Many businesses rely on temporary agencies when they need short-term workers. By using a staffing agency, a business can reduce its cost of administering payroll and employee benefits. The business can also save money on workers' compensation premiums since most states require the staffing agency to insure the temporary workers under a workers' compensation policy.
While the use of temporary agencies offers many advantages, problems can arise if temporary workers are injured on the job and seek workers' compensation benefits from the hiring company or sue it for benefits. Because the temporary workers aren't employed by the hiring company, claims or suits they file won't be covered by the hiring company's workers' comp policy. Fortunately, businesses can protect themselves from claims by injured temporary workers via the Alternate Employer Endorsement.
What Is the Alternate Employer Endorsement?
The Alternate Employer Endorsement is a standard NCCI endorsement that can be attached to the temporary agency's workers' comp policy. It covers injuries to the agency's employees while they're in special or temporary employment by the alternate employer (hiring company) listed in the endorsement schedule.
Workers are in special employment when they've been hired out by their primary employer to work at another company.
The Alternate Employer Endorsement extends Workers' Compensation and Employers' Liability coverages to the alternate employer. It pays benefits to temp workers who are injured on the job while working for the alternate employer (the hiring company). The temp agency remains the workers' primary employer. The hiring company is insured only while the temporary workers are assigned to it. The endorsement cannot be used to insure the hiring company's regular employees. Those workers must be insured under a separate policy purchased by their employer.
For a business to be covered under the Alternate Employer Endorsement, it must be listed in the endorsement schedule. The schedule must indicate the state in which the temporary workers are employed. If a contract or project is specified in the schedule, then coverage applies only to work performed by the temporary workers under that contract or at that project.
Conditions of Coverage
The endorsement requires the alternate employer to comply with the workers' compensation policy conditions regarding notification of injuries. This means that the hiring company must immediately report any injury involving a temporary worker to the temp agency's workers' compensation insurer. It must also provide immediate medical care to the injured worker and forward all relevant documents to the insurer or its agent.
One condition that does not apply to the alternate employer is the cancellation clause. Because the alternate employer is not the named insured, it is not entitled to notification if the policy is canceled.
Alternate Employer Endorsement Example
The following example demonstrates why the Alternate Employer Endorsement is important. In the absence of this endorsement, the hiring company may have no coverage for claims filed by temporary workers.
Bob owns Busy Builders, a small commercial construction company. A full-time carpenter recently left the firm so Bob decides to hire a temporary worker. If the worker performs satisfactorily over a six-month trial period, Bob may make him or her a permanent employee.
Bob contacts Terrific Temps, a temp agency, which sends him an experienced carpenter named Jill. Bob has confirmed that Terrific Temps has insured all of its workers (including Jill) under a workers' compensation policy.
One day, Jill is working at a Busy Builders job site when she trips over an extension cord and falls to the ground, breaking her leg. Jill is taken to a hospital, where she remains for several days. Jill receives workers' compensation benefits from Terrific Temps' workers' compensation insurer. Unfortunately, her leg doesn't heal properly and she never returns to work at Busy Builders.
No Coverage Under Busy Builders' Workers' Compensation Policy
Eight months after the accident, Jill sues Busy Builders for bodily injury. Her suit claims that Busy is liable for her injury because it failed to maintain a safe workplace. Bob sends the suit to his firm's' workers' compensation insurer and is dismayed when the insurer denies coverage. The insurer asserts that the claim isn't covered under Busy Builders' Employers Liability Insurance because Jill wasn't employed by Busy Builders when the accident occurred. Rather, she was an employee of Terrific Temps.
No Coverage Under Busy Builders' General Liability Policy
Next, Bob forwards the claim to his firm's general liability insurer. To his surprise, that insurer denies coverage as well. The insurer cites the policy's employers' liability exclusion, which precludes coverage for bodily injury to any of the insured's employees if the injury arises out of an injured worker's employment.
Bob is puzzled by the declination. He's read the policy definitions and has noted that the word "employee" does not include a temporary worker. He phones his insurer and argues that the employers' liability exclusion should not apply to Jill's claim because Jill was a temporary worker. The insurer points out that "temporary worker" means a person furnished to the employer either as a substitute for a permanent employee on leave or to meet seasonal or short-term workload conditions. Based on this definition, Jill wasn't a temporary worker but an employee. Consequently, her claim is excluded under Busy Builders' general liability policy.