Each business faces unique opportunities when it comes to finding and binding the correct worker’s compensation insurance for their employees. Here are some of the most common questions we receive. For more information and customized solutions for your business, give us a call.
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A Professional Employer Organization, or PEO, is an organization that manages payroll administration, employee compensation and benefits, employment taxes, and other human resources responsibilities for a company’s employees. In many cases, the PEO serves as a co-employer, which allows the organization to manage many responsibilities and liabilities related to employees. Because the PEO is the “employer of record,” the company can then report wages under the PEO organization’s federal employer identification number (FEIN). This means the employee liability shifts to the organization instead of the company.
PEOs can also provide administrative services outsourcing (ASO) agreements which give options to employers who are not interested in a co-employment relationship but want to take advantage of the outsourcing benefits.
PEOs have staff members with expertise in human resources, employee taxes, legal matters, accounting, and client services. A company typically chooses to partner with a PEO to streamline its payroll operations, minimize HR administration costs, expand internationally, and maintain compliance.
Designed to serve small and medium-sized businesses, PEOs provide a way for employers to offer competitive benefits without placing a burden on in-house human resources staff. With a PEO’s services, companies can focus on core business operations while outsourcing time-consuming and often complicated administrative tasks.
If you have a small to medium-sized business, there are several benefits you can leverage for your organization by using a PEO. These include:
- Better Health Coverage Benefits and Rates
When you work with a PEO, the organization will group your employees together with other PEO co-employees to create a single large group. By doing this, the PEO can provide your employees with health coverage access and rates comparable to what a large corporation can offer.
- Support for Your Remote Teams
PEOs provide support to remote teams in various ways, including assistance to meet compliance guidelines related to payroll and employee tax filings and help with obtaining state unemployment insurance and workers’ compensation. Additionally, a PEO can help you stay up to date on state and federal labor laws that impact a business with remote teams. The right PEO can also connect employees to mental health and wellness benefits and resources to support employees who are part of remote teams.
- Cost Savings
Working with a PEO to manage HR services and paperwork means your company will not need to handle the tasks in-house. As a result, you’ll be able to save money on new hires and delegate other business-growing tasks to your employees.
As part of a PEO, you will become part of a larger group of employers and employees. This means rather than accessing the benefits of one small to medium-sized business, you will be able to access the same benefits as a large corporation, including workers’ compensation. As a result, you and the other co-employers will be able to spread the risk and have more purchasing power than you would have as a business with fewer employees.
Professional Employer Organizations also have staff with the expertise to help you create plans and policies to lower your workers’ compensation costs with strategies like changing employee class codes. If your business operation falls under a high-risk category, purchasing workers’ compensation can be cost-prohibitive. But without the coverage, you can face hefty fines and penalties. With a PEO, workers’ comp plans will be more affordable. While the numbers will vary, many businesses experience a cost savings of between 30% and 40% when purchasing workers’ compensation.
Other cost-saving measures that PEOs shoulder for their co-employers include:
- Establishing a program to support an employee’s return to work
- Developing safety programs for businesses in high-risk industries
- Providing workers’ comp fraud prevention
- Optimizing employee classification
- Facilitating access to lower experience modifier rates
Yes, when you work with a PEO, the firm will process your business’s employee payroll. The PEO will become the co-employer for your business, which means it assumes all responsibility of managing payroll and taxes through the PEO tax identification numbers.
Once you contract with a PEO, the firm will co-employ your employees and begin handling all tasks related to payroll, including issuing W-2s. Your business will continue being responsible for the management of product development and operations.
Choosing to use a PEO can alleviate the responsibility and time-consuming tasks involved with employee information gathering, issuing employee paychecks, and dealing with taxes and withholdings. While your business can use standard payroll services, they don’t provide services related to HR compliance and taxes like a PEO will.
With a PEO, you and your employees will be able to focus on growing your business rather than dealing with employment issues and tasks. Furthermore, you will not need to hire employees or use existing employees to manage HR tasks as your business grows because you will have an established system through the PEO.
In these ways, a PEO will provide more significant cost savings than a payroll services provider. The lower health insurance and workers’ compensation policy rates available through a PEO also offer a greater financial reward.
No, you wouldn’t lose control through a PEO co-employment relationship. In fact, with a PEO, you’ll be taking better care of your employees, which increases your control and benefits your business in several ways. The PEO will only be responsible for employment-related tasks and HR services. You will continue running the day-to-day business operations and making decisions about employees, including hiring, discipline, performance management, and pay rates.
While the PEO can provide support and guidance on these matters, the decisions will ultimately remain with you as the business owner. When you work with a PEO, you will receive a client service agreement (CSA) outlining the specific responsibilities for the business and the PEO. This helps you to gain clarification on each business’s role in the relationship.
Because you may receive access to workers’ comp coverage through the PEO, the firm may also offer employee safety and compliance assistance. This helps to minimize the number of workers’ comp claims and enables your business to operate optimally.
