Product Family


North America Construction Team


Mike McKinley, CRM, CIC, CRIS,  Doug Millner, CRIS, and Joe Binkowski

It should come as no surprise to anyone reading this article that the construction industry makes wide use of temporary employees.  These employees may perform unskilled labor or fill white collar positions.  In either case, temporary employees present a unique risk exposure for contractors as they are often involved in serious or even fatal accidents. Therefore, any such exposure must be handled very carefully to properly insure or transfer the risk. 

Since the health & safety of temporary workers is universal in nature, most of what will we will examine in this article will highlight injury prevention best practices.  If you are successful in preventing the temporary worker from becoming injured then you will not need to be concerned with the resulting insurance and claims effects, which will vary from jurisdiction to jurisdiction.

We are going to examine key points a contractor should know when considering the use of temporary employees. Our focus will be limited to best practices regarding the health & safety of the temporary worker and the contractual agreements related to insurance coverages (Workers Compensation and General Liability).

Some Fine PrintAs you can imagine (and as you will soon see) there are many variables that can affect coverage and claims. Therefore, we will not discuss specifics of how your policy might respond to a claim. The intent rather is to facilitate discussion between you and your Broker so you can make informed risk management decisions regarding the use of temporary employees. Additionally, there are other possible exposures related to temporary workers that include employment, discrimination and sexual harassment. To protect against these types of claims, we strongly recommend you seek the advice of Human Resources and/or legal counsel.

So What Exactly is Temporary?In April 2013, the Occupational Safety & Health Administration (OSHA) issued a memorandum to all regional administrators about protecting the safety & health of temporary workers.  The memo specifically calls for the CSHOs (an OSHA Compliance Officer) to assist in “gathering and tracking certain information during inspections and investigations of worksites where temporary workers are employed.  For the purposes of said information gathering, ‘temporary worker’ includes anyone who is working under a host employer/staffing agency employment structure.”  Per the Bureau of Labor Statistics, temporary workers are defined as those who are paid by a temporary help agency, whether or not their job is temporary.  A temporary worker is further described in in the OSHA memo as those who are supplied to a host employer and paid by a staffing agency.

A major factor in determining how much of an exposure you are taking on is directly related to how much control you have over those employees.  If you are directly supervising them, there is the potential that they can be found to essentially be your employees depending on your jurisdiction. 

Safety is a Permanent FixtureRecordkeeping. One of the most fundamental safety practices for any organization is recordkeeping.  Per 29CFR1904, Recording and Reporting Occupational Injuries and Illnesses, an employer has the basic requirement to record on the OSHA 300 Log, injuries and illnesses of all employees on their payroll. It does not matter whether they are labor, executive, hourly, salary, part-time, seasonal or migrant workers.  Employers are also required to log recordable injuries and illnesses that occur to employees who are not on their payroll if they supervise these employees on a day-to-day basis, which is a key distinction specifically stated in 29CFR1904.31(a).  Included below are several other important distinctions taken directly from 29CFR1904.

1904.31(b)(2): If I obtain employees from a temporary help service, employee leasing service, or personnel supply service, do I have to record an injury or illness occurring to one of those employees?  You must record these injuries and illnesses if you supervise these employees on a day-to-day basis.

1904.31(b)(3): If an employee in my establishment is a contractor’s employee, must I record an injury or illness occurring to that employee?  If the contractor’s employee is under the day-to-day supervision of the contractor, the contractor is responsible for recording the injury or illness.  If you supervise the contractor employee’s work on a day-to-day basis, you must record the injury or illness.

1904.31(b)(4):  Must the personnel supply service, temporary help service, employee leasing service, or contractor also record the injuries or illnesses occurring to temporary, leased or contract employees that I supervise on day-to-day basis?  No, you and the temporary help service, employee leasing service, personnel supply service, or contractor should coordinate your efforts to make sure that each injury and illness is recorded only once: either on your OSHA 300 Log (if you provide day-to-day supervision) or on the other employer’s OSHA 300 log (if that company provides the day-to-day supervision).

