Nov 10, 2017

NJCRIB implements new PEO legislation

In Manual Amendment Bulletin #478, the New Jersey Compensation Rating and Inspection Bureau announced April 1, 2018, changes to the Workers Compensation and Employers Liability Insurance Manual resulting from recent amendments to the Professional Employer Organization statutes—see P.L.2017, c.233. There are amendments to manual rules 3:10-2a, b, c and 3:10-5 through 7, as well as endorsement revisions and the introduction of a new endorsement, which permit 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. Previously, the PEO had sole responsibility to provide the workers’ compensation insurance for leased employees.

The change in the PEO law was announced in the article titled, "PEO clients now have the option to purchase WC," published in the Reporter on Oct. 13, 2017. Unfortunately, this article incorrectly assumed, prior to the NJCRIB implementation, that the law change would resolve the problem outlined in an earlier article titled, "PEO clients need a WC policy," published in the Reporter on Feb. 3, 2017.

It is understood that when the PEO provides coverage, the clients will need their own workers’ compensation policy if the clients have 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 potentially could 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.

The implementation of the change in the PEO law does not potentially resolve this gap in protection when the client provides the workers’ compensation policy because NJCRIB rules and endorsements require the client’s policy or the labor contractor’s policy (whichever applies) to cover only leased employees, excluding all other employees, whether direct employees or uninsured subcontractor employees. Consequently, the client still will need to purchase a separate policy to insure these other employees.

Producers and clients still benefit from the change in the PEO law by gaining the option to negotiate a client policy in lieu of a labor contractor policy, which allows better integration of the client’s entire insurance portfolio.