Employee Leasing Companies and Professional Employer Organizations

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An Employee Leasing Company (“ELC”), as described in Massachusetts Regulation 211 CMR 111 and MA Manual Rule IX-E, is an employer who enters into Employee Leasing Arrangements with its Clients that retain for the ELC a substantial portion management functions. An ELC is required to purchase and maintain a separate workers’ compensation and employers’ liability policy for each Client to whom it leases Massachusetts employees.

A Professional Employer Organization (“PEO”), as described in Massachusetts Regulation 454, CMR.30 and MA Manual Rule IX-F, is a co-employer that enters into Professional Employer Agreements with its Clients that allocate to either the PEO or the Client all employer rights, duties and obligations. When the responsibility of obtaining workers’ compensation and employers’ liability insurance is allocated to the PEO, the PEO is required to purchase and maintain a separate workers’ compensation policy for each client company to whom it ‘leases’ Massachusetts employees, just as ELCs are required to do.

The following applies to ELCs and to situations where the PEO Agreement allocates to the PEO the responsibility of providing workers’ compensation and employers’ liability insurance:

The ELC or PEO shall purchase and maintain a separate policy providing standard workers' compensation and employers’ liability insurance for each Client to whom it provides Massachusetts employees.
Each policy written to cover employees ‘leased’ from an ELC or PEO shall be issued with the ELC or PEO as the named insured. Coverage under the policy shall be limited to the named insured's employees leased to the Client. The Client shall be identified by attaching to the policy the Massachusetts Professional Employer Organization (PEO) / Employee Leasing Endorsement, WC200304D, which identifies the client.
The experience of all employees leased to a Client shall be combined with the experience of the Client for purposes of calculating an experience modification. The experience modification, so calculated, shall be applied to the Client’s own policy and to all policies maintained for it by an ELC or PEO.
The ELC or PEO shall purchase and maintain a separate policy providing standard workers' compensation and employers’ liability insurance for its own non-leased employees, including any temporary employees it may provide. To this policy shall be attached the Massachusetts Exclusion of Coverage for Leased Employees Endorsement, WC200305B, which restricts coverage to the ELC or PEO’s own non-leased employees.
If the Client has employees that it pays directly, the Client must obtain a separate policy providing workers' compensation and employers’ liability for those employees. This policy shall name the Client as the insured and shall have attached the Professional Employer Organization (PEO) Client Exclusion Endorsement, WC000322A, which excludes coverage for leased employees.

Effective April 1, 2020, when the PEO Agreement allocates the responsibility of obtaining workers’ compensation and employer liability insurance to the Client, the Client is required to purchase and maintain a workers’ compensation policy as follows:

The Client shall purchase and maintain a separate policy providing standard workers' compensation and employers’ liability insurance for the Massachusetts employees it ‘leases’ from the PEO.
The policy written to cover employees ‘leased’ from the PEO shall be issued in the Client’s name and have the Massachusetts Professional Employer Organization (PEO) Extension Endorsement, WC200308, attached to restrict coverage to employees ‘leased’ from the PEO, which is identified on the endorsement.
If the Client has employees that it pays directly, then they must obtain a separate policy providing workers' compensation and employers’ liability for those employees. This policy shall name the Client as the insured and shall have attached the Professional Employer Organization (PEO) Client Exclusion Endorsement, WC000322A, which excludes coverage for leased employees.
The experience of all employees leased to a Client shall be combined with the experience of the Client for purposes of calculating an experience modification. The experience modification, so calculated, shall be applied to the Client’s own policy and to all policies maintained for it by an ELC or PEO.

For more information on Employee Leasing Arrangements and PEO Agreements, refer to the Massachusetts Workers' Compensation and Employers Liability Manual, Part One, Rule IX- Special Conditions or Operations Affecting Coverage and Premium, E. Employee Leasing Arrangements and F. Professional Employer Organization Agreements.

Employee Leasing References:

May 14, 2020 - Circular Letter #2367 was issued to update Circular Letter #2338 in light of the new laws and rules applicable to Professional Employer Organizations that were announced in Circular Letter #2360 dated February 25, 2020. (Refer to Circular Letter #2367 dated May 14, 2020.)

February 25, 2020 - Circular Letter #2360 was issued to provide instruction regarding the recently approved statute and Department of Labor Standards Regulations issued in regard to Professional Employer Organizations. (Refer to Circular Letter #2360 dated February 25, 2020.)

September 28, 2018 - Circular Letter #2338 was issued to provide clarification regarding the issuance and reporting of policies Issued to Employee Leasing Companies, Professional Employer Organizations, Staffing Firms & Temporary Employment Agencies. (Refer to Circular Letter #2338 dated September 28, 2018.)

December 1, 1997 - A revised Massachusetts Employee Leasing Endorsement #WC200304B approved. (Refer to Circular Letter #1787 dated November 13, 1997.)

April 18, 1995 - Rule IV - Classifications, D. Assignment of Classifications, in the Manual was changed to add - Premium for Leased Employees. (Refer to Circular Letter #1728 dated October 3, 1995.)

June 19, 1992 - Regulation 211 CMR 111.00 became a permanent regulation, replacing the version effective from March 31, 1992 until June 19,1992 as an emergency regulation. (Refer to Circular Letter #1610 dated July 7, 1992 and Circular Letter #1612 dated October 28, 1992.)

March 31, 1992 - Massachusetts Regulation 211 CMR 111.00 was adopted by the Division of Insurance. The regulation directly effects employee leasing companies and the manner by which they must obtain and maintain coverage for their leased employees. (Refer to Circular Letter #1602 dated April 23, 1992.)