Report on PEO in Florida is Submitted

The report this report issued by The Office of Program Policy Analysis and Government Accountability (“OPPAGA”) in Florida, is clearly one commenced with negative overtones and questionable timing. As Senate Bill 820 looms in the background, this appears to be the “made for order” white paper to justify it. It is unfortunate that the issue of uninsured employers has been misconstrued with some sort of “gap in coverage” in workers’ compensation if a Professional Employer Organization is utilized. This is just not the case. A gap in coverage exists when a business does not buy insurance for its employees and that should be the focus of fixing the root issue of the uninsured employee.

The scope of the report is:

  1. “What is the relationship between PEO’s and insurance carriers, and how might workers’ compensation coverage differ for businesses that use PEO’s?”
  2. “How can the relationship between a PEO and its client companies lead to a workers’ compensation coverage gap?”
  3. “What has been the history of PEO-related workers’ compensation insurance carrier insolvencies in Florida?”
  4. “Can PEO’s offering workers’ compensation coverage have an effect on the workers’ compensation insurance market, including premiums for other businesses?”
  5. How have other states addressed PEO regulation and PEO-related workers’ compensation insurance coverage gaps?”
  6. What options could the legislature consider to address PEO regulation and PEO-related workers’ compensation insurance coverage gaps?”

According to the Director of the Florida Association of Professional Employer Organizations Robert Skrob:

“Since the creation of the workers’ compensation system, employers fraudulently paying employees cash under the table has been a problem. That why the law  holds general contractors responsible for what happens on their job sites.  Shifting that responsibility away from general contractors would lead to more workers’ compensation fraud by letting general contractors who don’t adequately oversee their worksites avoid responsibility.

Contractors who cheat the system by not providing workers’ compensation coverage for all people who work for them put those workers in danger. The Florida Legislature should eliminate the financial motivation and incentives built into the system that encourage workers compensation fraud in construction by increasing the number of jobsite investigations to keep up with the growth in the construction industry, and by holding the cheaters responsible.

There are a number of proposed bills which would implement some of the recommendations within this report. Together with NAPEO we will fight the proposals contained within this report.”

We could not agree more and look forward to helping any way possible to address the issue of the occupational uninsured. Not buying insurance for your employees is a crime.

From an insurance perspective, the real issue – taking care of the claimant, is addressed in most states through the administration of an “Office of Uninsured Employers”. If your employer did not buy workers’ compensation, you go to the State, the claimant’s benefits are funded, the employer is investigated/penalized and the fund is replenished. In Florida, if you are hurt and your employer has not purchased insurance, your primary recourse is to contact a personal injury attorney. “It’s free”, until their contingengies are triggered on what is already rightfully due tohe claimant. This is how it works in Florida in regard to uninsured employees of uninsured employers regardless of a PEO being involved or not.

We will be reviewing the OPPAGA report in detail and provide additional insight on it before the weekend.

PEO Unfriendly Bill SB-820 Sponsored in Florida Senate

Senator Keith Perry of Gainesville (R) is the sponsor of Senate Bill 820, an amendment to Florida Statute 627.192; Workers’ Compensation Insurance; Employee Leasing Arrangements. It is to be effective 7/1/21.

https://www.flsenate.gov/Session/Bill/2021/820/BillText/Filed/PDF

Of particular note in this statute is the relationship between the “employee leasing” (aka Professional Employer Organization/PEO) company and client company when it comes to workers’ compensation insurance. Who bears responsibility for the procurement of workers’ compensation insurance for the client company is outlined as well as who is responsible in the event that an employee is not covered.

It is assumed that the purpose of SB-820 is to close the so-called “gap in coverage” that exists when a business (“client company”) becomes coemployed with a PEO through a master policy PEO arrangement and does not report all of its employees. The ability of the PEO to aggregate non commonly-owned entities is enabled through the concept of coemployment; a legal agreement that speaks to “employee leasing” and the roles and responsibilities of each of the coemployers. This legal arrangement and all the rights that come with it are made certain when the client company reports all of the employees of the client company to the “employee leasing” company at which point they are formally “coemployees” of the employee leasing company and afforded workers’ compensation. Payrolls are also run through the PEO, further cementing the employer/employee status.

This way of procuring workers’ compensation with a PEO as part of a bundled suite of services has worked/works flawlessly for the Florida PEO, the insurance carriers that support them and the client company; until there is fraudulent reporting of employees or lack of actual insurance. Specifically, if the client company chooses to direct employment but not pay the workers’ compensation premiums associated with said employment and an occupational claim occurs, there is no coverage. The PEO or insurance carrier will not cover because there is no doctrine of “insurable interest” (combinability) if the hurt employee was not an employee. This could happen in the “pay under the table” scenarios or the improper use of a 1099 independent contractor designation. These situations also happen when it is found that there are uninsured subcontractors underneath a contractor that uses a PEO. The majority of these occurrences happen in the construction field, where sub-contracting is commonplace, rates are higher and margins tight.

The reality is non-reporting of workers’ compensation payrolls/covered employees or not purchasing workers’ compensation is fraud. Whether the client company was placed through a traditional agent or PEO, it is fraud. “Paying under the table” has been historically commonplace well before PEO was even an industry and is the root issue that needs to be addressed by all stakeholders of the workers’ compensation system.

I know that FAPEO will be reaching out very soon to its constituents to discuss in detail SB-820’s potential impact and what lies next. Making sure that every employee is properly taken care of by the workers’ compensation system as a whole and there is never an uninsured employee for any reason should be the overall goal. I know that the PEO industry will do its part to get there and then some!