Insurance Requirements for Staffing Agencies

Insuracne requirements for staffing agencies

Last Updated February 6, 2024

Insurance. Thanks to the seemingly endless paperwork and legal jargon, it’s not a glamorous word, but obtaining proper insurance coverage is one of the most important steps when starting a staffing agency.

We’ve done our best to whittle down everything about staffing agency insurance to just a few paragraphs so you can take note of what’s required, obtain your relevant insurance packages, and get back to focusing on running your staffing business. Let’s get started.

An Overview of Staffing Agency Insurance

Setting aside money for insurance policies is a critical step when starting your staffing agency. You need insurance because it will protect your assets from being in jeopardy if claims are made against your business.

Insurance is particularly essential for staffing agencies because employment companies service both employers and employees; thus, it essentially doubles your risk of being held liable for any major missteps.

Some of your required insurance policies might depend on your staffing agency’s niche or the industry that you’ll be primarily employing. For example, a nursing staffing agency might need to have medical malpractice insurance, but that won’t be necessary for businesses that staff software companies.

Insurance Requirements for Staffing Agencies

There are several insurance policies that every staffing agency needs and several others that can be helpful. We’ll explain all these types of insurance in depth but note that “the big three” insurance requirements for staffing agencies are: workers’ compensation, general liability, and professional liability insurance. These are all either required or highly encouraged for staffing companies across the United States.

Source: FitSmallBusiness (unless otherwise noted)
Type Purpose Average Annual Cost Policy Limit Deductible Required for All Staffing Agencies?
Workers’ Compensation Insurance Helps cover employee medical expenses, other employee benefits, and potential employee injury lawsuits $840 Unlimited $100 to $100K, depending on whether you choose between a small, medium, or large deductible plan Yes – most states require this if you have one or more employees
General Liability Insurance Protects business owners from customer injuries, property damage, and libel and slander lawsuits $360 $1 million per occurrence, $2 million aggregate $500 No – but highly recommended
Professional Liability Insurance Assists with legal costs in case a temporary employee files a lawsuit (for negligence, wage disputes, breach of contract, etc.) $500 to $1,000 $1 million per occurrence, $1 million aggregate $2,500 Yes
Commercial Property Insurance Protects commercial business property in case of damage from fire, theft, natural disasters, etc. $756 $2 million aggregate $1,000 No – but may be requested by property owners before signing a lease
Business Owner’s Policy Bundles general liability insurance and commercial property insurance $684 As low as $300K-$600K up to as high as $2 million-$4 million $500 No – this bundles general liability and commercial property insurance
Employment Practices Liability Insurance (EPLI) Covers claims of inappropriate happenings in the workplace such as employee harassment, discrimination, and wrongful termination $2,665 $100,000 per claim, $300,000 aggregate $10,000 No – but highly recommended (for staffing agencies in particular)
Commercial Auto Insurance Covers losses from property damage or personal injury caused by your registered business vehicle $1,762 (per Insureon) $25K per person, $25K per injury, $50K per accident per bodily injury $250, $500, $1,000, or $2,000 Yes – most states require this if you have a registered business vehicle
Cyber Insurance Covers losses from cyber fraud via data breaches $1,740 (per Insureon) $1 million $2,500 No

Workers’ Compensation Insurance

You’ll need to obtain workers’ compensation insurance if you’ve hired, or plan to hire, employees for your staffing agency. This insurance is required in most states (you can find a full list here) and assists with everything from employee benefits and medical expenses to more serious situations such as employee injury lawsuits.

General Liability Insurance

General liability insurance will protect your staffing agency from many of the same potential lawsuits and incidents that other business owners face. Most notably, general liability insurance covers libel and slander lawsuits, customer injuries, and property damage caused by your business.

It should be noted that general liability insurance does not cover your own employees’ injuries, auto accidents, or punitive damages. These incidents are covered by other types of insurance.

While most states don’t require every business to have general liability insurance, it’s recommended to look into it. Small businesses are especially at risk of major financial problems if they opt out of general liability insurance because such instances can prove costly. Plus, the average annual cost of general liability insurance adds up to just $356.

Professional Liability Insurance

Also known as errors and omissions insurance, professional liability insurance covers business-related risks such as copyright infringement, negligence, and defense costs for attorneys in the event that your staffing business is sued for mistakes regarding professional services you’ve provided. It also protects your business from claims of misrepresentation in order to persuade them into a contract agreement along with inaccurate advice.

This differs from general liability insurance, which mostly covers physical risks, including bodily injuries.

While professional liability insurance isn’t required by law, it’s highly recommended that you acquire this coverage because it protects you from having to pay extremely expensive legal fees in the event that someone sues your business. And remember, even if you didn’t do anything wrong, you can get sued and be forced into forking over huge sums of cash for legal defense.

Commercial Property Insurance

Commercial property insurance is especially important to obtain if you’re planning on leasing or buying office space for your staffing company. Even if you’re running your business from home, it can be beneficial to have because it covers even the smallest physical assets belonging to your business, such as technology, furniture, documents, and other equipment. The possibility of natural disasters, fires, theft, and vandalism are compelling reasons to acquire commercial property insurance.

Business Owner’s Policy

A business owner’s policy (BOP) isn’t required, but it bundles general liability and commercial property insurance; therefore, it can be a cost-friendly choice for your staffing agency. The average annual cost for a business owner’s policy is just $684, significantly cheaper than the sum of general liability insurance ($360) and commercial property insurance ($756), which equates to $1,116.

If you opt in for BOP insurance, you’ll be covered for events such as liability claims and disasters that destroy equipment, inventory, or property. It also protects your business financially in case it shuts down from covered losses. Plus, it’s tailored for business owners.

Employment Practices Liability Insurance

Employment practices liability insurance (EPLI) is not mandated by law, but it is highly recommended because of its relevance for staffing agencies. EPLI protects businesses when employees are the victims of inappropriate workplace behavior, such as harassment, discrimination, and wrongful termination.

Because employment agencies can be held liable for their employees allegedly suffering from inappropriate actions in the workplace, you should not overlook EPLI.

Commercial Auto Insurance

Commercial auto insurance works like regular auto insurance with the only difference being that you’ll be covered for damages or costs caused by a business vehicle rather than a personal vehicle. So, for example, if you cause an accident while driving a car that’s registered under your staffing agency’s name, commercial auto insurance will cover a significant chunk of your would-be costs.

Obviously, if you don’t have a vehicle registered to your business, you don’t need to worry about commercial auto insurance. But if you do, this is absolutely necessary.

Cyber Insurance

Cyber insurance covers financial losses from cyberattacks or data breaches. This usually includes financial assistance for:

  • Customer refunds
  • Legal counsel
  • Fees for a potential investigation into the cyberattack or data breach
  • Recovery of lost data
  • Replacement IT equipment, such as security software (if necessary)
  • Lost income from the period when business was interrupted

You don’t want your staffing agency to crumble financially because of something completely out of your control, so it’s well worth exploring cyber insurance.

Tips to Lower Staffing Agency Insurance Costs

Insurance costs are often an inevitable part of running a business. But for staffing agency owners, the cost of insurance – particularly workers’ compensation insurance – can be reduced by doing your due diligence and getting creative. Let’s explain further by providing some tips to lower your insurance premiums and overall costs.

1. Perform Background Checks on Potential Clients Before Placing Employees

The best way to prevent overspending on workers’ compensation coverage is by placing your employees in positive, secure environments.

As a staffing agency owner, the most straightforward way to do this is by properly vetting businesses before working with them. Ensure total professionalism throughout the business by tracking whether they offer safety training, health and safety protocols, and an employee handbook. Confirm that they don’t have a history of employee mistreatment.

Workers’ compensation insurance claims have the potential to drain your business bank account. However, taking the necessary precautionary steps can drastically reduce the chances of this happening to your staffing agency.

2. Ensure Worker Classification Accuracy

When it comes to staffing agency insurance, it’s really important to prioritize thorough organization regarding employee classification. When you’re consistently dealing with new and departing employees, it can be easy to lose track of who exactly is working for you and on your payroll at various times. This is important because you’ll need to know these specifics when you’re tasked with classifying them for workers’ compensation insurance.

One strategy staffing agency owners use to prevent overspending on insurance is finding an insurance provider that offers a “pay as you go” program. This program allows you to continuously adjust workers’ compensation insurance premiums each quarter to account for up-to-date payroll data. Otherwise, you’ll be unable to adjust premiums more than once per year, meaning you could be carrying unnecessary insurance coverage for employees who no longer work for you, thus paying for coverage you don’t need.

