One of the benefits of a staffing firm partnering with an Employer of Record (EOR)  is the reduction of legal and financial risks.  All staffing firms generally have to consider and insure against risks when they enter into contracts with their end clients and with their workers.  By using an EOR, the EOR enters into the direct contract relationship with the worker which can reduce the responsibilities and related liabilities for the staffing firm. 

Problems can arise for staffing firms, however, if they misunderstand or overestimate how much risk is owned by the EOR versus themselves. This situation frequently happens for two main reasons:

 

1) The definition of “employer” in the United States is a muddy concept without clearly predictable legal outcomes

2) EORs vary widely in terms of how much risk they assume as part of their service

 

When a staffing firm overestimates how much risk and responsibility their particular EOR provider is affording them, the staffing firm may have significant exposure without even knowing it. Let’s say a staffing firm thinks that their EOR is protecting them from any and all actions taken by their workers and they therefore avoid purchasing a reasonable amount of Professional Liability Insurance to avoid that cost. If a worker commits fraud and the staffing firm is sued by their client for damages, the staffing firm may experience a catastrophic situation if they then learn that their EOR isn’t protecting them for any actions taken by the worker.  

To understand and properly manage your risk, therefore, we recommend taking three precautionary steps when evaluating your EOR partner:

1. Clearly define the scope of responsibilities

Make certain that the contract itself clearly defines the division of responsibilities between your staffing firm and your EOR.  There isn’t necessarily a right or wrong division here – it’s just all a matter of making sure you are getting what you think you are paying for.

2. Pressure-test the contract

Ask your insurance and attorney to review the EOR contract and ask them to answer questions such as the ones noted below.  Again, you will find a range of differences across various contracts. 

  • If a worker's compensation claim occurs, who covers that?

  • If the worker isn’t paid correctly, whose responsibility is that?

  • If the EOR doesn’t file taxes properly, who is responsible?

  • If the worker commits fraud or a gross act of negligence and the end client sues, who is responsible for that?

  • If a worker is misclassified as an independent contractor and the government takes legal action, who is responsible?

    3. Make an informed apples-to apples decision

Once you understand the differences between your EOR options, now you’re in a position to make a fully informed decision about which EOR to work with and what needs to be in the contract and downstream what insurances you need to properly protect yourself. 

Weighing costs, service levels, and the scope of legal risks (which this blog has helped you understand), will help you decide which vendor to partner with, one whom you deem to be the best overall fit for your business needs. 

Key Takeaways

Employment law is highly complex and litigious in the United States. Partnering with an EOR can be highly beneficial in reducing your risk, but there is a huge variance of what is included in an EOR service model.

By understanding that the concept of “employer” is muddy and that EORs vary widely, you can evaluate your potential vendors with open eyes. Review the contract in detail and ensure that the scope of responsibilities is clearly defined between you and the EOR. Get your attorney and insurance brokers involved to pressure-test the contract.  

Now that you have an understanding of EOR insurance risks, you’re in a strong position to accuately weigh your options and move forward with an informed business decision. 

If you're looking for a trusted EOR provider, Agile Partnering can help unlock your staffing firm's growth potential with our simplified back-office solutions.