Florida State Senator Keith Perry is sponsoring new legislation regarding workers compensation insurance coverage provided by Professional Employer Organizations (PEOs). The legislation was proposed as a solution for uninsured employers. Albeit good intentions, the newly proposed bill makes gross misjudgments that using a PEO can lead to a “gap in coverage.”
This, however, couldn’t be farther from the truth. A gap in coverage exists when a company does not buy insurance for its employees. That should be the focus of fixing the root issue of uninsured workers, not whether or not the company uses a PEO.
Many small business owners get their workers compensation insurance by partnering with a PEO. The PEO acts as the holder of the work comp policy. Similarly, workers comp claims affect the experience modifier of the PEO, meaning that more claims lead to higher costs for the PEO and their clients. PEOs are greatly motivated to help keep workers comp costs in check.
A section in the newly proposed bill – FL State Bill 820 states:
“failure by a client company to report a leased employee’s hiring to an employee leasing company may not serve as a basis for the denial of workers’ compensation benefits for an unreported client company employee”
To get the copy of the full bill, click here.
The above statement is hypocritical as it promotes an invitation for worker’s compensation fraud; the same problem the bill is supposed to solve. Essentially, that section is alleviating client company’s responsibility to accurately report employees.
Take this hypothetical for example. John Doe owns a company that gets worker’s compensation coverage through a Professional Employer Organization (PEO). John is hanging out with one of his employees that weekend and his employee injures himself while messing around. John knows that his employee does not have any health insurance coverage. If this bill were to pass, all John would have to do was claim his employee was an “unreported” employee of his company so he can claim he was injured on the job. This would allow this employee to make a worker’s comp insurance claim to cover his medical expenses.
Current law prevents this kind of fraud by requiring that only actively leased W2 employees receiving payroll through the PEO are covered by workers comp insurance. Most states already have a process and office for dealing with uninsured workers. If your employer did not buy insurance, you must report it to the State. The injured employee’s benefits are funded and the employer is investigated and penalized.
If the law were to change, it would open up huge potential for workers comp fraud. Business owners wouldn’t need to report their active employees or pay for any kind of coverage. Then, if the worker was injured, the business owner could claim his employee as “unreported” leaving the workers comp policy at the expense of the PEO.