Insurance Requirements for Staffing Agencies
December 21, 2021
Since staffing agencies act as middlemen between employers and employees, it goes without saying that proper insurance coverage is a must. If anything goes wrong on either end, then you could be facing some major liability risks. Fortunately, getting the necessary coverage is a pretty straightforward process. Here’s a look at everything you need to know about insurance requirements for your staffing agency.
Please note, the below is general advice on insurance considerations for staffing agencies. However, this is provided for informational purposes and is not legal advice. It is highly advisable to seek professional legal counsel when choosing insurance for your agency.
How staffing insurance works
The sort of coverage a staffing agency will need depends on its business operations. Just about every type of staffing agency will need at least general liability and commercial property insurance, but a few might need extra coverage on top of that. Talk with a local insurance attorney to ensure you understand what coverage you are legally required to have in your state. Not having the necessary insurance coverage (from either a legal or good business standpoint) could result in a disastrous bankruptcy if any lawsuits are brought against you.
As for insurance costs, they vary depending on the number of policies and the amount of coverage required. For instance, temp staffing agencies that supply workers for the heavy industry sector will pay a lot more for general liability and worker’s compensation than, say, an agency that provides only administration staff. You can save on costs through a business owner’s policy (BOP), which typically costs between $500 and $1,500 per year. However, BOPs usually only provide coverage for property damage and liability. You will likely need additional policies which can each range in cost from $200 to $2,000 per year.
Insurance coverage that every staffing agency needs
In many states, staffing agencies are required, at a minimum, to have the following policies. Make sure to read up on what your own state says about this.
1. General Liability Insurance
This is usually the first kind of policy that every business purchases. The reason is that it provides coverage for a host of issues you can run into when running a business. This includes things like third-party injuries and damage claims, property damage, reputational harm, and copyright infringement. General liability will not only cover compensation for the affected parties but also the legal and settlement costs if things go to court.
2. Professional Liability Insurance
This covers against claims based on malpractice, errors, or negligence in the rendering of your duties. Since you’re providing employees for your clients, you could run into trouble if any of them fail in their duties. For instance, an employee not having the necessary skills for the job, not meeting the conditions of your contract, or failing to adhere to industry regulations.
3. Workers Compensation Insurance
Since you’re responsible for your employees, you need to be able to provide compensation in case any of them are injured while on the job. This is used to cover their medical expenses and lost wages while they recover. It can be a tricky issue as some states regard temp employees as being employed by the agency rather than the company they’ve been placed with. Make sure you carefully read and understand what your own state says about liability regarding worker compensation.
Insurance coverage that staffing agencies may need
In addition to the big three above, it may also be a good idea to include a few supplemental insurances to provide better protection for both you and your business.
1. Property/Business Personal Property Insurance
You’ll probably have a long list of items needed to run your business. Things like computers, furniture, company phones, and other things like that. This policy will cover you anytime something gets damaged or stolen.
2. Employment Practices Liability
A vital bit of coverage that every business should have. Employment practices liability will cover any costs associated with a lawsuit brought by employees (be they former or current employees) or government entities. This is for lawsuits in which the plaintiff alleges wrongful discharge, discrimination, or certain kinds of harassment.
3. Commercial Umbrella Liability
This is an additional policy that can be tagged onto your general liability coverage. It provides additional coverage for auto accidents, product liability, customer injury, reputational damage, and other issues in which the costs exceed the limits of general liability insurance. It can be a worthwhile expense if you foresee issues in which substantial payouts must be made to cover claims.
4. Hired and Non-Owned Auto Insurance (HONA)
HONA is a type of insurance for small businesses that rent or lease vehicles or ask employees to use their personal vehicles for business purposes. If your employee gets into a road accident that causes third-party damage, HONA ensures your business won’t go bankrupt from any resulting lawsuits. However, while it will cover any legal fees and settlement payments, it will not cover costs to repair the employee’s damaged vehicle. Nor will it apply if the accident takes place while the employee is commuting to work or running a personal errand during the workday.
The process of choosing coverage for a business owner requires a lot of forethought and deliberation. You need to understand not just what types of policies you’ll need, but also the finer details on what they cover and what they don’t. It can be a very intimidating task for someone who’s not well versed in legal matters. If you have any doubts, consult an insurance attorney to ensure you’re meeting all the insurance requirements for your temporary staffing agency.