How Will Florida Fix Its Growing Workers' Comp Coverage Gap Problem?
I don't know about where you live, but the economy here in Florida is on fire. Nowhere is the growth more evident than in our burgeoning construction industry. New condos, homes and retail locations seem to be going up everywhere. Here in Sarasota's downtown core alone, over 4,000 apartment and condo units have been built or are under development right now. I've lived in Florida 35 years, and I have never seen construction here at the level it is at today.
We never should have let people up north know about our absence of state income tax, low property taxes and warm climate.
And all that building isn't only creating new structures. It is also building a workers' compensation coverage gap that needs to be addressed. The problem lies between the traditionally lax hiring practices of those in the construction industry and their growing use of Professional Employer Organizations, or PEO's. The arrangement has created a growing number of incidents where workers injured on the job find there is no benefit protection in place for them.
For a long time, many PEO's wouldn't touch the construction industry due to its loose and unpredictable nature. Construction employment practices, coupled with a higher risk for physical injury, made it a less than desirable target market. Over the last decade or more, however, some PEO's have come to see the industry as an attractive and profitable market.
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.
Florida State Senator Brandes tacked an amendment onto a reform bill this past legislative session to address the issue. If it had passed, it would have required all general contractors to produce “evidence of financial viability” or a named employer policy in order to initiate work on any jobsite. As reported earlier in this blog, SB 1636 never made it out of committee, and was eventually abandoned on a park bench near the Tallahassee bus depot.
The issue is not going away, and I understand that there are continued discussions in Tallahassee on how to fix it. One idea is simply to require PEO's to contractually provide coverage for any worker injured while in their clients employ – whether they know about the employee or not. This concept would dramatically affect the current PEO model and undoubtedly increase the costs associated with using those services. However, this idea will not sound too dissimilar to insurance companies who today wind up picking up the tab for employee injuries that were not really their responsibility. There are two challenges in the PEO space with this concept. Some subcontractors, while technically skilled, have poor business acumen and will never learn appropriate hiring practices. The other is a continuing shortage of skilled workers. Anyone with any experience in the construction arena, or anyone who claims to have experience in the construction arena, can literally drive onto a jobsite anywhere in Florida and find work for the day. PEO's, who do fill a needed gap for many small employers, would have an impossible time trying to price and maintain coverage in that environment.
Another idea I understand is being bantered about is the creation of a new Uninsured Employers Fund. It would be paid for by a tax on workers' compensation policy premiums. This of course is the age-old solution of taxing the responsible to pay for the sins created by the sloppy and irresponsible. As bad as that idea may sound, there is an even worse one apparently under consideration in the Florida state capital.
I am told that there are some people proposing that the injured workers caught in this gap have their injuries paid for by two existing organizations, the Florida Insurance Guarantee Association (FIGA) and the Florida Self-Insurance Guarantee Association (FSIGA). These plans, created by our legislature to cover respectively the liabilities of insolvent property and casualty insurance companies and self-insured employers, have nothing to do with coverage gap issues. But what they do have is money in the bank, and as we know, some politicians just cannot resist appropriating other people's money.
For example, funding for FIGA, according to its website, “comes primarily from four sources: distributions obtained from estates of insolvent insurers, investment income, reimbursements from the Florida Hurricane Catastrophe Fund (FHCF), and assessments levied on member insurers.” As of the end of 2018, it reported having more than $290 million in available assets.
You certainly can see the attraction for what appears to be an easy (if not misguided) solution. My sources did not mention a third such organization, the Florida Workers' Compensation Insurance Guarantee Association (FWCIGA) as being part of the discussion, but we can assume if they have any cash lying around it will be in the crosshairs shortly.
Personally, it seems that there could be a much simpler and more appropriate solution to this. General contractors using a PEO could be required to carry a supplemental named insurance policy designed to address any existing gaps in other coverage. The cost of this would be relatively low by comparison and would be more predictable for pricing construction bids. It would provide stability in the industry, fix a current issue, and put the ultimate responsibility for a jobsite back where it has traditionally been – with the guy or gal overseeing the entire show. It just seems to make sense.
Or we could find unrelated groups who have no relation to the problem but have a lot of cash and saddle them with the debt. Whichever way, problem solved.
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Robert Wilson is President & CEO of WorkersCompensation.com, and "From Bob's Cluttered Desk" comes his (often incoherent) thoughts, ramblings, observations and rants - often on workers' comp or employment issues, but occasionally not.
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