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Property Casualty

Preventing Long-Term Risk from Temporary Employees

Nick Kohlhof
Nick Kohlhof
Client Executive, Property Casualty

Many industries use temporary staffing agencies to help recruit and fill their workforce. In fact, in the manufacturing space, this is extremely common. Recently, “The Great Resignation” and skilled labor shortage has increased this usage — driving more businesses to consider temporary employees (and for good reason).

The benefits of working with a temp staffing firm include:

  • Reducing overhead costs
  • Filling short-term or seasonal positions quickly
  • Less administrative work and time for your Human Resources team
  • The ability to try out an employee before extending a full-time offer

Another benefit to temporary employees is that they are covered on the temp agency’s workers’ compensation policy, rather than yours. Over the years though, I have handled many claims that relate to temporary employees. It can be frustrating for a business when this happens because they believed their policy and company would be insulated from these claims. However, there are some important gaps and loopholes that can leave an employer holding the bag for a claim involving a temporary employee.

How Can You Change Your Insurance Policy to Minimize Risk with Temp Staffing?

But there’s a way around this. By making some simple tweaks to your insurance policy and contractual language between your business and the temp staffing agency, you can seriously reduce the potential of these claims. I’ve outlined a few things to consider when it comes to this, but you can reach out to me as well!

Alternate Employer Endorsement

Request that the temp staffing agency show proof they have the “Alternate Employer” endorsement on their workers’ compensation policy and that it applies to your business either by being specifically named or by blanket coverage.

This endorsement is specific to the workers’ compensation policy and ensures that the agency’s workers’ compensation, and especially their employers’ liability policy, extend to your business as primary coverage in the event of a claim (similar to requesting additional insured status). This prevents an injured temporary employee from suing your business — above and beyond the workers’ comp claim — for negligence that contributed to their injury.

Waiver of Subrogation

Require a ”Waiver of Subrogation” in favor of your business as part of the contractual agreement.

Subrogation is when an insurer sues a third party that has contributed/caused a loss to their insured to recover some or all the money paid to the insured. Many times, a temporary employee’s workers’ comp claim ends up coming back around to the employer as a general liability or employers’ liability claim.

For example: A temporary employee is injured on the job when their hand is caught in a machine. The employer cooperates with the investigation of the temp’s workers’ compensation insurance carrier and claims adjuster. Six months later, the employer is then sued for negligence as the temp alleges that there was insufficient training for lockout/tagout and proper use of the machinery he was assigned to operate — essentially stating that your management’s negligence contributed to his injuries.

Request Additional Insured Status

Require to be added as additional insured on a primary and non-contributory basis to the temp staffing general liability policy.

The general liability policy protects you from bodily injury or property damage that your business, products, or employees cause to a third party. If a temporary employee acting on your behalf causes damages to a third party, especially if they are acting outside of the normal scope of business operations, you want to be protected by the temp agency’s insurance policy.

*Note* — This one can be tricky, as many will argue that if the employee is acting under your direction, your business will be responsible for damages they cause. The priority is to protect your business from damages caused by the negligent actions of a temp employee. This has more to do with a lapse in judgement or character vs. making a mistake on the job.

Protect Your Company with a Trusted Risk Management Advisor

In the end, the use of temporary employees can be a great advantage for businesses. As always, though, there should be considerations regarding risk management and protecting your company.

If you have any questions on this or want to review your policies with us, please don’t hesitate to reach out!

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