Staffing agencies play an integral role in keeping many businesses fully staffed and running at 100%, but they take on a unique level of risk in the process. Even though temporary employees work at another company’s location, the agency is often still responsible for things like workers’ compensation coverage and certain liability claims.
The right insurance coverage is essential for protecting your business and meeting client expectations. Learn about essential and industry-specific coverage, what you can expect to pay, and how to compare your options.
Why Staffing Agencies Need Specialized Insurance
When opening a staffing agency, it’s important to understand that you’re working with a distinct set of risks that many companies don’t have to deal with. You’re simultaneously an employer and a service provider, which means you’re liable on multiple fronts. Specialized insurance helps staffing agencies manage all of the risks involved.
Risks and Liability Issues Staffing Agencies Face
On the employer side, staffing agencies may deal with claims about workplace injuries, discrimination, harassment, payroll disputes, or compliance violations. They’re also responsible for all of the sensitive data they hold about their employees, like Social Security numbers and backing details.
As a service provider, staffing agencies can be held liable for the quality of employees they provide to clients. For example, a client could claim the agency didn’t vet a worker well or missed a red flag on a background check and caused financial losses, leading to expensive legal claims.
Client Contract and Compliance Requirements
Most companies require staffing agencies to carry specific insurance policies before they’ll agree to work together. It depends on the client and industry, but at a minimum, this usually includes general liability, workers’ compensation coverage, and professional liability insurance.
In addition to client requirements, staffing agencies have to comply with all local workers’ compensation laws and payroll regulations. Falling out of compliance can result in penalties and fines.
Types of Insurance Staffing Agencies Need
Staffing agencies typically need several types of business insurance to make sure they’re fully protected. The right coverage depends on the industries you serve, the types of employees you place, and the size of your operation.
General Liability Insurance for Staffing Agencies
General liability insurance helps protect agencies from common third-party claims that involve bodily injury, property damage, or advertising-related issues. A lot of companies expect staffing agencies to carry general liability insurance before they’ll agree to work together.
When you might use general liability insurance:
- A client visits your office and trips on a cord, breaking their arm
- A competitor claims your marketing materials use misleading language
Workers’ Comp for Staffing Companies
This is often a nonnegotiable policy for staffing agencies, since many temporary employees are placed in physically demanding roles. It doesn’t matter if the worker was injured while working at another company’s location—as the employer of record, the agency is usually on the hook to cover medical expenses, lost wages, and rehabilitation costs.
When you might use workers’ comp for staffing companies:
- A warehouse temp injures their back while lifting heavy boxes
A travel nurse you placed experiences a needle-stick injury
Professional Liability Insurance for Staffing Agencies
Professional liability insurance, also called errors and omissions (E&O) insurance, helps protect staffing agencies against claims related to professional mistakes or failures in service. If you place a temp and they end up causing the client financial loss or operational disruption, E&O insurance for staffing agencies should help cover legal costs and any settlements you have to pay.
When you might use professional liability insurance for staffing agencies:
- You accidentally place a warehouse employee who doesn’t have the required certifications to run specialized equipment
- Overlooking a background check results in employee theft at a client company
Employment Practices Liability Insurance (EPLI)
Employment practices liability insurance helps protect you against claims by your temporary employees that their legal rights as workers have been violated. ELPI policies usually cover your legal costs and any settlement you need to pay.
When you might use employment practices liability insurance:
- A temporary worker says their supervisor harassed them
- An applicant claims they were discriminated against because of their age
Cyber Liability Insurance
Cyber liability insurance helps protect you against online threats such as ransomware, malware, data theft, or unauthorized use of company computers. Coverage can help cover the costs of legal fees, litigation fees, data recovery, and interruptions to your business caused by a cyberattack.
When you might use cyber liability insurance for staffing firms:
- A phishing scam compromises banking information for your temporary workers
- A recruiter’s laptop is stolen, exposing client data
Commercial Auto Insurance
Commercial auto insurance is usually only necessary if you have vehicles registered to your company, but it might also be needed if you have recruiters driving back and forth between sites. This type of policy usually covers vehicle damage, liability claims, medical expenses, and accidents that happen in company cars or during company business.
When you might use commercial auto insurance:
- A recruiter rear-ends another vehicle while they’re driving to see a client
- Your company van is vandalized overnight
Additional Staffing Agency Insurance Requirements by Industry
Along with the policies detailed above, staffing agencies may need additional coverage if they place workers with clients in certain industries.