The key point that determines an employer’s potential obligations on behalf of temporary workers (at least from an OSHA perspective) is “supervision.”  According to OSHA, day-to-day supervision occurs when “in addition to specifying the output, product or result to be accomplished by the person’s work, the employer supervises the details, means, methods and processes by which the work is to be accomplished.”

However, just because OSHA regulations say an employee-employer relationship exists, that does not mean one exists from a Workers’ Compensation perspective.  How each state views the employee-employer relationship will vary among jurisdictions and contractual documents.  Regardless of definitions and legal interpretations, if the staffing agency and host employer understand that they are jointly (and severally) responsible for maintaining a safe work environment for temporary workers, ensuring that employees are trained and promoting a sustainable safety culture that embraces safe work behaviors, they will create a more productive worker and one who is less likely to be injured or killed.

Safety Best Practices. In an effort to reduce (or better still, eliminate) injuries and illnesses to temporary workers, staffing agencies and host employers should consider some of these practices:

Each entity should have its own safety & health program. This program should help employers identify hazards and develop protective measures for the workers.  For such a program to be successful there must be management commitment to and broad employee involvement in worksite analysis, hazard assessments, hazard prevention and control, and safety and health training.

Employers will experience better results if they collaborate in the area of safety & health.  The host employer should conduct hazard assessments of its worksites and the staffing agency should be aware of all identified hazards.  This does not mean the staffing agency becomes an expert on specific workplace hazards. What it does mean is the staffing agency should determine what conditions exist at their client’s worksite, what hazards may be encountered and how best to ensure protection for temporary workers. Additionally, host employers should encourage the staffing agency to visit a few projects so that they can better understand both hazards and protective measures.  If a staffing agency is not interested in this type of partnership, this should be a red flag about their commitment to health & safety.

Both employers should define the scope of work in the contract. Defining the scope of the temporary workers’ duties discourages tasking workers to perform work they are unqualified and untrained to perform and which may carry a high risk of injury.  Host employers should not request temporary workers to perform any duties that they would not ask of their own employees.

Both employers should conduct new project orientation and safety & health training. The host employer and the staffing agency should work together to ensure that all workers on new projects or workers newly placed on existing projects receive an orientation before work begins. The orientation should include information on both general safety and health topics and worksite-specific issues.

The host employer must also maintain close communication with the staffing agency.  This will help ensure that injuries and illnesses are promptly recorded, reviewed and the underlying hazards corrected.  Remember, the host employer and staffing agency share control over the temporary worker and are therefore jointly responsible for his or her safety & health.

Please Lease MeThe International Risk Management Institute (IRMI) has numerous pages of information regarding “employee leasing,” which are highly recommended to educate yourself on this topic.  Up until to this point, we have used the term “temporary employee” or “temporary worker”.  IRMI materials point out an important distinction between temporary employee and leased employee.  IRMI defines a temporary employee as “short-term employees usually hired to provide extra help during peak seasons or to fill in during regular employees’ absences whereas leased employees are contracted for as a unit on a permanent or indefinite basis.  Temporary employees would typically come from staffing agencies and there are several national and local firms providing this service.  Leased employees typically come from Professional Employment Organizations.

When using temporary employees, the first item of business for the contractor is to determine if the employee is being provided through a temporary staffing agency or a PEO.  It is very important to recognize the difference between the two because how your insurance policies will respond to a claim will vary.  In a pure temporary staffing agency model, the contractor provides worker’s compensation coverage for the temporary workers since worker’s compensation is based on payroll.  In cases where the payroll is going through the “staffing agency”, that may be considered a PEO environment where  the worker’s compensation coverage should be handled by that “agency/PEO”.  You will want to ensure that all payroll issued through the staffing agency is processed using a W-2 Form and not a 1099-Form per Internal Revenue Service regulations.  The W2 provides you with certainty that all applicable taxes and insurances are being paid on the employee’s behalf and helps with your risk transfer.  While a PEO arrangement does not expose your worker’s compensation policy, it could potentially expose your General Liability policy in the event a person from that firm is injured while working for your firm in the form of an “action over” claim.  In this case, you could treat the staffing agency as a subcontractor and enter into a formal contract or master agreement with your standard hold harmless and indemnification language.

