Staffing agency insurance requirements: workers' comp, liability, EPLI, bonds and client demands
On this page
- The policies at a glance
- Workers' compensation: the one the law requires
- The alternate employer endorsement
- General liability
- Employment practices liability (EPLI)
- Professional liability, crime and cyber
- Bonds: which ones actually apply
- What client contracts ask for
- An insurance checklist for a new agency
- Questions people ask
A staffing agency's insurance has to cover two kinds of risk that a typical small business does not: injuries to workers it employs but does not supervise day to day, and things those workers do at a client's premises. For a US temp agency, the core policies are workers' compensation and employer's liability, commercial general liability, employment practices liability (EPLI), and often professional liability and crime coverage. Client contracts then add their own demands: minimum limits, certificates, and endorsements naming the client.
This guide explains each policy, what the law requires and what clients ask for. It is general information, not insurance or legal advice. Work with a broker who places staffing risks, and have counsel read the insurance clauses in your client agreements.
The policies at a glance
| Policy | Covers | Required by |
|---|---|---|
| Workers' compensation and employer's liability | Injuries and illness of your employees, including temps | State law in almost every state; clients |
| Commercial general liability | Bodily injury and property damage to third parties | Clients, landlords |
| Employment practices liability (EPLI) | Discrimination, harassment, wrongful termination and similar claims | Clients, often |
| Professional liability (errors and omissions) | Claims that your service was negligent, such as a placement error | Clients, especially for IT and professional staffing |
| Crime or fidelity coverage, including third-party | Theft or fraud by your employees, including at client sites | Clients; some state licenses |
| Hired and non-owned auto | Liability when employees drive for work in vehicles you do not own | Clients, when temps drive |
| Umbrella or excess liability | Limits above the underlying policies | Clients with high minimum limits |
| Cyber liability | Data breaches involving candidate or client data | Clients, in some supplier agreements |
Workers' compensation: the one the law requires
In a temp staffing arrangement, the agency is the employer of record, so the agency's workers' compensation policy normally covers temps injured on assignment. Workers' compensation for private employers is run by the states, not the federal government; the Department of Labor points private-sector workers to their state workers' compensation board. That means rules, exemptions and penalties differ by state.
The best-known exception is Texas, where the Texas Department of Insurance says private employers can choose to carry workers' compensation but it is not required in most cases. Employers that do not carry it must report that to the state and report certain injuries. In practice, a staffing agency without coverage will struggle to win clients, because host employers want the protection that comes with the agency carrying comp.
Points specific to staffing:
- Premium depends on job classification. Rates are set by class code, so the cost of covering a light industrial temp and a clerical temp can differ widely. Classify each worker by the work actually done at the client, and tell your carrier when a client moves a worker into different duties.
- Price it into the bill rate. Comp is part of the burden in how to calculate staffing markup. A markup that ignores the class code can turn a busy account into a loss.
- Safety is shared. OSHA's position is that staffing agencies and host employers are jointly responsible for temporary workers' safety, and it could hold both responsible for a violation. Ask about hazards and training before you accept an order, and put safety duties in the client agreement.
- Every worker is an employee. Paying temps as 1099 contractors to avoid comp premiums is a misclassification risk; see worker misclassification for staffing agencies.
The alternate employer endorsement
Clients that use temps may ask to be named as an alternate employer on your workers' compensation policy. The alternate employer endorsement (form WC 00 03 01 A) extends your policy's workers' compensation and employer's liability coverage to a scheduled client for injuries to your employees working for it; the Indiana Compensation Rating Bureau publishes a reference note on it. Ask your carrier to issue it per client, listing the client and the state. Check your client agreement too: it should match what the endorsement actually provides.
General liability
Commercial general liability covers legal liability for bodily injury or property damage to others and for personal and advertising injury, such as defamation. As the Insurance Information Institute explains, it excludes workers' compensation and employment practices claims, which need their own policies. For a staffing agency, the question to ask your broker is how the policy treats damage or injury caused by your temps while they work under a client's direction, and whether it includes the additional insured wording clients will ask for.
