Florida's PEO Coverage Gap Part 2: Striking a Nerve

09 Jul, 2019 Bob Wilson


As I’ve noted previously, the workers’ compensation industry is a relatively quiet one when it comes to responding or commenting to online articles and social media. I’ve observed that both on this website and on various social media platforms such as within LinkedIn groups. Normally, while membership and readership appear high, the interactive commenters are relatively few and far between.

Every once in a while, though, an article here will evoke an unusual number of comments or responses. Normally they are the more salacious topics of the day. Something about drugs and injured strippers, or fraud involving drugs and injured strippers would be classic examples of stories that illicit response from a crowd that would be otherwise reticent to respond.

So, naturally, I was a bit surprised when our post two weeks ago regarding Florida’s PEO coverage gap issue prompted a significant and passionate response from multiple players. Clearly, a nerve was struck for people on both sides of the issue. And there is potential activity in Tallahassee as a result. More on that activity in a bit…

But first, to recap, the article discussed issues Florida is experiencing related to construction site hiring practices and the use of Professional Employment Organizations, or PEO’s. As I wrote in that article:

For a long time, any “PEO coverage gap,” was the problem of the general contractor (GC). The GC, who traditionally had a named employer workers' compensation policy, hired subcontractors who were using PEO's. The subcontractor might hire a new employee but not report them to the PEO in a timely manner. Because the PEO is technically the employer, no workers' compensation coverage would be available for an injured worker who was not listed on the PEO's payroll. The PEO's contract would generally state that no workers compensation coverage exists for “employees” not listed on its contract or current payroll. For years this gap was the concern of the general contractor and their workers' compensation insurer, as the liability for injuries on the worksite ultimately rests with them.

But in recent years, larger general contractors have started using PEO's. Those same contractual restrictions now apply to them, and the result is a growing coverage gap where employees hired on the jobsite and injured there have no workers' compensation protections. This is likely a problem in other states as well, but we know the legislative wheels have slowly started to grind here in an effort to address the problem.

The gist of that article was discussing the fact that people in Tallahassee were discussing potential solutions to that issue – solutions that did not in my mind make much sense.

I received emails and phone calls from people wanting to know what specifically was being discussed in Tallahassee, as well as from people who were directly involved in those conversations. Representatives of the PEO industry itself weighed in with article comments defending their industry.

I must make clear that I am neither pro nor anti PEO in this discussion. My company used a PEO successfully for many years before our hiring and benefit needs outgrew them, and I recognize their advantages for small employers. What we are discussing is a problem in search of a solution. This is not as much about placing blame as it is about solving a problem that almost everyone admits exists. We just cannot agree on who is to blame, and who as a result should pick up the tab.

As indicated, the primary gap of coverage can be created when the use of a PEO is combined with the often crude and sloppy hiring practices of the construction industry. A worker who walks onto the site and is hired that day for cash is not registered as an employee of the PEO, and therefore is not afforded benefits if they are injured on the job. A traditional workers’ compensation insurer would be on the hook for that injury. A PEO is not.

There are two schools of thought on this.

In one school, a PEO should be responsible for the hiring practices of their client, and, just as an insurance company would in a named policy situation, be responsible for people injured in their employ, whether the paperwork had been completed or not. For people in this camp this is a training and accountability issue, where payroll audits and follow up would work in similar fashion to the insurance industry.

In the other school, PEO’s are not insurance companies. They are payroll and benefits managers and are an intermediate contractual entity in the relationship. Their contract requires specific actions to be complete in order for their client to be in compliance, and actions outside that area are the responsibility of the client, not the PEO. They are an employment organization, and do not employ someone brought onto a site and paid cash for the day. They would be no more responsible for them than a pizza delivery person called on site and injured while there.

As indicated in the original article, people in our legislature are starting to talk about solutions. The ones I disclosed, tapping the reserves of the Florida Insurance Guarantee Association and the Florida Self-Insurance Guarantee Association are clearly non-starters. That is simply a cash grab looking to saddle anyone who has money with a problem that is not theirs to begin with. My suggestion that a gap insurance policy be required on a construction jobsite was also roundly challenged. It is viewed that no one would want to write such a policy, and that the Florida Workers’ Compensation Joint Underwriting Association would end up stuck with that tab. The FWCJUA is the state’s insurer of last resort (and the eighth wonder of the Universe – seriously, try to find a working phone number for those people), and would not have an interest in anything other than a full policy for an employer.

In fact, I have learned that the FWCJUA Rates and Forms Committee has scheduled a publicly noticed meeting to discuss the PEO Coverage Gap and other issues. It will be held Monday, July 22nd at 9:30AM at the Doubletree by Hilton in Tallahassee. Interested persons may want to attend that. My sources also tell me that Florida State Senator’s Brandes and Broxson will be at the forefront of this issue.

One of the questions that has arisen is, how big is this problem? That is difficult to say. Insurers who have traditionally underwritten risk for general contractors certainly have data that tells them when they have wound up owning the injury from an uninsured sub-contractor. However, now that some GC’s are using PEO’s, the extent of the problem may be incalculable. People injured on a jobsite where no coverage is available will end up with tort law as their only recourse. Those workers may not find attorneys willing to take the risk, and even if they do, the comp system may not know about the case. I spoke with Judge David Langham, Deputy Chief Judge for the Florida Office of the Judges of Compensation Claims, and he confirmed that if it does not get litigated through their system, they will have no record of it.

That means no one really knows how big the issue is. There are those who believe it is much ado about nothing.

I would suggest that there is a problem, and that the brighter minds of our day best gather together and find a solution. The issue of workplace protections, particularly in the construction industry, extends beyond Florida. Last week’s tragic death of a 15-year-old Guatemalan boy in Alabama, killed when he fell through a 40 foot high roof on his first day on the job, is a story that will resonate with people and impact this subject. We learned yesterday that the company that hired him was a sub-contractor hired by another sub-contractor – a “sub-sub-contractor” if you will. In an exclusive interview with WorkersCompensation.com’s Liz Carey, the attorney for the General Contractor on that job blamed lax licensing and oversight for creating opportunities of abuse from fly by night construction crews.

Stories like that will drive the call to address the employment culture in construction and fix any gap in protections for the people the industry employs. It is a topic that needs to be addressed, no matter which school of thought you subscribe to, or which nerve is touched by this concept.

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