Rather than losing control of your employees or business, your partnership with a PEO will help you to gain control in the following ways:
- Focus on the most crucial elements of your business operations
- Have access to solutions that help your business to be more productive and profitable
- Enjoy more affordable workers’ compensation policies to protect your business and keep the doors open
With a PEO, your business will not experience the typical end-of-year workers’ compensation audit. This is good news for business owners who worry about this time-consuming and often costly audit each year. By working with a PEO, you will always pay the right amount for your workers’ compensation each year. No overpaying or underpaying means you avoid a situation in which your business would require an audit.
PEOs also minimize insurance fraud, which is another issue auditors are looking for. In this way, your partnership with a PEO protects your business from an audit. Many insurance companies let businesses in a co-employer partnership with a PEO skip an audit altogether.
If there is a workers’ comp claim at your business, the PEO will handle all the details in perfect compliance with state and federal rules and regulations. The organization will also prepare and submit OSHA reports on your behalf annually. These crucial steps protect your business from the stress and costs of an audit.
For most small to mid-sized business owners, it’s challenging to stay on top of all the hiring laws and guidelines, so they are more susceptible to audits. Not having to worry about end-of-year workers’ comp audits means you can keep your focus on your employees and your business.
There are several reasons why small to midsize businesses choose PEOs to manage their employee payroll, employment taxes, and other HR-related services. Ultimately, it comes down to being more productive and profitable and better able to meet employee needs. Here are the primary reasons these businesses enter into co-employment relationships with PEOs:
- One-Stop-Shop for Human Resources Management Tasks
PEO’s provide streamlined services, known as the Human Resource Management System (HRMS), to handle every single aspect of having employees. From payroll administration, employee benefits, and workers’ compensation to federal and state tax processing, businesses will have all the HR services they need.
- Better Health Insurance Options
With a PEO, small to medium-sized businesses can offer better health insurance plan options comparable to those from large corporations. The PEO staff will also handle all health insurance and COBRA administration to ensure the business remains compliant. This gives businesses a competitive edge in hiring and performing in their industries.
- Affordable Workers’ Compensation Insurance
When a business joins a PEO, it can take advantage of the organization’s workers’ compensation policy for far less cost than it would pay on its own. Typically, companies must have a 25% deposit to secure coverage and require an annual audit that can lead to additional costs. Being part of a PEO eliminates the deposit and audit and gives businesses an affordable fixed price for insurance.
Co-employment through a PEO is a contract-based relationship in which the organization and the business share specific employment-related responsibilities for the business. As part of the contract, also known as a client service agreement (CSA), the PEO handles human resources tasks and responsibilities. The relationship enables small to mid-sized businesses to mitigate some of the liability and costs associated with employment for the business.
Benefits of the co-employment relationship include:
- Effective, professional management of critical human resources responsibilities
- Elimination of risk related to employment taxes and the annual audit for workers’ compensation
- Minimized cost and better options for health insurance policies and workers’ compensation
- Reduced hiring costs and the ability to focus on the core business rather than HR tasks
The PEO and business determine the specifics of the CSA. Through the co-employment relationship, the business maintains control of business operations while the PEO manages human resources management and employment compliance requirements. Both the PEO and business will establish relationships with employees for different matters.
For businesses that cannot afford a professional in-house HR staff with expertise in employment matters and workers’ compensation, a PEO is a great option. PEOs exist to help businesses grow, succeed, and stay compliant at all times.
The primary differences between working with a PEO and purchasing traditional workers’ compensation insurance from the open market are price, responsibility, and liability. When a small to mid-sized business attempts to buy a workers’ comp policy on its own, it will often find cost-prohibitive plans, especially if the business is in a high-risk industry. These plans typically require a 25% deposit and an annual review which can lead to additional costs.
A PEO differs because it provides benefits for several employers and uses the combined size of all the businesses’ employees that belong to the PEO to get volume discounts. These lower-priced plans are typically only available to large corporations.
The PEO also takes on the responsibilities for workers’ compensation management, which decreases the liability and time-consuming tasks for the business. When purchasing a traditional workers’ compensation plan, a business will have to provide all management in-house and deal with the annual review.
When working with a PEO, a business will not have to pay the deposit for coverage and may have options to access a “pay as you go” program. This difference makes going with a PEO for workers’ compensation more affordable for businesses while ensuring they have the coverage they need.
The National Association of Professional Employer Organizations (NAPEO) reports that a small business working with a PEO can grow 7% to 9% faster. This opportunity for faster growth results from business owners and in-house employees being able to focus on their core business operations while the PEO handles employment-related tasks. Rather than spending time on human resources, benefits, payroll, tax compliance, and workers’ comp administration, businesses can focus on marketing, sales, and product development—all business-growing tasks.
PEOs also provide better and more affordable options for health insurance coverage and workers’ compensation for employees. When businesses aren’t required to pay as much for these policies, they become more profitable. In fact, working with a PEO can help some businesses in high-risk industries keep their doors open.
Most small businesses cannot afford to have an in-house human resources department. Working with a PEO connects these business owners with trusted HR experts who have extensive knowledge and experience. Placing the tasks of HR management in the hands of experts gives small businesses a competitive edge. Co-employment with a PEO means small business owners can have peace of mind, knowing their employees have optimal benefits and their business is compliant, which paves the way for business growth.