Expect three kinds of requirements: insurance clauses in client agreements and the lease, state rules on registration, notices and pay that depend on where you place workers, and possibly bonds. Most of it is set state by state, and none of it should be assumed to transfer with the business. This guide is for the buyer who wants to line up those items with questions for deal counsel and the broker.
The short answer
- Client agreements are where the insurance asks live: additional insured status, a waiver of subrogation, an alternate employer endorsement and limits. A certificate of insurance summarizes coverage but is not the policy.
- Staffing is regulated mainly by states. Rules on registration, pay timing, fees workers may be charged and who shares liability vary, so check each state where you place workers.
- Bond amounts depend on the state and the client. Ask about registration bonds, wage payment bonds, comp security and client fidelity bonds, and remember a surety expects to be repaid.
- Whether a license or registration transfers with a sale is state specific. Do not assume it does.
Which contracts does a staffing agency depend on?
Several documents carry insurance terms. The table lists them with what to check at a sale. Insurance asks in staffing agreements vary, so read yours rather than assuming a standard.
| Contract | Insurance terms it may carry | Check at a sale |
|---|---|---|
| Client master agreement and work orders | Additional insured status, waiver of subrogation, alternate employer endorsement, primary and noncontributory wording, limits, certificates, indemnity | Assignment and change of control clauses, termination for convenience, and whether the client must consent |
| Vendor management or compliance portal terms | Certificate formats and deadlines for new work orders | Who holds the portal account and what is on file |
| Branch lease | General liability, additional insured status for the landlord, often property coverage and workers' comp | Landlord approval of the assignment and the lease's insurance clause |
| Loan documents | Hazard insurance on pledged collateral, lender's loss payable clause, notice of cancellation | What the lender actually requires and whether a particular agent is demanded |
| Franchise agreement, if any | Coverages and limits set in the agreement and operations manual | Transfer fee, franchisor approval and whether the manual's insurance terms changed |
| Worker-facing notices and agreements | In some states notices must name the comp carrier, charges and deductions (Massachusetts requires the carrier's name on each assignment notice) | Check each state where you place workers, and update notices after closing |
See how to check customer contracts against your policies and lease insurance requirements for new owners.
What insurance might a staffing client ask for?
Asks differ by client, and large clients and public agencies write their own vendor rules, so there is no standard list. Requests can include additional insured status on general liability, a waiver of subrogation (the insurer gives up its right to recover from the client) and an alternate employer endorsement (it protects a scheduled client from claims by your own workers) on workers' comp, coverage written as primary and noncontributory, certificates on request, and stated limits for general liability, employers liability, auto and umbrella, sometimes with professional liability, employment practices, crime and cyber. For plain definitions, see additional insured, waiver of subrogation and primary and noncontributory; the gaps guide, coverage gaps new owners of staffing agencies find, explains the endorsement.
None of these is automatic, and endorsement wording varies by carrier and state. The American Staffing Association (ASA) advocates that staffing firms should not carry risks tied to the client's own business and publishes an indemnity toolkit, but that is a position, not market practice, so do not assume your clients agree.
In California, a covered client employer cannot shift its safety duties to a labor contractor (the statute has size and other exceptions), and waivers of the statute's protections are void. Contracts can assign cost, but they cannot always remove shared liability. See when contracts require coverage you do not have and additional insured, waiver and primary wording for new owners.
A hypothetical example. A new large client sends a vendor packet requiring a certificate showing additional insured status, a workers' comp waiver of subrogation and an alternate employer endorsement within 10 days of a work order. The inherited policy has a blanket waiver but no alternate employer endorsement. The certificate cannot show what the policy lacks. If the endorsement is not added in time, the client may hold the work order and billing waits. The fix is a request to the broker the day the contract is signed, not the day the packet arrives. A certificate is not the policy, and only the carrier can add the endorsement, so read why a certificate is not coverage and certificates the seller issued.
If you have a client clause in hand, a Morrow review can compare it with your endorsement schedule and tell you what to ask the carrier to add. It is a review, not coverage.
What licenses and registrations might a staffing agency need?
Licensing depends on the state and on the model. Placing temporary workers as your employees, placing direct hires, running a day labor hall and running a professional employer organization (PEO) style arrangement are treated differently. The table gives examples drawn from these statutes as published. It is not a state survey, and it is not a list of what applies to you. Confirm with each state's labor or licensing agency and with deal counsel. Statutes change, so confirm the current text for each state with counsel.
| State and rule | What it covers |
|---|---|
| Florida, labor pools (Statute 448.24) | Day labor pools must pay at least minimum wage, comply with the state workers' comp chapter, give itemized pay statements, disclose pay method, and may not charge for required safety gear or exceed stated transport charges; halls must provide restrooms, water and seating |
| Florida, employee leasing (Statute 468.520) | The leasing definition excludes an organization that hires its own employees and assigns them to a client to supplement its workforce, so ordinary temporary staffing appears to sit outside the leasing license while a PEO style arrangement is inside it. |
| Massachusetts, day and temporary labor (G.L. c. 149, section 159C) | A written notice on each new assignment, including the comp carrier, limits on charging workers, written authorization for deductions and a cap on transport fees |
| California, temporary services (Labor Code 201.3 and 2810.3) | Pay timing rules for temporary services employers (weekly in general, with exceptions), and shared liability between a client employer and a labor contractor for wages and for failing to secure comp, with size exceptions |
| New York, employment agencies (General Business Law 171) | Defines an employment agency by fee-based placement; ask counsel whether your model, temporary or direct hire, falls under the licensing article |
Other states may have their own registration, bond or day labor rules that are not shown here. To check your own states:
- List every state where you have a branch or where placed workers report.
- For each, ask the state labor or licensing agency in writing whether temporary or day labor services need registration, a bond, worker notices or pay timing rules.
- Ask whether any registration is tied to the legal entity, can be assigned, or must be reissued to your entity at closing.
- Collect the current certificates and the filing history and give them to deal counsel before you rely on them.
- If you plan to open a new state or run day labor, repeat the check before the first shift.
Read licenses, permits and registrations when buying a business. The Small Business Administration (SBA) also requires a 7(a) lender to get evidence of required licenses within 90 days after final disbursement and bars the lender from selling the loan on the secondary market until licenses are in place, so lenders ask about licenses early.
What bonds apply to a staffing agency, and are they insurance?
Bond amounts vary by state and by what a client requires, so get the figure from the state agency. Ask your broker and counsel about four kinds: a state registration or license bond, a bond or deposit tied to workers' comp, a wage payment bond, and a fidelity or crime bond a client requires. One bond requirement comes from federal law: the Employee Retirement Income Security Act (ERISA) generally requires people who handle funds of an employee benefit plan to be bonded, usually for at least 10 percent of the funds handled, with a $1,000 minimum and, for most plans, a $500,000 maximum, and exemptions exist. An agency whose retirement plan holds funds, such as a 401(k), generally has people who must be bonded, so ask the plan administrator or counsel.
A surety bond is not insurance for you. License, registration and wage payment bonds are surety bonds: a surety pays the protected party if you fail, and then expects you to repay, which is why it may ask for collateral or a personal indemnity. Fidelity bonds, including the ERISA bond, are usually bought as crime-type coverage, so ask your broker how each bond a client or plan requires is written. See whether surety and license bonds transfer in a sale, the library page on surety bonds and the comparison of a surety bond and liability insurance.
What transfers at a sale, and what must be reissued?
Three points cover most of it.
- Asset purchase. The seller's tax accounts, registrations and employer identification stay with the seller's entity, and yours needs its own. Workers' comp policy rights cannot be transferred without the insurer's consent.
- Stock purchase. The same entity continues, with its registrations, policies and history. Ask each state agency whether a change of ownership needs notice or a new filing.
- Approvals. A lease usually needs landlord approval to assign, client contracts follow their own assignment and change of control clauses, the lender may need to consent, and whether a state staffing registration can be assigned or must be reissued is state specific, so ask the agency.
For the policy side see what insurance a new staffing agency owner needs, and for the endorsement gaps see coverage gaps new owners of staffing agencies find.
Keep reading
- Just Bought a Staffing Agency? What Insurance Do You Need?
- Insurance Gaps Hiding in the Staffing Agency You Just Bought
- How to Check Your Customer Contracts Against Your Policies
- Licenses, Permits and Registrations When Buying a Business
- Do Surety and License Bonds Transfer When You Buy a Business?
- All guides for new business owners
Frequently asked questions
Do I need a license to run a staffing agency?
It depends on the state and the model. Some states regulate temporary or day labor services, some regulate how workers are paid and charged, and some license other arrangements. Confirm with each state's labor or licensing agency and with deal counsel before you operate.
Does the seller's staffing license transfer to me?
Not necessarily. In an asset purchase your new entity generally needs its own registrations, and whether a staffing license can be assigned is state specific. In a stock purchase the same entity continues, but ask the state agency whether a change of ownership requires notice or a new filing.
What insurance might staffing clients require?
There is no standard list. Requests can include additional insured status, a waiver of subrogation, an alternate employer endorsement, primary and noncontributory wording and set limits. Read each client's agreement and match it to your policy endorsements.
Do I need a surety bond for a staffing agency?
Some states or clients may require a bond. Bond amounts vary by state and by what a client requires, so ask the state agency, counsel and broker. A surety bond is not insurance for you because the surety expects repayment.
Is a certificate of insurance enough to satisfy a client?
A client may accept it for its records, but the certificate is not the policy and does not add coverage. The endorsement and policy wording control, so confirm the endorsement exists before you sign.
References
- Florida Senate: Statute 448.24, labor pools
- Florida Legislature: Statute 468.520, employee leasing definitions
- Massachusetts Legislature: G.L. c. 149, section 159C
- California Labor Code 201.3 (FindLaw statute mirror)
- California Labor Code 2810.3 (FindLaw statute mirror)
- New York Senate: General Business Law section 171
- Cornell LII: 29 U.S.C. 1112, bonding of plan fiduciaries
- IRMI: Alternate employer endorsement
- IRMI: Waiver of subrogation
- American Staffing Association: Indemnity Tool Kit
- SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs
Just bought a business? Get your insurance reviewed.
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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.