CB Everett of CBE Law Group offers insight and experience in this article on PEOs and workers’ compensation issues.
What is a Professional Employment Organisation (PEO)?
Professional employment organisations (PEO), or employee leasing companies, are third-party organizations that provide comprehensive HR services as well as other business administration functions for their clients. The PEOs’ relationship with their clients is governed by a contract that specifies the scope of co-employment, as well as specific responsibilities and tasks.
The PEO is the employer-of-record for payroll, benefit administration and other HR-related tasks. The PEO is in charge of payroll processing, reporting and tax withholding, administration of employee benefits (including health care, retirement plans, and workers’ compensation), and compliance with applicable employment laws and regulations.
On the other hand, the client company retains full control of its core business activities, including day-today employee supervision and operational decision making. PEOs add value by using their expertise and resources to better manage admin functions, allowing the client company more time to focus on core business operations.
What are the differences between these temporary staffing agencies and how do they operate?
Often, PEOs are confused with temporary staffing agencies, mostly because both work in the same areas of general labour, light industry, warehouse, and logistics. What differentiates PEOs and temporary staffing agencies are the client relationships they have, as well as the flow of employees from one company to another.
Staffing agencies hire and recruit workers, and then place them in the operations of their clients (such as warehouses or factories). A staffing agency hires an employee and then places them at the client’s company. PEOs are in some ways the opposite of staffing companies when it comes to the flow of employees. Employees are hired at the client’s facility and then placed on the PEOs employee roster.
The ‘flow’ of employees differentiation breakdown between signup for staffing offices and placement in operational facilities and origin of operational facilities and office placement on PEO books has been oversimplified. There are also many other nuances and factors that distinguish the two. The main difference is that a temporary staffing company adds value as an employer by taking on all liability. A PEO is a ‘co-employer’ that adds value by taking on potential liability. PEOs engage in a co-employment relationship with their clients that is long-term whereas temporary staffing companies focus on providing temporary workers or contract employees to fill specific roles for a short duration.
What are the legal issues that arise from employee leasing? How can a team or attorney with expertise in employment law best address these challenges?
Legal challenges can arise from employee leasing or any other form of co-employment. The biggest challenge is the wide range of liabilities that exist or can be present in an employment situation. These can be issues like employment discrimination, wage-and-hour violations, or claims of wrongful termination. PEOs can provide retirement and employee benefits to their workers. This makes it difficult for them to comply with complicated benefit laws such as ERISA, or tax laws. In our legal practice we also see challenges in employee safety (OSHA), and most notably, the workers’ compensation systems.
The PEO is faced with a challenge when it comes to operational issues (injuries and personnel actions, employment-related behavior) that they have to manage, but only have a limited amount of control over. PEOs can create a great safety program, with well-trained supervisors and employment policies. However, it is ultimately the client company that will be on the ground to supervise operations. The client company has a great opportunity and a big challenge in implementing policies and procedures. In the event of an injury, incident, or claim, it is important that both the PEO, and the client company, have a strong level of trust and partnership.
Legal challenges can arise from employee leasing or any other form of co-employment. The biggest challenge is the wide range of liabilities that exist or can be present in an employment situation.
PEOs need to stay abreast of the ever-changing laws and regulations governing employment at all levels, including federal, state and local. A good employment lawyer can offer ongoing advice on compliance issues, such as anti-discrimination legislation, workplace safety regulations and workers’ compensation requirements. They can assist in developing policies and practices to align with legal requirements, and minimize potential compliance risks.
A good employment lawyer is essential to help PEOs, client companies, and other personnel in addressing issues such as discipline, termination, performance, and compliance with the applicable laws. This includes providing notice, documenting termination reasons, and complying with all applicable laws. Employment law attorneys are able to provide support and representation in the event of disputes or lawsuits involving employment. They can help with alternative dispute resolution, such as arbitration or mediation, and, if needed, represent the PEO or their client in court proceedings.
Competent employment law attorneys and teams can help businesses protect their interests, navigate the complex laws of employment, and ensure compliance. PEOs that partner with employment law professionals can address legal challenges effectively, mitigate risks and maintain a harmonious and legally compliant employment environment.
What is the extent of a PEO’s liability in terms of workers’ compensation?
Workers’ compensation liabilities of PEOs can vary depending on specific contract agreements and applicable laws. In general, the PEO will cover the workers’ compensation for co-employed employees in a coemployment relationship. The PEOs purchase workers’ compensation policies to cover co-employed employees and, if there are any issues (such a non-compliance by a client company), they indemnify the client company from liability. The PEO manages the claim and engages legal representation (depending on if the claim is litigated) to defend it.
There are usually limitations and exclusions to coverage. These include serious misconduct or willful conduct, as well claims against an employer for retaliation after filing a claim. The coverage usually extends up to the resolution of a primary case, with tort claims against a client company often excluded.