Employment practices liability (EPLI)
EPLI covers claims by employees, former employees and job candidates about the employment relationship: according to the Insurance Information Institute, that includes discrimination, sexual harassment, wrongful termination, failure to hire or promote, and related claims, with defense costs. It typically excludes some statutory claims, such as NLRA, WARN, OSHA and ERISA violations.
Staffing agencies have unusual EPLI exposure: they employ many short-term workers, make frequent hiring and end-of-assignment decisions, and can be drawn into claims about a client's workplace. Ask your broker about third-party coverage (claims by clients' employees against your staff) and how the policy handles joint-employer claims; see joint employer liability for staffing agencies.
Professional liability, crime and cyber
- Professional liability (E&O) covers claims that your service caused a client loss, for example placing a worker without a credential the client required. IT and healthcare clients may ask for it.
- Crime and fidelity coverage protects against dishonest acts by employees. The Surety & Fidelity Association of America describes a fidelity bond as protection against losses caused by employees' dishonest misconduct. For staffing, the important extension is third-party or client coverage, which responds when your worker steals from a client. Clients that let temps handle cash, inventory or data may require it.
- Cyber liability covers breaches of the candidate and client data an agency holds: resumes, I-9 documents, bank details for payroll.
Bonds: which ones actually apply
- State license bonds. Some states require a surety bond as part of an employment agency license or registration, depending on the agency type. Check the state guides under employment agency license requirements.
- ERISA fidelity bond. If you sponsor a retirement plan such as a 401(k), ERISA section 412 requires people who handle plan funds to be bonded for at least 10% of the funds handled, with a $1,000 minimum and generally a $500,000 maximum (DOL Field Assistance Bulletin 2008-04).
- Client-required crime bonds. A contractual requirement, usually met with the third-party crime coverage above.
What client contracts ask for
Supplier agreements, especially from larger clients, set insurance terms. Read for these before you sign:
| Clause | What it means | What to check |
|---|---|---|
| Minimum limits | Per-occurrence and aggregate amounts for each policy | Whether your policies meet them, or an umbrella is needed |
| Certificate of insurance | Proof of coverage before work starts | Who issues it (your broker) and renewal reminders |
| Additional insured | The client is covered under your liability policy | Whether your policy allows it, and for which operations |
| Waiver of subrogation | Your insurer gives up recovering from the client | Whether your carrier will endorse it, and any cost |
| Primary and non-contributory | Your policy pays before the client's | Whether your policy wording supports it |
| Alternate employer | The client is covered under your comp policy | Endorsement issued per client |
| Indemnity | You pay the client's losses from your workers' acts | Whether your insurance covers the promise you are making |
The last row matters most. An indemnity you sign is a promise; your insurance may not cover all of it, especially losses caused by the client's own negligence. Send the clause to your broker before you sign.
An insurance checklist for a new agency
- Workers' comp and employer's liability bound before the first shift, with correct class codes.
- General liability, EPLI and, for professional staffing, E&O in place.
- Third-party crime coverage if temps work around client money, goods or data.
- Hired and non-owned auto if any worker drives for work.
- State license bonds checked for each state.
- A broker who reviews each client's insurance clause before signature.
- Certificates and endorsements tracked by client, with renewal dates.
For the rest of the setup, see how to start a staffing agency.
Questions people ask
Is workers' compensation required for a staffing agency?
In almost every state, yes, because the agency is the employer of the temporary workers it places. Workers' compensation is run by the states, and requirements and exemptions differ; Texas is the main exception, where most private employers may choose not to carry it but must then report that they do not have coverage.
Does general liability cover injuries to my temporary workers?
No. A commercial general liability policy covers bodily injury and property damage to others and excludes workers' compensation and employment practices claims, which need their own policies. Injuries to your own employees, including temps, fall under workers' compensation and employer's liability.
What is an alternate employer endorsement?
It is an endorsement to the staffing agency's workers' compensation policy that names a client as an alternate employer, extending the policy's workers' compensation and employer's liability coverage to that client for injuries to the agency's workers assigned there. Clients may require it in their supplier agreements.
Do I need a bond to run a staffing agency?
Only if a state requires one for your type of agency, or a client contract does. Some states bond licensed employment agencies, and some clients ask for a crime bond covering theft by your workers at their premises. Separately, if you sponsor a retirement plan, ERISA requires a fidelity bond for people who handle plan funds.