Worker leasing laws: What you need to know about leasing workers

Over the past several years, worker leasing companies have continued to increase their presence in the business service industry. Worker leasing companies, often known as Professional Employer Organizations (PEOs), contract with clients to assume responsibility for administrative tasks related to running a business, often including payroll, benefit administration, employment taxes, and, in some cases, workers' compensation insurance.

The National Association of Professional Employer Organizations (NAPEO) is the national trade association for the professional employer industry. It reports that PEOs generate over $50 billion in gross revenues annually and estimates that 2-3 million Americans are currently co-employed in a PEO arrangement.

So who's using worker leasing firms?
According to statistics from NAPEO, the average PEO client is a business with 17 worksite employees, although it is not uncommon for large businesses to use the services of PEOs as well.

Many states require a written agreement between the leasing company and the client employer to establish a co-employment relationship. The agreement allocates the various employment and administrative duties for which the PEO is assuming responsibility and those for which the client employer continues to hold responsibility.

Oregon statutes and rules require that all employees must be covered by a single workers' compensation insurance policy, regardless of whether the employees are leased or non-leased workers. The responsibility for providing workers' compensation coverage can be handled by either the worker leasing company or the leasing client,
but not both—all workers must be covered under one policy.

This means that worker leasing companies may not provide workers' compensation coverage only for the employees they supply to leasing clients, and leasing clients may not provide coverage only for the non-leased workers they employ. If your business chooses to lease workers from a worker leasing company, be sure you:

• Arrange to cover all workers, both leased and non-leased, under your existing workers' compensation insurance policy. The worker leasing company will not be responsible for paying any workers' compensation premium or covering any claims. — OR —
• Contract with the worker leasing company to provide workers' compensation insurance coverage for all workers at your place of business. Once the leasing company begins providing coverage, you should cancel your existing policy. If you don't cancel your existing policy, it remains the primary coverage and you will be paying the worker leasing company for duplicate coverage.

Is a temporary worker a leased worker?
Temporary workers are not considered leased workers, even if they are provided by a staffing agency. Temporary workers are hired to fill a temporary need or to fill in for a regular employee during his or her absence. The employer or temporary service provider must retain documentation that indicates the duration of the work to be performed.

A temporary worker must be hired under one or more of the following circumstances:

• To cover employee absences or employee leave time (can include maternity leave, vacation, jury duty, or illness)
• To fill a professional skill shortage
• To staff a seasonal workload
• To staff a special assignment or project where the worker will be terminated or assigned to another temporary project upon completion
• To work as a student worker, provided and paid by a school district or community college through a work experience program The work contract is part of the client's overall employment selection program, such as a requirement that new workers must satisfactorily pass a probationary period before being granted permanent employee status

Other information about leased workers
Leased and temporary workers must be counted when determining whether a safety committee is required for the workplace. (Generally speaking, all workplaces with 11 or more employees are required to have a safety committee.)

If both the client and the leasing company have workers' compensation coverage, the
client company's coverage takes precedence for both leased and non-leased workers.

If the leasing company provides workers' compensation coverage for the client company's employees, the client company may not lease employees from any other leasing company.

Good to know
In Oregon, workers' compensation coverage held by the leasing client takes precedence for all workers. This means that leasing clients who keep their existing workers' compensation coverage but do not pay premium for leased employees can be held liable for premium charges arising from unreported payroll of leased workers. If you plan to keep your existing workers' compensation insurance coverage, understand this provides coverage for leased workers as well.

Before you contract with a worker leasing company, make sure that the company is licensed by the Workers' Compensation Division by checking the "Active Worker Leasing Company" list.