status. If a contractor meets the majority of the criteria in the common law test and the client is found to be the primary employer, the contractor becomes their “common law employee” and the client will bear greater liability for that contractor. Co-employment is essential to the continued existence of the temporary staffing agency model. Staffing insurance protects these companies, as well as the people they hire to do contract work.