Professional Employer Organizations, or PEOs as they are better known, are the one size fits “most” solution for HR outsourcing. Whether you’re looking for a solution to address your payroll, benefits, HR, tax administration, and/or regulatory compliance assistance, its important to do a proper analysis to determine whether a PEO is right for you. So how do you know if its the right fit for your company? Who better to provide insights on benefits than benefits experts?
Benefits Broker Insights on PEOs
When joining a PEO, companies enter into a co-employment contract, where instead of your company being responsible for all things HR like payroll, compliance, workers’ comp, risk management, performance management, time/attendance and benefits admin, the PEO takes on these responsibilities. Additionally, PEOs provide access to Fortune 500 level benefits for small-medium sized groups that otherwise would not be accessible.
When it comes to medical, dental and vision insurance rates, the PEO harnesses purchasing power by becoming the employer of record, allowing a company to receive more competitive prices than typical. In short, the ability to access better rates with a PEO is possible due to the model essentially being group buying. For example, you’re a small 100-person company. On a PEO, your employee count gets thrown into the pool with other companies on the PEO. Now, instead of getting rates for a 100 person company, you can get rates for a 10,000+ person company (or however large the group is). I compiled responses from our benefits brokers here at MBL to help give a better look into how PEOs function and how a PEO can support your company.
1. What kinds of companies are best suited for PEOs?
- Any size company can benefit from a PEO, however the sweet spot would be companies with between 5 and100 employees. Those that would benefit greatly from being on a PEO are also those companies who need help streamlining their HR functions, especially startups, as well as rapidly scaling companies. Companies in all industries could benefit, though some PEOs concentrate on specific fields.
2. What are the major pros to being on a PEO?
- Gaining access to large company rates. This includes medical, dental and vision insurance rates, workers compensation rates along with additional lines of coverage such as Life Insurance, AD&D, Short Term Disability and even accident, hospital indemnity and pet insurance, which may not have been available to them as a small business.
- PEOs can provide access to better plan options (a statement more geared towards the ability to obtain UCR out-of-network plans at a reasonable rate).
- PEOs are a one-stop-shop for a company’s HR needs. If a company isn’t able to dedicate someone to HR, a PEO can take on those responsibilities, allowing the company to focus on their growth.
- PEOs may also offer additional perks to customers such as access to a 401(k), wellness perks like discounted gym memberships or gym reimbursements, and mobile phone discounts. Some may also offer access to commuter benefits so that employees can pay for their transportation costs using pre-tax dollars.
- PEOs takes over compliance with State/ Federal laws for taxes. The PEO will assume the responsibility of adhering to the government mandated reporting requirements, ensuring companies remain in compliance with ever changing rules and regulations.
- Streamlined employee management on one system from hire to fire.
- Access to experts whenever needed in tax, labor law, benefits, and workers’ compensation who can help improve your company’s productivity and profitability.
3. When is the best time for a company to switch to a PEO?
- Typically upon their renewal or the PEO’s renewal – each PEO renews at different points throughout the year. The easiest transition would be January 1st of each year being that this would be the cleanest for tax purposes. The staff would get one W2 opposed to if they switch on or off before 1/1 because the staff would get a W2 from their company and then again from the PEO. It’s important to understand any implications that may arise if switching to or from a PEO anytime other than during renewal periods. Additionally, medical deductibles and out of pocket maximums would be impacted with the change to or from a PEO.
4. What is the average savings seen from switching to a PEO?
- PEOs can help save companies thousands of dollars as well as time. MBLs brokers have helped companies save anywhere from 15-20%. They can help you switch from a regular insurance carrier to a PEO, or from one PEO to another.
- One broker shared that they moved an employer group from a small group high deductible health plan to a PEO that had very strong plans (ie: non high-deductible plans) which ended up saving the employee’s money by reducing the amount they had to pay in contributions and then saved the employer significant premium dollars overall. The savings for the changes was around 20% or $80,000.00.
- Aside from significant savings for the employer and employees, switching to a PEO can result in consolidating multiple carriers/vendors, switching groups from paper to electronic and access to more benefits, all at lower rates.
6. Any other last words of advice for companies?
- Companies should avoid the PEO quoting process on their own and instead work with a broker who can secure the best match/rates based on the groups needs.
- PEOs can help improve recruitment and retention of employees due to being able to offer large group Fortune 500 level benefits, allowing businesses to attract and keep top talent.
- Co-Employment is when a business and the PEO share the legal responsibility for employees. The idea of and the words “co-employment” may insinuate that a business owner is giving up some of the decision making power that comes with being the owner of said business However, the term “co-employment” refers to when a business decides to utilize a PEO and they begin using the PEO’s Tax ID number, allowing that business to now access Fortune 500 level benefits. What needs to be conveyed to a business owner who is considering a PEO is that they are still in charge of the direction and decision making for the company. For everyday business decisions like marketing, customer service, or directing what work gets done, the business is in full control. However, anything that could raise HR-related legal issues, such as safety, labor law compliance or employee discrimination, the PEO will establish procedures to ensure both entities are legally compliant.
- It is important to be aware that companies on PEOs will only have access to insurance carriers and plans that the PEO chooses.
- If the group is a big risk on workers compensation (think of a job with high risk of injury), it might eliminate them. If the group is much older in regards to average age, that also could eliminate them for PEO based on rates.