Are you getting hosed by your Professional Employer Organization?
You already know the upside if you are in a Professional Employer Organization. You might not know if you are getting the best price for your PEO. You should read on if you don’t know if you are.
Most people join a Professional Employer Organization and never consider the fees and costs associated with their PEO billing. Better yet, many times, people join a PEO and have no idea what their actual PEO fees are. And in many cases no idea how to figure out their fees.
Not to fear, we have put together areas for you to look at, and if you need help, we can help with that as well.
Administration Fees
All PEOs charge a monthly administration fee for their services. Your administration fee is based on your number of employees and how good you are at negotiating.
There are two ways that a Professional Employer Organization charges for their services.
The first way is known as Per Employee Per Month(PEPM). It’s a flat, transparent monthly fee, that is charged per employee per month.
The second way is called Percentage of Payroll (POP). It’s not transparent and is based on your payroll and bundled together with your State and Federal taxes, as well as your Workers’ Compensation cost.
If the second way of administration fee billing sounds confusing, it is. It’s meant to be that way because when you unbundle your administration fees, you’ll be surprised at how much they are. In our experience, unless your employees have ultra-low wages, you are almost always paying too much for Administration Fees.
If you are currently in a Professional Employer Organization that is charging you a Percentage of Payroll (POP), then you should explore other PEO providers that offer per-employee per-month pricing.
“All PEOs price your administration fees based on your staff size, location, and your negotiation skills. It’s best to inquire as you grow about reducing your costs.”
State Unemployment Tax Assessment (SUTA) Rate(s)
You may have never seen this written out, but it’s vitally important. When you join a PEO in most states you take their SUTA rate in that respective state. Some states are Client Reporting States, where you keep your SUTA rate.
Assuming that you are not in a Client Reporting State, you are under your PEO’s SUTA rate for each state where you have employees. You should ask your PEO what your SUTA rate(s) are in the states you operate in and then compare them to your Direct SUTA rates. If your PEO is higher, you should negotiate with them.
We have found many times that companies have had lower Direct SUTA rates and we were able to get their SUTA rates reduced.
Here are the Client Reporting States.
“Alaska, Arkansas, Connecticut, Delaware, Illinois, Iowa, Kentucky, Massachusetts, Minnesota, Mississippi, Nebraska, North Dakota, Pennsylvania, Rhode Island, South Carolina, South Dakota, Vermont, Washington, and Wyoming.”
Workers’ Compensation Insurance
Workers’ Compensation insurance isn’t typically a hot topic if you are a white-collar business, but it should be. Reviewing what you are paying for workers’ compensation in a PEO whether your business is white-collar or blue-collar just makes sense. Here’s why.
Sometimes the PEOs markup their coverage costs and pass that on to you. If you are a blue-collar company this could be especially true, and you could have composite rates, which combine all of your rates into one general rate. Not sure what to compare your workers’ compensation rates to request a quote from a broker, the State Insurance Fund in your state or compare your costs per class code before the PEO.
If you find that you are paying more than you should be, then you should negotiate with your PEO or perhaps find a new one. We find that it’s a good idea to compare your PEO yearly to ensure you are paying a fair amount.
Health Insurance
Health Insurance is a huge topic for everyone, employers, employees, and everyone in between. Being in a PEO ensures that you have access to National Carriers with National Plans at affordable premiums. If you are in a PEO and you are not using their health insurance, that could be a mistake, because unless you are a large employer you likely won’t beat what your PEO offers.
Assuming you are, here are some things to consider, how have your annual renewals been, do your employees like the carrier, and lastly is the plan selection affordable? If you are experiencing significantly high renewals then you should look at other PEOs. The same goes for not liking the carrier or not having enough plans available at affordable premiums.
Different PEOs offer different health insurance providers. Moving from one PEO can give you a different carrier.
“Health Insurance carriers won’t give you a discount by going to a PEO with the same carrier. It’s called Parity and it’s in your best interest to explore different carriers that you currently have. So if you’re with Aetna, look at Cigna or UHC. ”
Fee Schedule
The PEO offers basic services which they outline that is included in their Administration Fees, however, the PEOs offer additional services and have additional fees. You should have a detailed list of your PEO’s fees and services. Likely you pay a fee for every new employee you hire, if you are hiring a lot of employees and this fee is significant, you should negotiate it down.
In many cases, your PEO offers things that are significantly less expensive than going out to do them on your own or the cost associated with hiring someone or adding another vendor to the mix. Many of our PEO partners offer a myriad of services including Recruiting and many more. If your PEO isn’t clear with their fees or don’t offer services that you need, you should look at other providers.
Retirement Plans
Nearly every Professional Employer Organization offers 401-K and 403-B plans. If yours doesn’t, it’s time to look at another PEO. Assuming yours does, then you should take advantage of it and offer it as a benefit to working for you. The PEO offloads your testing and administration.
Most PEOs either don’t charge for this or it’s a minimal amount of money. We have seen some PEOs that have actually charged quite a bit to set up 401-k for their client. This is just a direct result of not knowing what you don’t know. If you are unsure of what you are paying for 401-k or 403-B then you should ask.
Ok, so what now?
Being in a PEO is smart, but like anything, the best price for anything is always how well you can negotiate. Considering that most people don’t know what they should be paying, you likely didn’t get the best deal. This list of questions is a great place to start, and no better time than open enrollment.
It’s sound advice to compare your PEO at least every 2 years. If you are happy with your PEO but want to see if you can lower your fees, we can help you. If you prefer someone to handle it for you, we can help you.
