The Four Core PEO Services
Choosing a PEO is
a big deal. There are numerous different types of PEOs and
different contractual arrangements available. Before
making the change to a PEO make sure you understand the
pros and cons of PEOs and make sure the PEO you choose will
actually help solve your unique employer challenges.
basically four core services integrated into the PEO
payroll and tax administration
workers compensation insurance and risk management
human resources assistance
The fact is most
employers rarely suffer or have issues in all four of these core
PEO service areas and are also unlikely to utilize all PEO services
to address each area. Furthermore, very few PEOs actually
have the ability to provide real value in all of these service
areas because they often focus in only one or two of the core areas
as part of their focus. For example, PEO who work with
higher risk companies like contractors who have had some losses
may not operate a good health program or have quality HR
services. Conversely, PEOs with strong HR services or
perhaps a great health program may not have the work comp
programs available to help companies with prior claims.
Understand what you want to accomplish before choosing a PEO.
Scenarios Where PEOs Can Help?
Below is a list
of employer related problems that may help you determine if
you're fit for a
Workers Compensation Insurance
Some PEOs have
good programs in place to reduce employer costs associated with
workers compensation and help create better risk management and
claims administration programs. PEOs with master work comp
policies may be a good fit for employers who are in a higher
risk industry and/or have an
workers compensation experience modifier above 1.00.
PEOs may be able to purchase workers compensation insurance
at a significantly lower rate per $100.
1) Potential for PEOs rates to increase, 2) Policy
termination by carrier, 3) PEO may misclassify employees, 4) PEO
deception by decreasing advertised work comp rates and
increasing PEO administration charges.
High Unemployment Tax Rates
have higher turnover and have significantly higher state
unemployment tax rates caused by unemployment claims might benefit from a PEO
The PEO may have a lower SUTA tax rate and a better ability to
absorb more unemployment claims than a smaller employer. *
Some states do not allow PEOs to utilize their own SUTA rate.
1) PEOs tax rate could increase as the ratio of claims to tax
payments increase. 2) SUTA dumping could get PEO in
trouble or create liability for employer- More on
PEO SUTA dumping.
maintain a master health insurance plan that may benefit
employers and small groups where one or more employee has had
health issues. These master policies may reduce the cost
of health insurance for the employer and employees by becoming part of a
The law of large numbers is the basic theory of insurance- many
spreading the cost for others. When managed correctly, PEOs
can provide a stable platform for groups.
1) Today many PEO health plans have multiple tiers of
classifications to better price groups with the carrier which
may lead to higher rates for groups with health claims, 2) PEO
could be non-renewed on its health plan leaving the employer
scrambling for coverage, 3) Adverse selection- PEOs that place
too many unhealthy groups may be susceptible to rate increases.
Any employer who
has experienced a discrimination or harassment lawsuit can
attest to the value of good HR procedures. Some PEOs
provide hands on assistance with HR programs and procedures
designed to reduce employer HR liability.
The PEO becomes your co-employment partner which in and of
itself provides some protection. PEOs with good HR
practices should insist on implementing employee handbooks,
acknowledgement forms, and job descriptions as part of the PEO
1) Employers should carefully review the PEO agreements to make
sure the PEO provides assistance and understand any legal
language with regard to human resource related advise, 2)
Potential for poor advice.
the growing burden of employment
Logistics and Multi-State Issues
multi-state operations may be a good fit for a PEOs payroll and
tax administration services coupled with good HR assistance.
Payroll, tax laws, and HR issues vary tremendously by state.
PEOs who already have a good deal of experience in the states
you do business in may help increase operating efficiency or
eliminate the need for costly specialized employees.
1) Payroll service providers may be able to provide equal
services at a lower price point.
have changed considerably over the past 30 years and continue to
change at a rapid pace today. PEOs who have certified HR
professionals on staff are more likely to help employer remain
in compliance with new laws.
Most employers do not have true HR professionals on staff because
they are cost prohibitive, but many PEOs do have one or more HR
professional on staff and the cost of these professionals is
spread between all clients which helps make it more affordable
for all PEO clients.
1) If HR is a priority to your company, ask to speak with one or
more of the people in charge of HR and government compliance
for the PEO and make sure you feel confident in their skill
the growing burden of employment
some of these four core services, a PEO may help make employer
related processes and employee administration less burdensome
Being an employer is not easy. PEOs can help simplify the
process because they have access to important payroll data and
information that helps them assist with insurance, HR, benefits,
1) Be sure to understand your expectations from a PEO and
determine if the PEOs you are considering can provide the best
solutions for your unique situation.
A PEO might be a
good fit for employers with one or more of the issues listed
above. Other employers without one or more of these issues
or concerns are likely a better fit for a payroll only service,
ASO service, or stand alone insurance policies with in-house
payroll. Click below to learn about all of our PEO,
payroll, and insurance programs.
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