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California law pressures companies that use contracted workers: Marsh

Posted On: Dec. 9, 2014 12:00 AM CST

A new California law that increases the liability for companies that use temporary or contract workers could result in additional underwriting scrutiny from insurers, according to a report by Marsh L.L.C.’s Workers’ Compensation Center of Excellence.

Assembly Bill 1897, which California Gov. Jerry Brown signed into law in September with an effective date of Jan. 1, 2015, raises risk management issues for companies in the state that use temporary workers or contract labor, Marsh said in the report released on Tuesday.

Since the law states that a company is liable if an outside firm that provides the contract labor fails to pay wages or provide workers compensation coverage, employers “should be prepared to provide information to underwriters around such use, including about the type of contract labor they expect to use, for what types of activities and anticipated costs,” according to the analysis.

Though wage and hour insurance isn’t widely available, companies that regularly contract outside workers should consider the product. And insurers might begin asking additional questions “regarding the level of control and supervision that client employers have or maintain over labor contractor wage payment practices,” according to the analysis.

When selecting an outside firm to provide contract workers, companies should consider the outside firm’s financial stability, contractually obligate it to maintain workers comp insurance, and conduct due diligence regarding payment of wages and other labor practices, Marsh said.