Bought a Staffing Agency? Insurance to Check First

A new staffing agency owner needs workers' compensation that covers every placed worker, written in the name of the company that now employs them and in force from the moment the deal closes (or from today, if you have already closed). Around it sit general liability, employment practices liability insurance (EPLI), professional liability, also called errors and omissions insurance (E&O), crime, cyber and auto coverage for the way people actually get to work. This guide is for someone who just bought a temporary staffing or placement business, whether as an entrepreneurship through acquisition (ETA) buyer, a search fund CEO or a Small Business Administration (SBA) borrower, and inherited the seller's policies without knowing which ones carry the weight.

The short answer

Workers' compensation is usually the heaviest line, because a temporary staffing agency is generally the employer of record for the workers it places, even though the client directs their day to day work. Confirm your model with deal counsel, since placement-only and professional employer organization arrangements differ.
Workers' comp policy rights cannot be transferred without the insurer's written consent, so in an asset purchase you generally need your own policy effective at closing.
EPLI, E&O and cyber are usually claims-made, so retroactive dates (the earliest date of work a policy covers) and change-in-control wording decide whether pre-closing work stays covered.
In your first 30 days, match each client's insurance clause to the endorsements on your policies, and ask your lender which policies it expects on your collateral.

Which insurance policies does a new staffing agency owner need?

Start from exposures, not policy names. A staffing agency has little equipment and few premises. Its risk travels with the people it places and the money, records and contracts it handles. The table matches each exposure to the policy that usually responds. Wording varies by carrier, so read the form before you rely on any row.

Staffing agency exposures and the policies that usually respond
Exposure	Policy that usually responds	What to confirm in the first weeks
A placed worker is hurt at a client's site	Workers' compensation and employers liability	Named insured, every state where workers report, and the class the carrier assigned to placed payroll
A visitor slips at a branch, or a placed worker damages a client's property	General liability	Whether the form has staffing endorsements or limits, and that it does not treat your own workers' injuries as its job
A worker alleges discrimination, harassment or retaliation	Employment practices liability (EPLI)	Joint employer and third-party wording, whether wage and hour claims are excluded or limited (see the gaps guide below), and the retroactive date
A client says you screened or placed someone negligently	Professional liability (E&O)	Retroactive date and what counts as a covered professional service
Payroll accounts, wire changes, an employee's theft	Crime (employee dishonesty and social engineering)	That the policy names your entity and covers payroll staff as employees (sublimit detail is in the gaps guide)
Applicant files, identity documents, bank details	Cyber liability	That it covers applicant and worker records you hold (limits and dates are in the gaps guide)
Recruiters drive their own cars, or a branch moves workers in vans	Hired and non-owned auto, plus commercial auto if the agency owns vehicles	That hired and non-owned auto is on the policy at all
Fire at a branch, or a client's site shuts and billing stops	Property and business income, with any dependent property extension	Whether a dependent property extension exists (client closures are in the gaps guide)
A large claim or a client's higher limit	Umbrella or excess liability	Which policies it sits over; it usually does not sit over EPLI, E&O or cyber

If the agency sponsors a benefit plan, ask benefits counsel whether federal law requires a fidelity bond for plan fiduciaries (29 U.S.C. 1112) and whether fiduciary liability coverage makes sense. Directors and officers (D&O) coverage protects managers and board members from claims, which matters if you have investors or a board. For the plain definitions, see workers' compensation and employment practices liability.

What has to be in force on the day the deal closes?

Workers' compensation, first. Rights and duties under a workers' comp policy cannot be transferred to someone else without the insurer's written consent, so an asset buyer cannot simply take over the seller's policy. In a stock or membership interest purchase the same company continues, so its policies, claims history and liabilities stay with it, including the ones nobody has found yet. In an asset purchase your new entity takes what the agreement transfers, though some state successor rules can still reach a buyer, so ask deal counsel what follows you. For an agency that runs payroll weekly for placed workers, the practical test is simple: which entity's name is on Friday's payroll and on the comp policy? Read who covers old claims in a stock or asset deal for the structure question.

In National Council on Compensation Insurance (NCCI) states and several others, the workers' comp policy requires you to report an ownership change to the insurer within 90 days, so check your policy and state. The rating bureau, not the carrier, decides what the change does to the experience mod, the multiplier built from the business's claims history, where 1.00 is average.

The general liability form's automatic coverage for a newly acquired organization is a narrow help. In the standard Insurance Services Office (ISO) form it lasts until the 90th day after the acquisition or the end of the policy period, whichever comes first. It excludes pre-acquisition injury and damage, does not reach an acquired partnership, joint venture or limited liability company (LLC) unless it is listed as a named insured, applies only if you keep majority ownership and no other similar insurance is available to the acquired company (the target's own policy may count), and has nothing to attach to if you had no policy of your own. Many buyers and targets use an LLC, so do not count on it. Carrier forms vary.

