A temporary staffing agency is a company whose business consists primarily of recruiting and hiring its own employees and assigning them to other organizations to support or supplement their workforces. They may also provide assistance in specialized work situations such as employee absences, seasonal workloads, or to perform special assignments or projects. When a company determines that a temporary employee is needed, they will usually contact a recruiter that deals with temp employees.
While one major factor is likely who can deliver the best candidates, the likeability of the recruiter may also be a determining factor. All in all, your business relationship with a temporary service company should also take into account whether they have temporary staffing insurance that covers their employees for job-related injuries. Is the recruiter working for the agency prepared to handle any risk management issues that are inherent in staffing, and is the agency’s workers compensation insurance adequate in the event that an accident occurs?
Not all staffing companies operate in the same way
Some staffing agencies are set up as referral services and are not the employers of record for the temporary workers sent to a client’s work site. These agencies classify their referrals as 1099 independent contractors and pay them an hourly rate, but don’t pay wage related costs such as FICA, MEDI, SUTA, and FUTA. In addition, these staffing agencies do not withhold state and federal taxes on behalf of the referral, and therefore these staffing agencies are not providing workers’ compensation insurance for these hires.
Therefore, employment liability issues regarding workers’ compensation and payroll taxes could become the responsibility of the client in the event of a work related accident, or if the Department of Labor determines that the referral should have been classified as a W-2 employee.
Before a company does business with a staffing agency, it is important to know if they are fully and properly insured by a carrier that is nationally recognized for covering the unique exposures of staffing firms, including liability exposures at the client’s site.
Temporary staffing insurance coverage types and limits carried by these agencies are critical for protecting its clients. In order to qualify for limits that are adequate, they’re required by insurance underwriters to meet stringent criteria regarding financial stability, risk management procedures, and implementing best practices of their operation and policies.