TAKE BACK WHAT’S YOURS: A PEO’S GUIDE TO WORKERS’ COMPENSATION SUBROGATION

While often overshadowed by flashier concepts—if such things truly exist in the world of workers’ compensation—subrogation remains one of the most powerful tools in claims management. For PEOs, the ability to recoup benefits previously paid in a workers’ compensation claim can be a game-changer, helping to control expenses and reduce claim losses. Yet, many PEOs miss out on this significant opportunity due to a lack of proactive identification or a full understanding of the process, which varies widely by state.

This article breaks down the essentials of workers’ compensation subrogation for PEOs, including key red flags, its role in claim mitigation, and strategies for maximizing recoveries. With a more intentional and strategic approach, PEOs can finally take back what is rightfully theirs.

THE LEGAL LANDSCAPE OF WORKERS’ COMPENSATION SUBROGATION

At its core, subrogation allows a PEO to recover workers’ compensation benefits—both indemnity and medical—paid to an injured worker when a third party is ultimately responsible for the injury. This right exists to prevent double recovery by the injured worker and to shift the financial responsibility to the at-fault party rather than the PEO. Sounds great, right? Just one caveat—the specifics of subrogation rights, procedures, and limitations vary wildly across states, making it critical for PEOs to understand these jurisdictional nuances to ensure recovery.

Some states are certainly more favorable than others, granting strong subrogation rights that allow PEOs to recover a significant portion of the total benefits paid on any given claim. In others, recovery is far more restricted, with additional hurdles such as employer negligence defenses, limitations on lien recovery, or procedural barriers that chip away at a PEO’s ability to recoup costs.

For PEOs operating across multiple states, these inconsistencies create additional complexities. For example, New York allows PEOs to assert a lien against an injured worker’s third-party recovery, though they must contribute to litigation costs; in practice, and subject to some nuance, this typically results in a recovery of approximately two-thirds of benefits paid to date. Meanwhile, Georgia follows the “made-whole” doctrine, placing the burden on the PEO to prove that the injured worker has been fully compensated before enforcing a subrogation lien. This contrast highlights why understanding the legal landscape in each state where a PEO operates is crucial.

By staying actively informed on evolving case law and statutory changes—something PEOs are well-accustomed to at this point—they can proactively position themselves to capitalize on subrogation rights wherever available. High-level differences across states (e.g., some states allow broader recovery rights).

IDENTIFYING SUBROGATION OPPORTUNITIES

Recognizing subrogation potential early in a workers’ compensation claim is crucial to maximizing recovery. Unfortunately, because subrogation is often lower on the priority list when triaging a new claim, many viable third-party claims go unnoticed. PEOs that know what to watch for and incorporate subrogation awareness into their claims-handling processes can help put an end to leaving this money on the table.

As a general rule, the most common subrogation opportunities in workers’ compensation claims arise in cases involving:

• Motor Vehicle Accidents (MVAs): When an employee is injured in a work-related car accident caused by another driver, the at-fault party (or their insurer) may be liable for reimbursing workers’ compensation benefits paid.
• Defective Equipment or Machinery Failures: If an injury results from a faulty machine, tool, or piece of equipment, there may be a viable product liability claim against the manufacturer or distributor.
• Premises Liability: If an employee is injured due to allegedly unsafe conditions on a third party’s premises—such as a slip-and-fall at a client site or job location—the property owner or another responsible party may be liable.
• Contractor and Subcontractor Negligence: In construction and other contractor-heavy industries, employees may be injured due to the negligence of a third-party contractor or subcontractor, creating potential liability outside of the workers’ compensation system.

Early and proactive identification of these opportunities allows PEOs to capitalize on subrogation and reclaim funds that might otherwise be ignored.

OVERCOMING SUBROGATION CHALLENGES

As powerful as subrogation can be as a cost-recovery tool, actually securing repayment is often far from straightforward. Various legal, procedural, and practical hurdles can make it difficult for PEOs to enforce their subrogation rights effectively. The key to overcoming these challenges is—stop me if you’ve heard this before—proactiveness!

One of the most common obstacles is state-specific limitations on subrogation rights. Look no further than the aforementioned differences between New York and Georgia—while New York allows PEOs to assert a lien against an injured worker’s third-party recovery (subject to contributing to litigation costs), Georgia follows the “made whole” doctrine. This means a PEO can only enforce its subrogation lien if the injured worker has been fully compensated for all economic and non-economic damages—a notoriously difficult and fact-intensive burden to prove.

Another major hurdle is employer negligence defenses, which can significantly reduce or eliminate subrogation recoveries. Some states bar or limit subrogation if the employer is found partially at fault for the injury, even indirectly (e.g., failing to maintain safe working conditions or providing insufficient training). For PEOs, this risk is heightened since they often share some level of responsibility for workplace safety alongside their client companies.

Finally, and perhaps most commonly, practical challenges also impede recovery efforts. Failing to properly identify claims with possible subrogation not only leaves significant money on the table, but also misses a prime opportunity to negotiate a potential lien reduction or waiver in exchange for resolving the workers’ compensation claim.

BEST PRACTICES FOR PEOS

The “TL;DR” moment you have all been waiting for! To maximize subrogation recovery, PEOs should integrate the following best practices into their claims-handling process:

• Early Identification: Assess subrogation potential from the outset of a claim to avoid missed opportunities.
• Collaboration with Insurers and Legal Teams: Work closely with carriers and subrogation professionals to ensure claims are properly pursued.
• Preserving Evidence: Secure key documentation, witness statements, and physical evidence to strengthen third-party liability claims.
• Negotiation Strategies: Explore opportunities to leverage subrogation liens in settlement discussions, potentially reducing workers’ compensation exposure and shutting down sticky claims entirely.

While subrogation comes with plenty of legal and practical challenges, PEOs that take a proactive and strategic approach can turn it into a valuable cost-recovery tool. By identifying opportunities early, preserving evidence, and working closely with subrogation recovery experts, PEOs can take back what is rightfully theirs—maximizing financial recoveries and strengthening the bottom line. Happy recovering!

This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs.