Liability is one of the most misunderstood aspects of workers’ compensation in the staffing industry. Who Is Liable? Workers Comp Rules for Staffing Agency Employees When an employee placed by a staffing agency is injured at a client’s worksite, confusion often arises over who is responsible for medical costs, wage replacement, and legal obligations. Is it the staffing agency, the client company, or both? This question is not only common but critical, because the answer determines insurance coverage, legal exposure, and financial risk.

Workers’ comp rules for staffing agency employees are shaped by a unique employment structure known as co-employment. While the staffing agency typically acts as the employer of record, the client company controls the work environment where injuries occur. Understanding how liability is assigned under workers’ compensation laws helps staffing agencies protect themselves, remain compliant, and avoid costly disputes.

Understanding the Employer of Record Concept

In most staffing arrangements, the staffing agency is considered the employer of record. This means the agency handles payroll, tax withholding, and workers’ compensation insurance. Because workers’ comp laws focus on the employer-employee relationship rather than worksite ownership, staffing agencies are usually legally responsible for providing workers’ compensation coverage when an injury occurs.

This responsibility exists even though the staffing agency does not control the daily activities of the worker. As long as the agency hires, pays, and assigns the worker, it is generally required to carry workers’ compensation insurance and respond to claims. This foundational rule explains why staffing agencies must maintain coverage for all placed employees regardless of where the work is performed.

The Role of the Client Company in Workplace Injuries

While staffing agencies are typically responsible for workers’ comp insurance, client companies are not free from responsibility. Client employers control the job site, assign tasks, and manage safety practices. As a result, they often share responsibility for maintaining a safe working environment. When an injury occurs due to unsafe conditions, improper training, or equipment failure, the client company’s actions may come under scrutiny.

However, workers’ compensation laws generally limit an injured worker’s ability to sue an employer for negligence. Because the staffing agency is the employer of record, workers’ comp benefits usually serve as the exclusive remedy. This protects both staffing agencies and client companies from most employee lawsuits, but it does not eliminate all potential liability.

Co-Employment and Shared Legal Responsibility

The staffing industry operates under a co-employment model, meaning both the staffing agency and the client company have employer-like responsibilities. While the staffing agency provides workers’ compensation coverage, the client company is often responsible for workplace safety and supervision. This shared structure can complicate liability when injuries occur.

Regulatory bodies such as Occupational Safety and Health Administration recognize this shared responsibility. OSHA may cite both the staffing agency and the client employer for safety violations if both parties contributed to hazardous conditions. These citations are separate from workers’ comp claims but can influence investigations, insurance costs, and legal exposure.

How Workers’ Comp Liability Is Typically Assigned

In most states, workers’ compensation liability follows the employer of record rule. This means the staffing agency’s workers’ comp policy pays for medical expenses, lost wages, and disability benefits when an employee is injured. The client company’s general liability insurance does not usually apply to employee injuries covered by workers’ comp.

That said, client companies may still face indirect liability. If a client’s negligence caused the injury, the staffing agency’s insurer may pursue subrogation, seeking reimbursement from the client or its insurer. This is one reason why staffing contracts often include indemnification clauses that shift financial responsibility back to the client in certain situations.

Exceptions and Special Situations

Although staffing agencies are usually liable for workers’ comp coverage, exceptions do exist. In some arrangements, particularly with professional employer organizations or certain long-term placements, the client company may assume responsibility for workers’ comp. These arrangements must be clearly documented, and the insurance policy must explicitly reflect the agreed structure.

Another exception arises when a staffing agency fails to carry required coverage. In such cases, injured workers may be allowed to sue both the staffing agency and the client company for damages. This creates significant risk and underscores the importance of maintaining continuous and compliant workers’ comp insurance.

State Laws and Their Impact on Liability

Workers’ comp laws vary by state, and liability rules can differ in subtle but important ways. Some states place stronger emphasis on the employer of record, while others recognize broader shared liability between staffing agencies and client companies. States with strict enforcement may impose penalties on both parties if coverage or safety obligations are not met.

In states where workers’ comp is optional for certain employers, liability can become even more complex. If a staffing agency opts out of coverage where permitted, it may lose legal protections and face direct lawsuits from injured workers. For this reason, many staffing agencies choose to carry workers’ comp even in states where it is not mandatory.

Contract Language and Liability Allocation

Contracts between staffing agencies and client companies play a crucial role in determining financial responsibility. While contracts cannot override workers’ comp laws, they can allocate costs and responsibilities between the parties. Indemnification clauses often require the client company to reimburse the staffing agency for claims arising from unsafe working conditions or client negligence.

Clear contract language also helps establish expectations around safety training, injury reporting, and incident investigations. When contracts are vague or outdated, disputes over liability become more likely, increasing legal costs and straining business relationships.

Injury Reporting and Claims Handling

Prompt injury reporting is essential for determining liability and controlling claim costs. When injuries are reported late, insurers may question coverage, and investigations become more difficult. Staffing agencies must rely on client companies to report injuries quickly, making communication protocols critical.

Effective claims handling protects both the staffing agency and the client. When claims are managed properly, disputes over liability are minimized, and injured workers receive timely care. Poor claims management, on the other hand, can increase premiums, damage relationships, and invite regulatory scrutiny.

OSHA, Safety Violations, and Liability Exposure

While workers’ comp covers employee injuries, safety violations can still create liability exposure. OSHA inspections following serious injuries may result in citations for one or both parties. Staffing agencies can be cited for failing to provide adequate training or personal protective equipment, while clients may be cited for hazardous conditions or improper supervision.

These citations do not change who pays workers’ comp benefits, but they can influence insurance renewals, premiums, and future liability claims. Staffing agencies that actively participate in safety planning and training reduce both injury frequency and regulatory risk.

Why Understanding Liability Matters for Staffing Agencies

Misunderstanding liability can be costly. Staffing agencies that assume the client is responsible may fail to maintain proper coverage, while clients that misunderstand their role may neglect safety responsibilities. Both situations increase the likelihood of injuries, disputes, and financial loss.

Clear understanding of workers’ comp rules allows staffing agencies to price services accurately, negotiate fair contracts, and protect profit margins. It also builds trust with clients, who rely on staffing partners to manage risk effectively.