This is especially important for employment agencies that specialize in contract work, as it’s extremely common for employees to work on contracts less than 12 months. If you can’t adjust your premiums quarterly, you risk overpaying.

3. Explore Insurance Bundles

You’re probably aware of bundling your home and auto insurance. But you might not be as familiar with business insurance bundles!

If you’ve gotten this far, you know about a business owner’s policy (BOP), which bundles general liability and commercial property insurance.

Business owner’s policy insurance is the most commonly used bundle, but you may be able to negotiate other bundles with your insurance provider. For small business owners, bundling insurance packages is a great way to lower insurance costs.

4. Research, Research, Research

Obtaining insurance isn’t why you became a business owner, but don’t let that force you to settle for the first or “easiest” provider you come in contact with.

The best staffing company owners will research their options, compare rates, and negotiate as best they can with providers to secure the lowest costs for insurance. However, make sure you prioritize business coverage as much as cost. You don’t want to accidentally land on poor insurance coverage, as it could cost you in the long run, so make sure you’re working with top-rated insurance providers. Insureon has a helpful list of 10 tips to consider when exploring business insurance.

5. Stay On Top of Your Coverage

Maintaining worker classification accuracy is one method to avoid overpaying for insurance coverage; another is by conducting a thorough annual review of your insurance policy. Every staffing agency owner should certify that it is completed before insurance renews for the next year.

Compare your list of employees for the current period with past periods. Note how many have departed and how many have arrived and inform your insurance agent of these changes. They can explore the ramifications of any of these changes and potentially save you meaningful dollars.

How to Get Staffing Agency Insurance

Now that you know the different types of insurance required for your staffing agency, you’re probably asking yourself, “What’s next?”

Unless you’re extremely well-versed in business insurance, it’s wise to utilize either a carrier or a broker to walk you through the process. Carriers are basically just insurance companies while brokers are individuals who are essentially contracted out to multiple carriers.

Carriers have agents who can work with you directly to find coverage; they’ll also be the ones who provide the quote.

Many business owners choose to work with insurance brokers because of the flexibility they provide. Brokers who work with multiple carriers have access to a variety of rates and options, making it easier for both parties to settle on rates and packages that business owners can afford.

Once you decide, you can get to work with your carrier to negotiate plans or your broker to find the best insurance company for your staffing agency.

The complexities of the insurance world can cause unwanted stress, so if you have questions about how it works, you can also consult an insurance attorney. If you decide to take an independent approach to obtaining insurance, they can also confirm that you’ve obtained all of the necessary insurance requirements. It’s absolutely critical that you do so because failing to abide by laws and regulations can lead to lawsuits.

Staffing Agency Insurance Requirements: FAQs

Do you need general liability insurance for a staffing agency?

While general liability insurance is not mandated by law, it is highly recommended that you obtain it for your business. Staffing agencies can be held liable for property damage, employee injuries, and libel and slander lawsuits, all of which general liability insurance covers.

Is insurance affordable for staffing agencies?

It depends on how much working capital your staffing agency has. The average annual cost for recommended insurance plans usually varies between $500 and $2,000, which adds up to at least a few thousand dollars that you’ll likely have to allocate annually for insurance. Regardless, you can work with an insurance carrier or broker to get the most affordable rates possible.

What is the average insurance cost for staffing agencies?

The average insurance cost for staffing agencies depends on the types of coverage you opt for. Required or highly recommended coverages such as workers’ compensation costs $840 per year, professional liability costs $500 to $1,000 per year, general liability costs $360 per year, and employment practices liability costs $2,665 per year.

While bundles can help minimize insurance costs, such as a business owner’s policy (BOP), staffing agency owners should set aside at least a few thousand dollars annually for insurance.

What insurance do I need to start a staffing agency?

Professional liability and workers’ compensation insurance are required in most states for staffing agencies. Other types of insurance you should secure when starting your staffing agency include general liability and employment practices liability insurance.

What determines my insurance premiums?

Business insurance premiums are dictated by a few factors, including type of coverage, your industry, your insurance history, where your business is located, number of employees, and annual revenue. Typically, your industry is the most relevant variable for determining your insurance premiums.