Employment Law

Risks Associated When Subcontractors Use PEOs featured image

Risks Associated When Subcontractors Use PEOs

A professional employer organization (PEO) is an outsourced company that assists employers on a variety of administrative responsibilities, such as health benefits, liability insurance, regulatory compliance, and workers’ compensation insurance. Occasionally, PEOs can cost less than completing the tasks in-house, but make sure you are familiar with the risks when using a PEO for workers’ compensation coverage, especially when you are dealing with subcontractors who use PEOs. 

It is especially important to be cognizant of the coverage gap when dealing with subcontractors that use PEOs because issues with coverage gap are compounded. With general contractors or prime contractors using PEOs to save on administrative costs, the prime contractors are subjected to the same disclaimer used by PEOs.  As such, in practice, should an injured worker not be on the subcontractor’s PEO’s payroll, liability for the injured worker goes upstream to the prime contractor and the prime contractor’s workers’ compensation carrier. If the prime contractor uses a PEO, and the injured employee is not listed on the subcontractor’s PEO’s employee roster, the prime contractor becomes liable for the costs of the injured employee. This causes the prime contractor to suffer additional costs which the contractor believed the PEO would cover. In effect, the prime contractor ends up paying more – the costs of its PEO and supplemental costs the PEO disclaims. 


Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.