A Professional Employer Organization (PEO) is, in essence, a large employer. As such, it can legally offer benefits to its co-employees. A client company looking to partner with a PEO enters into a co-employment relationship. This relationship enables the PEO to provide important advantages for the company partnering with them.
1. HUMAN CAPITAL COST REDUCTION:
Human Resources Outsourcing through PEOs can often help partnering companies reduce fixed costs and increase their bottom line. PEOs help reduce HR-associated costs by utilizing their size to achieve economies of scale on employee benefits such as health insurance. Workers’ compensation is another area where PEOs help companies cut costs. In many cases the PEO’s workers’ compensation umbrella policy has lower rates than the client company, further lowering costs. Additionally, individual policies are often paid quarterly and in advance tying up valuable capital. With a PEO, these premiums are administered on a pay-as-you-go basis, which could be weekly, semi-monthly, or monthly freeing valuable cash flow and increase productivity. Your worker’s compensation policy may currently be subject to a painful annual audit. With a PEO the annual audit is no longer needed reducing your time spent on it and allowing you to again be more productive.
Another area where PEOs help reduce HR-associated costs is with State Unemployment Taxes. When a company partners with a PEO, it assumes the PEO’s State Unemployment Insurance rate (SUI Rate). Often the PEO SUI rate is lower than the client company rate. In addition to the above cost-reducing benefits, most PEOs offer an Employment Practices Liability Insurance (EPLI) policy automatically at no
additional cost to the client which eliminates the need to keep their existing policy hence cutting costs further.
Lastly, a critical and important consideration is soft dollar costs. What is your time worth in dollars? How much do you value your time? PEOs reduce a client company’s HR Administration workload and other the time spent on dealing with other issues such as health insurance and benefits, thereby increasing company productivity. Payroll costs are also eliminated as they are automatically included in the PEO’s services.
2. ELEVATED EMPLOYEE BENEFITS:
Since PEOs have thousands of employees under their master policies, e.g. health insurance, they can purchase more robust benefits at discounted rates. This allows partnering client companies to offer Fortune 500 level benefits to their employees. This is a great advantage to retain “Top Talent” in their organization. We have seen many companies with 5 to 500 employees achieve these economies of scale simply by partnering with a PEO. Other PEO client companies have reduced their co-pays and deductibles on their health plans while keeping costs lower than on their own.
Additional benefits the PEOs can offer are 401(k)s, Long-term and Short-term Disability, Life Insurance ($10-$25K of coverage is usually complementary to all employees), Dental insurance, TransitChek, etc.
3. RISK MANAGEMENT:
When partnering with a PEO, a client company enters into a co-employment relationship, which means they now have a shared responsibility to face many types of liability. This is a great way to reduce the impact of regulation changes and other compliance requirements. It is important to note that PEOs DO NOT eliminate risk but by partnering with an experienced PEO, it helps reduce these risks dramatically.
By pooling companies under a PEO, the risks of premiums for health insurance, workers’ compensation, and SUI are significantly reduced from rising dramatically. PEOs manage this risk internally and underwrite companies for appropriate fit into pools that reduce risk while screening out companies that might increase this risk. On average PEOs have experienced single-digit health insurance renewal rates while we have seen double-digit renewal rates on companies’ policies outside the PEO, especially now as the result of the Affordable Care Act and proposed AHCA changes.
PEOs help reduce the risk of employee wrongful termination, discrimination, and sexual harassment lawsuits. PEOs conduct training in these areas and make sure the client Employee Handbook is up to date and in accordance with the changing labor laws. In the case where a lawsuit is going to be filed, PEOs have legal resources at their disposal which a client company can utilize. PEOs can step between the client company and the problem employee if necessary. If a client company needed the PEO to help fire or terminate an employee, the PEO can help minimize problems arising from this situation by stepping in and offering its expert advice to the client.
4. REGULATORY COMPLIANCE:
PEOs have compliance experts who stay on top of the tremendous number of changes in labor laws, regulations, and health care. It has become increasingly difficult for companies to stay abreast of these changes on their own. Annually these changes can accumulate and the lack of implementation can pose a serious threat to a company in the form of penalties or additional company catch-up costs to comply. Recently, we have seen this problem alone become the primary reason for companies to partner with PEOs.
A Professional Employer Organization (PEO) can help solve small problems before they become large ones. Companies benefit from the gained time to focus their time on their “core competency” rather than wasting precious working hours on these issues the PEO can handle. Sharing this responsibility with the PEO often results in increased productivity.
5. BUSINESS SCALABILITY:
A Human Capital organization such as a PEO has the infrastructure to handle a wide array of companies, typically from 5 to 500 employees or more. If your company is a start-up with 4 to 5 employees, in growth mode, or a more established company with 150 employees, the PEO infrastructure can handle up- or down-scaling with minimal impact on your business.
As the PEOs grow their presence, it has become increasingly difficult to find and select the right one for your organization from among more than 700 currently operating in the US. The Huldisch Group (PEO broker) is here to help you bridge this gap at no additional cost to your firm. We act as your advocate to find the right match.