XL Group’s goal is to help you understand some of the risks and recognize the complexity of the issue of hiring temporary workers.

Just as there can be confusion regarding the employment relationship with respect to responsibility for safety and safety training, the same holds true for insurance coverage. In some states, this becomes a jurisdictional issue where the state decides who the employer is for purposes of workers compensation and in the absence of a specific state statute, common law prevails. And based on the “borrowed servant” doctrine, the company who hires the temporary employee or leased employee will likely be found to be the common law employer.

To further complicate matters, when the host employer has full supervisory control over employees, the host employer is responsible for injury and illness recording and reporting. This supervisory control may still expose the injured employee to the host employer’s workers’ compensation policy and possibly the General Liability policy as well.

In order to determine who is responsible for ensuring that workers compensation coverage is secured properly for temporary or leased employees, IRMI has developed a table that provides insight into the employment relationship. The table also includes state specific information relating to the determination of the employer in a leasing arrangement and the proper way to arrange workers’ compensation and employer liability coverage. It cannot be stressed enough, that Worker’s Compensation laws and regulations will vary from state to state. What’s more, those laws and regulations constantly change and you should consult your Insurance Broker for advice specific to your situation. Here are just a few examples from IRMI:

  1. Florida: Immunity from third-party liability to a leased or borrowed employee is extended to an employer who utilizes an employee leasing service as set forth in the North American Classification System Codes 561320 and 561330 for the furtherance of the employer’s business. An employee procured in this manner is treated as a borrowed employee and is treated as an employee of the leasing employer as respects to the Workers’ Compensation Act. The leasing employer is responsible for providing workers’ compensation coverage to the employee unless coverage has been secured by the employee leasing company.
  2. Hawaii: The PEO (Professional Employer Organization) is considered the employer of the leased workers for the purposes of workers compensation.
  3. New Jersey: The registered employee leasing company and the client company that have entered into an employee leasing agreement are considered co-employers for the obligations of the Workers’ Compensation Act. Both are entitled to the protection of the exclusive remedy provision contained in the Workers’ Compensation Act (34: 8-72)

As you can see from the above examples, each state is different so it is important to understand not only the jurisdiction where you are working presently but also any you are considering for expansion. To ensure you, your employees and temporary workers are appropriately covered, you should speak with your insurance broker before entering into any arrangement with a temporary staffing agency or PEO.

Claims Complexity

I think we all would agree that the best defense against a claim is to prevent one in the first place. To do that, ensuring workers are protected against hazards in the workplace is paramount. However, should a claim arise, you need to be prepared. How to properly manage a claim involving a temporary worker can become very complex, very quickly. And how you handle claims also varies widely by jurisdiction, making it impossible to adequately address the topic here. If there are specific questions regarding claims related to temporary workers you should talk with your broker, carrier claims professional and/or legal counsel with specific questions.

Now What Do You Do?

Temporary workers are used throughout the construction industry in a variety of settings, performing a variety of roles. The use of temporary workers is only likely to increase and there are certain risks a company assumes when employing them. Therefore, the organization needs to be prepared and have the proper processes, coverages and resources in place. Ultimately, the choice of whether or not to use temporary labor is yours. XL Group’s goal is to help you understand some of the risks and recognize the complexity of the issue. Elimination of the risk is preferred but if you choose to have this exposure, it is one that must be actively managed.

About the AuthorBrian Poliafico, CRIS, is a Risk Engineer with XL Group's North America Construction team.  Brian brings a wealth of knowledge and experience to the XL Construction team and our business partners. He has a broad range of experience that spans metal fabrication, specialty/petrochemicals, and fossil/nuclear power generation & construction. Brian is responsible for creating, delivering and managing value-added resources to our construction accounts and broker partners as well as works closely with our Underwriting and Claims teams to ensure XL delivers on its commitments to all of our stakeholders.___________________________________________________________________________

The information contained herein is intended for informational purposes only and does not constitute legal advice. For legal advice, seek the services of a competent attorney. Any descriptions of insurance provisions are general overviews only. In the US the insurance companies of XL Group  Ltd are: Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions. XL Group is the global brand used by XL Group  Ltd’s insurance companies. Information accurate as of November 2014.

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