PEOs also help their clients implement safety and risk management programs in order to reduce workplace accidents, and the subsequent claims for workers’ compensation. PEOs reduce risks and liabilities by promoting a safety culture and offering guidance on best practices.
PEOs are responsible for ensuring compliance with the laws and regulations governing workers’ compensation, which includes obligations like proper state reporting, calculation of insurance premiums, and adequate coverage. It is important that PEOs, as well as their clients, consult with insurance and legal professionals to understand their obligations.
What is the difference in liability between states?
Liability of a PEO may vary from one state to another. As a minimum, certain federal laws apply to every state. However, the protections that each state offers its employees are different. There are many variables that PEOs must navigate state-by-state, whether it’s disability laws, wage law, or laws about discrimination and protected groups.
Most workplace claims are handled at a localised administrative level, by agencies and laws such as the state labour boards, the tax boards and the divisions of OSHA. Workers’ compensation is also governed by state laws, since each state has their own labour code and statutes relating to workers’ comp.
Some states have laws that are more “employee friendly” and therefore, the risk of employer liability (and PEO) is higher. Other states have fewer regulations in the workplace, a greater number of barriers to claim, or defenses against claims. They also limit the exposure to recovery. The differences between states affect PEOs’ liability and cost in providing coverage, and the premiums their clients pay.
What are some of the most common situations that could lead to a PEO having to pay workers’ compensation claims?
A PEO is not liable for any incidents that are different from the norm, as its liability is basically a function of the client’s company’s responsibility.
PEOs are generally liable for compensating workers who sustain injuries while performing their normal and customary duties. This can include injuries resulting from accidents, falls, negligent equipment operation, or transportation-related incidences. Workers’ compensation covers injuries that occur in the course of work.
Workers’ compensation claims may be brought against PEOs for occupational diseases or illnesses that are caused by or made worse by the workplace. Exposure to toxic substances such as asbestos or chemicals can cause respiratory problems, cancer or other long-term issues.
To fully understand the obligations and coverage of PEOs, it is important that they consult with insurance and legal professionals.
Injury can be of a specific nature (or acute), meaning they are dated. These injuries include a fall, an accident causing a broken bone or ligament tear, a blow to the head or chemical burn.
There are also cumulative trauma injuries. These injuries can develop slowly over time as a result of repetitive movements, prolonged exertion or exposure to ergonomic risks. Examples of repetitive task-related injuries include carpal tunnel syndrome (also known as carpal tunnel syndrome), strained backs, and tendonitis.
What are the common issues that arise from these events?
Some overlap can occur when incidents that lead to workers’ compensation claims happen. It does not happen often, but because there is a third party (a PEO), between the usual employer-insurance carrier relationship, a claim may not be properly reported by the client company. This can occur either intentionally or unintentionally. There is also a communication chain between the PEO and the client company, which can lead to important details being lost.
The client company must report an injury claim to the PEO promptly and accurately. The client company can cause immediate problems if they intentionally fail to report the injury. They may try to discourage the employee from filing a claim, seeking medical attention or even get them medical treatment before reporting it. It may be that the employee has not reported the claim on purpose. Sometimes, an employee will report an injury or complaint in a way that is not obvious to the client company. It could be due to administrative negligence.
If a claim has not been reported in a timely manner or incorrectly, this can have a cascade of negative effects. Untimely reporting, for example, may prevent certain defenses and cause the employer to be liable. This could prevent an employer from being able to provide treatment to their employee if the claims adjuster is unable to complete the compliance documentation in a timely manner. Insurance companies may not be able to control the medical care provided within their network.
A worker who feels mistreated may also seek legal counsel, which could lead to a higher incidence of claims litigation, with the resulting cost. The claims team could be influenced by a miscommunicated report or inaccurate information about a claim to deny or accept it in an inappropriate manner. This could lead to confusion for the legal team and claims team, and it may obscure the true actions that should be taken, and what liability is actually present.
What further comments would you like to make about the concerns that PEOs have regarding employment law?
If you are working with PEOs, have questions about PEOs, or need general guidance, you should rely on a good insurance agent, as well as experienced employment law and workers’ compensation attorneys. Please do not hesitate to contact us if you need assistance. We can either help directly or refer you to the appropriate parties.
CB Everett, Managing Partner
Long Beach, CA, 90802, USA, 425 E. 4 the th Street Suite E.
Tel: +1 213-357-5121
Fax: +1 213-357-5122
CBE Everettis a managing partner at CBE Law Group and its founder. He has successfully tried workers’ compensation cases before the Workers’ Compensation Appeals Board. He also resolved claims of serious injuries, defended discrimination claims under the Labor Code and handled many other employment law issues. He has successfully represented employers in other state agencies such as the EEOC and DFEH.
CBE Law Groupis an insurance defense firm based in California. The group defends workers’ compensation cases aggressively for major insurance companies, third-party administrators, employers, and PEOs. The firm has also been successful in defending discrimination claims brought under Labor Code Section 132a, and in resolving lien claims.