Should you be in a Professional Employer Organization?
Did you get a bad renewal this year on your health insurance? Does your workers’ compensation keep increasing? If answered yes to either of these questions, then you should probably look at a Professional Employer Organization.
Not sure what a Professional Employer Organization is, that’s ok. By the end of this exactly what a PEO is.
What is a Professional Employer Organization?
A Professional Employer Organization (PEO) is a company that helps small-medium size businesses streamline their payroll, offer National Health plans from National carriers at affordable premiums, lower your workers’ compensation cost, and give you access to SHRM-Certified HR guidance when you need it.
PEOs operate through what’s known as Co-Employment. It works like this, you continue running your company and managing your employees, hiring and firing, and so on. The PEO co-employs or shares the responsibility of employing your employees.
Co-Employment is what makes a PEO relationship legal with State and Federal laws.
Let’s take a look at each aspect of what a PEO offers.
Payroll
Getting payroll right is the key to having happy employees and alleviates your headaches. Most people use a payroll provider, so you are familiar with how they work. In a PEO, it works the same, however, in a PEO your State and Federal taxes are filed under the PEO’s Tax ID number. This is completely legal and regulated by the IRS.
A PEO offers you access to an HRIS system, therefore making the entire process of payroll, benefits, workers’ comp and HR easier, because it’s all in one place. A PEO does all of your new hire paperwork, issues W-2’s, handles your I-9’s and makes sure that your payroll is correct. You can learn more here about the benefits of Payroll in a PEO.
Health Insurance
The second most important thing to your employees besides payroll is their Health Insurance package. Offering health insurance plans from National carriers with affordable rates is vital to keeping your employees and recruiting. A PEO buys health insurance for all of its client’s employees, which numbers into thousands and hundreds of thousands.
That buying power allows the PEO to offer plans that small employers and the open market do not have. PEOs offer health insurance plans that work everywhere, and plans that fit every budget. PEOs offer HMO, EPO, POS, PPO, and HDHP plans, and you can choose which plans you would like to offer and set your contribution rate(s).
The carriers range from Aetna, BCBS, Cigna, UHC, Oxford, Humana, Kaiser Permanente, and Tufts. Each PEO has a different carrier, so it’s important to know which PEO has the carriers you like. You can learn more here about health insurance in a PEO.
Workers’ Compensation
Workers’ Compensation is a necessary evil for every business unless you are in Texas. But whether it’s required or not it’s smart to have Workers’ Compensation insurance, and that it’s correct. In a PEO you can join their workers’ compensation plan, there are several different reasons why it makes more sense than going to the carrier directly or the State Insurance Fund, here’s why.
PEO Workers’ Compensation plans are Pay-As-You-Go, so your premiums are consistent with your payroll. Your cost per class code is less expensive as well and in many cases, your Modification Rate is the PEO’s rate and not yours. And last but not least your Year-End Audits are eliminated inside the PEO.
If you are a Blue Collar company then you can significantly reduce your Workers’ Compensation costs, and offload the administrative burdens associated with the management. The PEO handles your claims and will help you develop a Safety Program. You can learn more here about workers’ compensation in a PEO.
Human Resources
Having a Human Resource infrastructure in place is key to having a successful company. It’s also important because it limits your liability as an employer. The PEO helps you with advice whenever you need it, help you with your Handbooks (state and federal), Offer Letters, Hiring and Firing, training, and pretty much everything else you can think of.
The PEO’s Human Resource staff is stocked with SHRM-Certified Experts that can offer guidance when you need it, or put together your entire HR platform - it’s your choice. If you have an existing HR department, that’s OK, a PEO complements them. Your staff can outsource administrative functions, so your staff can focus on their initiatives. You can learn more here about human resources in a PEO.
Retirement Plans
PEOs offer retirement plans - 401-K and 403-B. They use third-party vendors usually such as TransAmerica, Lincoln Financial, Merrill Lynch, and so on. The PEO does all of your testing and administration. This eliminates you from having to outsource this and the added cost.
Most PEOs charge a minimal fee to set up your retirement plan if one proposes a large fee you should know that’s not usual, and you should negotiate. Using the PEO’s retirement plans allows you to round out a package that attracts employees.
Ancillary Benefits
We didn’t forget about Dental, Vision, Disability, Life, and all of the other benefits that round out the best benefits packages. PEOs work with Guardian, MetLife, UHC, Aetna, Delta Dental, VSP, and so on for access to national networks. They offer multiple plans that fit every budget, so your employees have choices.
The PEO lets you also decide whether you want to contribute to the coverages, you can make them voluntary or involuntary - your choice. You can also offer these to your part-time employees if you would like. The PEO handles all of the enrollments and administration for you.
Coming Full Circle
When you add all of these things together you have a solid offering to keep your employees happy and enabling you to be an employer of choice. Being able to offer access to great benefits packages and retirement plans are a key driver for attracting and retaining talent. Having a trusted payroll and HR provider will make sure everyone is paid correctly and on time, and a strong HR infrastructure limits your liability as an employer. It makes excellent business sense.
How to Find out if a PEO is right for you?
People wonder this question often, and the easy answer is that if you would like to improve all areas of your company then Yes. But the right answer is that you need to get pricing from a few PEOs to make see if it makes financial sense. The easiest way is to use a PEO Broker like us, but if you would like to do it yourself, here’s how.
Lookup a few PEOs and contact them. They will send you their paperwork to complete and a list of the documents they will need. Complete their forms and send back the documents, in a week or so they will contact you to review the numbers. Set aside a few hours to meet with the ones who are quoting you. They will present their numbers in a large proposal with 40-50 pages, that is largely irrelevant. Then you take their proposals and compare them to your current costs, and see which one makes the most sense.
You should then contact the PEO that makes the most sense to you, and request a demo of their system. Once you decide you’ll get their Client Service Agreement, and review it and join the PEO. This sounds like a lot of work because it is, but that’s how you do it.
