Why would a PEO company require their client to carry general liability insurance, provide them with Certificate of Insurance that evidences the coverage, name them as a Certificate Holder, and to list them as an Additional Insured? These are common questions and we thought we’d take a swing at answering it.
In this article, you’ll learn what the GL certification is, why many PEO companies will require you to have it, and why you’ll name the PEO as a certificate holder.
What is General Liability Insurance?
General liability insurance protects your business from third party claims arising out of your operations. The GL certificate proves that your business has obtained coverage.
The Co-Employment Model
When you partner with a PEO, you enter a co-employment relationship with them.
The PEO does not provide or lease employees to your business. They do not hire, fire, or manage your employees either. However, because of this co-employment relationship, the PEO is exposed to the risk of being named in a lawsuit brought on by a third party.
This is where you having general liability insurance and listing them as a certificate holder and additional insured comes into play…
Why Do PEO Companies Require You to Have General Liability Insurance?
When you enter a partnership with Employers Resource, you will see that our contract requires that your business carries $1,000,000 of general liability coverage. The same goes for automobile liability if your business uses vehicles in your operations.
First and foremost, we do not want our clients to cover us for our actions and/or negligence. We are asking for protection from claims that arise out of your operations and/or negligence only.
Let’s use the example of someone falling in your parking lot or slipping on water inside your building, injuring themselves. They watch TV and run to a lawyer. Being smart, the lawyer discovers that the employee is paid by a PEO and drags Employers Resource into a lawsuit; just another deep pocket to pick even though Employers Resource has nothing to do with your daily operations!
Your GL insurance, listing Employers Resource as an additional insured, would provide protection for us from these kinds of accidents.
Employers Resource requires a current certificate of coverage and that we are named as a certificate holder so we are provided with notice if the policy is canceled. We further require that we are named as an additional insured and that we receive a copy of the Additional Insured Endorsement. This provides us with the proof that the policy is actually providing coverage to Employers Resource.
Why Don’t Payroll Providers Ask for This?
At this point, you might be thinking, “huh…that’s kind of weird. I’ve never heard of other companies like payroll companies asking for this.” Bingo! You’re right! This is unique. Then, why do we ask for it? Because of the co-employment relationship we highlighted earlier. This issue highlights a very important difference between a relationship that you would have with a payroll provider and a PEO. A payroll provider only processes your payroll. They are not in a “co-employment” relationship like Employers Resource as your PEO, so they do not have the liability exposure that can arise from your operations and employees.
We hope this information has cleared up some of the confusion regarding why we require our clients to carry general liability insurance and provide us with the additional insured endorsement. If you have any questions, please contact us or leave a comment below.