Oct 13, 2017

PEO clients now have the option to purchase WC

Gov. Chris Christie signed P.L.2017, c.233 (S-2512) into law on Sept. 13, 2017, which took effect immediately. No doubt, there will be a delay in its implementation due to the procedures that will need to be established by the New Jersey Compensation Rating and Inspection Bureau.

This new law permits a client company to enter into an agreement with a professional employer organization to assume the responsibility of providing the workers’ compensation insurance coverage for its leased employees. It also reaffirms that the exclusivity of the workers’ compensation remedies applies to both the PEO and the client firm, regardless of which party provides the workers’ compensation insurance coverage.

Previously, the PEO had sole responsibility to provide the workers’ compensation insurance for leased employees. One problem with this arrangement is the potential for coverage gaps, as presented in the article titled, "PEO clients need a WC policy," published in the Reporter (Feb. 3, 2017).

It is well understood, when the PEO provides coverage, that the client will need his or her own workers’ compensation policy if the client has employees who have not been leased. What isn’t as well-known is that a policy still may be needed even if the client has no other employees. Any client who hires contractors could potentially hire an uninsured contractor, leaving the client holding the bag for an injured employee of the subcontractor. Even the direct hiring of an employee for just a few hours a week could create a gap. Failing to have a policy could lead to civil suits and noncompliance penalties.

Under the new law, the client may purchase a single policy for its leased workers and nonleased workers, which will fill the gap for direct employees and contingent liability for uninsured subcontractors. It also gives the client’s producer the ability to serve the best interests of the client for this line of its insurance portfolio.