A hypothetical example. A buyer closes an asset purchase on a Wednesday. The agency runs payroll every Friday for about 80 temporary workers placed at a client's warehouse. The seller's workers' comp policy is in the seller's company name and cannot simply be assigned. If nobody bound a policy for the new entity effective at closing, workers are on the job under an employer with no coverage on record, and the buyer learns it from a claim or a client's compliance check. The fix is dull and early: bind a policy for the new entity with the right effective date before the first payroll.

If you have already closed and cannot show a workers' comp policy naming your entity and every state where workers report, call your broker or the carrier today instead of waiting for renewal, and ask for written confirmation of the effective date. A quote or request is not coverage until the carrier binds it.

What makes insuring a staffing agency different?

A staffing agency actually carries two payrolls. One is its own office, branch and recruiting staff. The other is the placed workers, who do the client's kind of work under the client's supervision. The American Staffing Association (ASA) reports that 36 percent of temporary and contract employees work in industrial occupations, and the Bureau of Labor Statistics (BLS) says hand laborers and material movers have some of the highest injury rates of any occupation. An agency that mostly fills warehouse shifts has a very different program from one that places office support.

Your injury risk is set partly by client sites you do not own, so contracts, onboarding and training matter to your insurance. Cost mechanics are in what drives insurance cost for a staffing agency and class code and audit detail is in workers' comp, payroll and class codes for a staffing agency.

What should I confirm in the first 30 days?

Named insured and entity. Every policy should name the entity that now employs workers, runs the payroll and signs client contracts. See wrong named insured after an acquisition.
Workers' comp states and class. Ask the carrier in writing which class or classes it assigned to placed workers and office staff, and which states the policy lists. The class is the insurer's assignment, and codes vary by state and rating bureau.
Loss runs and the mod. Request five years of loss runs and the current mod worksheet. See how to read loss runs.
Claims-made dates. For EPLI, E&O and cyber, note the retroactive date and any change-in-control clause, and give the expiring carrier notice of known claims before the old policy ends. Screening, wage and data claims in staffing often surface long after an assignment ends, so continuity matters.
Client contract insurance clauses. List each client's asks (additional insured status, a waiver of subrogation, which means the insurer gives up its right to recover from the client, an alternate employer endorsement, which protects the client from claims by your own workers, and limits) against what the policies deliver. See contracts, licenses and bonds for a staffing agency.
Lender terms. The SBA sets no general liability limit, but for 7(a) loans over $50,000 it requires hazard insurance on pledged collateral, and your lender may ask for more, so get the required policies and endorsements in writing. Ask your lender and a life insurance specialist whether a life insurance requirement could apply to your loan.
Payroll and audit calendar. Placed payroll swings with client demand, so note when the next premium audit falls and who will supply payroll by assignment, client and state.

The wider routine is in the first 90 days of insurance after buying a business, and the pre-closing list is at the insurance checklist for buying a business.

What might a seller's staffing program leave out?

None of this means the seller or the seller's broker did anything wrong. A program built for the previous owner can simply fit the new owner less well. Spots worth checking are client endorsements, employment practices wording, crime sublimits and client closures, and the full list is in coverage gaps new owners of staffing agencies find. A Morrow review can compare your declarations pages and client contracts against that list. It is a review, not coverage, and any new terms depend on carrier underwriting.

Keep reading

Frequently asked questions

What insurance does a staffing agency need after I buy it?

Most agencies need workers' compensation and employers liability, general liability, employment practices liability, professional liability, crime and cyber, plus auto coverage if staff drive on business. Umbrella, property, business income and fiduciary coverage depend on size, contracts and benefit plans. The policy wording controls what each pays.

Do the seller's policies transfer to me?

It depends on the deal structure and each policy. Workers' comp rights cannot be transferred without the insurer's written consent, so asset buyers generally need their own policy at closing. In a stock purchase the company and its policies continue, but you still need to report the ownership change to the insurer.

Why is workers' comp so important for a staffing agency?

A temporary staffing agency is generally the employer of record for the workers it places (confirm your model with deal counsel), so its policy responds when a placed worker is hurt at a client site. The class assigned to that payroll and the mod can drive much of the cost, and an audit can reclassify payroll after the fact.

Does general liability cover injuries to my temporary workers?

Generally no. The standard general liability form excludes bodily injury to the insured's own employees, and those claims belong to workers' comp and employers liability. Check your policy wording and any staffing endorsements.

Does a quote mean I am covered?

No. A quote or a review request is not coverage. Coverage starts only when the carrier binds the policy, and the policy wording controls.

What should I ask my lender about insurance on a staffing agency?

The SBA does not set a general liability limit in its loan rules, but it requires hazard insurance on pledged collateral for 7(a) loans over $50,000, and your lender may ask for more. A staffing agency's collateral is often mostly receivables and goodwill, which count for little toward "fully secured". For a Standard 7(a) loan to a business that depends on one owner, SBA rules can require life insurance sized to the collateral shortfall, while SBA sets no life insurance minimum for 7(a) Small Loans, SBA Express or Export Express. Ask which policies and endorsements the lender expects in writing, and ask a life insurance specialist about the product.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

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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.

Just Bought a Staffing Agency? What Insurance Do You Need?