Insurance for Temp Staffing Agencies
Most temp staffing agencies need a combination of the above-mentioned policies. They may also need:
- Hired and non-owned auto insurance: These policies offer coverage when employees (like recruiters) use their personal cars for work purposes
- Employee benefits liability insurance: EBLI protects you in case there are errors in the benefits you offer full-time temp employees.
Insurance for Healthcare Staffing Companies
According to the American Staffing Association, nearly one in 10 temporary employees is placed in a healthcare setting. Placing workers in high-risk medical environments necessitates very specific insurance coverage. Along with workers’ compensation, EPLI, and cyber liability insurance, healthcare staffing firms usually need medical professional liability insurance to protect against claims that involve patient care, licensing issues, or medical errors.
Insurance for Industrial and Manufacturing Staffing Firms
More than a third (37%) of temporary and contract employees are placed in industrial roles, meaning there’s a higher chance of injury on the job. Strong workers’ compensation coverage isn’t optional.
In addition, a lot of agencies working in these sectors purchase an umbrella liability plan, which allows you to add coverage on top of your existing policies. Without a commercial umbrella policy, your agency would have to pay out of pocket for any costs that go beyond your other policy limits. With it, you can extend the limits of certain liability policies so a major incident isn’t financially catastrophic for your firm.
Insurance for IT and Professional Staffing Agencies
In IT and professional industries, cyber liability insurance is a necessity. Some agencies also choose to add a commercial umbrella policy that can cover expenses beyond the limits of their cyber liability insurance.
How Much Does Staffing Agency Insurance Cost?
The cost of staffing agency insurance depends on a number of factors, including which policies you include, what provider(s) you work with, the number of employees you place, and what industries you work in.
For the “big three” staffing agency insurance requirements—workers’ compensation, general liability, and professional liability insurance—you can expect to pay a minimum of $2,000 a year.
Here’s what additional coverage might cost:
- Commercial property insurance: $756 for a $2 million aggregate
- Employment practices liability insurance: $2,665 for $100,00 per claim
- Cyber liability insurance: $1,740 for $1 million in coverage
Considerations When Getting Insurance for Your Staffing Agency
Insurance for a staffing agency isn’t one size fits all. The right coverage depends on what industries you work with, what kind of employees you’re placing, and the requirements your clients have.
In a lot of instances, it may help to work with an insurance broker and determine the exact scope of what you need, so that you’re fully covered but not overpaying. Here’s how you can evaluate your options.
Research Insurance Providers With Staffing Industry Experience
Not all insurance carriers understand the unique challenges staffing agencies face. Choose a provider who has experience in the staffing industry, since they’re better equipped to handle all of the requirements you’re navigating. Look at a provider’s:
- Claims process
- Customer reviews
- Local availability
- Experience working with staffing firms
Look for Bundling Coverage Options
Bundling multiple policies through the same provider is sometimes more cost-effective than working with several carriers, and it can make it easier to manage your various policies.
Review Client Contract Insurance Requirements Carefully
Your clients will probably require you to have specific insurance coverage before you can place employees with them. Go over each contract to be sure you have all the necessary policies in place.
Make Sure Your Coverage Can Scale With Growth
Your policies should completely cover your current circumstances and be able to expand as your workforce does. This is especially important if you anticipate seasonal hiring shifts or large client contracts in the future.
Understand What Your Policies Exclude
Nearly all insurance policies contain exclusions that limit when coverage applies. Look carefully for exclusions related to:
- Subcontractors
- Workplace safety violations
- Cyber incidents
- Transportation
- Certain job classifications
- Reassess Coverage Regularly
You should evaluate your policies at least once a year, but you might benefit from more frequent review. For example, if you place employees in one of the high-risk industries, like construction, a quarterly review may be prudent. Major business changes should also trigger a review, like relocating your office to a new state or working with clients in new industries.
In-Summary:
Insurance for staffing agencies goes beyond checking a box for clients. Because agencies take on responsibilities as both employers and service providers, the right mix of coverage can help protect against financial losses, legal issues, and unexpected disruptions.
Coverage needs can vary widely depending on the industries you serve and how your business operates, so it’s worth reviewing your policies regularly and making adjustments as you grow. Taking the time to build the right insurance plan now can help create more stability and flexibility long term.