As co-employers, PEOs contractually assume many necessary duties under employer rights, responsibilities, and risk through the establishment and maintenance of their relationship with workers assigned to clients. The client companies share many of the same duties and responsibilities.
This simply means that a PEO not only reserves a right of direction and control of the employees, but also pays wages and employment taxes of the employee out of its own accounts, and also reports, collects and deposits employment taxes with state and federal authorities. In addition, they retain the right to hire, reassign and fire the employees, and require a workers comp policy as part of their peo insurance as they may be exposed to injured worker issues resulting in lawsuits if not properly insured.
Drawing the line for where responsibilities lie
One must evaluate the employer role of both the PEO and the client, and assign the circumstances of each employer obligation. This should be examined closely, because neither party alone can be made responsible for performing all of the obligations of employment.
Each party will however be solely responsible for certain obligations of employment, while both parties will naturally share responsibility for other obligations as dictated by their contract. Four endorsements are available for use in co-employment situations. Two are client-specific and two are attached to the PEO’s policy. Contractual agreement between the PEO and the employer regarding which entity is responsible for providing workers’ compensation benefits will govern which endorsements are used.
When the employer/client is contractually responsible for providing benefits, the two endorsements in place to provide the necessary or required workers’ compensation benefits are the Labor Contractor Endorsement (WC 00 03 20 A), and Labor Contractor Exclusion Endorsement (WC 00 03 21).
When the PEO is responsible for providing workers’ compensation protection, the endorsements needed are Employee Leasing Client Exclusion Endorsement (WC 00 03 22), and Professional Employer Organization (PEO) Extension Endorsement (WC 00 03 20 B).
It is absolutely essential that the employer/client have in place a workers’ compensation policy even when the PEO is contractually providing coverage. Since both entities are legally employers and in fact are the “employers of record,” such contractual arrangement does not preclude the necessity of coverage. Likewise, the PEO should have a workers comp policy in their peo insurance portfolio for the same reason.