Classifying Risk-Employment Agencies

CLASSIFYING RISK–EMPLOYMENT AGENCIES

(April 2019)

 

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INTRODUCTION

Employment agencies are matchmakers. They work with an employer to define the type of employee it needs. They work with employees to discover their skills and interests. They then bring the parties that match together. The difference between the three types of agencies is based on the relationship with the employee that continues following the match with the employer.

FULL TIME PLACEMENT EMPLOYMENT AGENCIES

One type of employment agency is the agency that works with and places candidates who seek permanent work with an employer. In most cases, these agencies have no formal relationship with the job candidate after the match although they may have a long-term contractual relationship with the employer/business that seeks or requires job candidates.

Class Code 43200: Employment Agencies is used for these risks. The premium basis is square foot area. This rating approach suggests that the primary liability exposures fall within the office area and off-premise activities are limited. It also suggests that it does not matter if the agency places high-paid top executives or hourly workers because the premium basis is the same.

The classification note offers further insight into the rating approach. It states that Personal and Advertising Injury Liability Coverage is excluded and CG 21 38–Exclusion–Personal and Advertising Injury must be attached. This means that some of the major exposures of employment agencies are excluded, such as leaking confidential information about the candidate or false advertising. Professional liability coverage is required for these and other important exposures.

The other part of the note directs the reader to the other two types of employment agency operations. It states that Class Code 43200 does not apply to agencies that furnish workers to others if they maintain an employer-employee relationship with those workers. Those operations are classified and rated as Sales and Service Organizations.

TEMPORARY EMPLOYMENT AGENCIES

In this type of employment agency, the temporary employee is an employee of the employment agency, not of the client business where he or she works. Because the worker is the agency’s employee, the agency provides the workers compensation coverage and any type of employee benefits. The employment agency handles personnel problems that arise. The employment agency may even send its own supervising employees to work at the client’s site for more efficient interaction with the employees it supplies.

Class Code 47367: Sales or Service Organizations is the classification used for temporary employment agencies. It is rated based on payroll. However, the note states that the only payroll used is that of employees who work for other employers, not those who work inside the employment agency premises. The following types of employees are listed as the types of employees who could be supplied. However, the note does not make this an exclusive listing:

Note: This classification includes Personal and Advertising Injury Liability Coverage.

Only the payroll for the employees supplied is considered to develop the premium for this classification. This means that the primary exposure the class code anticipates is that of the temporary workers at the client’s location.

This classification is interesting because of the potential exposures involved due to how the Insurance Services Office (ISO) Commercial General Liability Coverage Form defines “employee.” It includes employees as insureds, including leased employees, but not temporary employees. Because temporary employees are not insureds, the employment agency’s insurance responds if a suit is brought against company where the temporary employee works because of that employee's actions.

This definition of employee brings up the third type of employment agency. These are employee-leasing agencies.

EMPLOYEE-LEASING AGENCIES

This type of employment agency usually deals with professionals who engage in computer or other specialty occupations brought in for long-term projects. These employees have contracts with the employment agency and are leased to the company they provide their services to on a long-term basis. The contract can be extended, and penalties are applied for early withdrawal from the contract or in cases where the company hires the employee permanently.

Properly classifying this type of employment agency is based on the language in the contract between the employment agency and the contract employee. Class Code 47367: Sales or Service Organizations is the proper classification if an employer-employee relationship is maintained between the employment agency and the employee. Class Code 43200: Employment Agencies is the proper classification if there is no such continuing employer-employee relationship.

SUMMARY

The proper classification depends on the contract between the agency and the employer-client. The contract should state specifically who is responsible for the employee supplied to the employer.