Unless you’ve been living under a rock the last few years, you’ve probably heard about Professional Employer Organizations. It’s likely either you were approached by one directly or maybe your insurance broker mentioned it to you. By the way if you have an insurance broker and he/she hasn’t mentioned one to you - it’s time for a new broker. Nevertheless, PEOs provide an immensely valuable service for small businesses including payroll, employee benefits, workers’ compensation and HR compliance.
PEOs are great but is one right for your organization? Well, that depends on what challenges your company faces, so let’s take a look at what PEOs do, how they help businesses and what they will take off your plate. So let’s look at what two scenarios, one without PEO, and one with PEO. Compare the two and you’ll see the difference in how both work.
Every company under the sun with employees has payroll, and it’s likely your largest expense. Most companies use a payroll provider and depending on your company size costs can range from a couple hundred a month to several thousand. All companies must offer employee benefits to avoid fines and more importantly if they want to attract the right kind of talent. Workers’ Compensation insurance is a law mandated necessity in every state. Otherwise, you will find yourself out of compliance and with significant fines. Human Resources is vital if you want to stay in business, out of legal woes and maintain order in your organization.
Your company will utilize a third party provider to process your payroll, pay your employees, remit state and federal taxes and prepare your year-end tax reporting including W2s and 1099s.
A PEO will process your payroll, pay your employees, remit state and federal taxes and prepare your year-end tax reporting including W2s. Because in a PEO your employees are co-employed for taxation and benefit purposes. The PEO legally has to do your payroll; the taxes are paid under the PEO’s Tax ID numbers and payroll is guaranteed by the PEO.
Typically companies employ an insurance broker or may work with the insurance carrier directly. Depending upon the size of your company in New York, 2-49 employees you are a small group or 50+ employees you are a large group. A small group has limited choices and is community rated, so everyone pays the same rates. A Large group has more choices and the rates depend on the experience of your group - this will change in January 2016, for more information on that change read our blog on it. Companies will handle enrolling their employees and managing all aspects of COBRA management. Open market medical has experienced double-digit renewals year after year and savings often come only in the form of reducing benefits of plans or increasing deductibles.
PEOs work directly with a particular health insurance carrier, so they offer large group employee benefit plan choices. When a company joins a PEO, their employees are grouped together with the employees of all of the client companies of the PEO. Therefore giving the PEO substantial bargaining power for health insurance plans and premiums. Typically PEOs experience single digit renewals, offer a myriad of plans ranging from Cadillac plans to basic plans. The PEO handles all enrollments, COBRA and ensures all aspects of your employee benefits are in compliance.
Companies will either use a broker, obtain coverage through a carrier or utilize the State Insurance Fund to get Workers’ Compensation insurance. Regardless of which path you take to obtain coverage, it’s vital you get coverage, or you will experience fines, fees and trouble from your state. Brokers offer the most options for getting the best choices for Workers’ Comp coverages. Carriers will offer options, but only the coverages they offer. The State Insurance Fund provides only one option and requires a 25% down payment to bind the coverage and requires an annual year-end audit that often results in additional costs.
PEOs have a master Workers’ Compensation policy they offer to their client companies. The PEOs have A+ rated carriers and the policies don’t require any down payment and have no annual year-end audit. The PEO’s Workers’ Comp policies typically offer lower costs and are all Pay As You Go. This means that each payroll takes into account your exact number of employees, and you pay your Workers’ Compensation costs based on your exact number of employees.
HR is important to every company that has employees and lays the groundwork for your organization’s rules and regulations. It gives your employees a clear understanding of your company culture and how to be a part of it. Most companies either assign the HR duties to someone in the organization or have an HR professional to handle HR. Whichever method you employ, it’s important to have an HR solution and plan.
PEOs offer solutions for all aspects of HR. Unless you are a start-up, most companies have some HR in place when you join a PEO they work with you to ensure you are HR compliant. A PEO is not a full-service HR solution, meaning that it will not replace an HR department, but it will establish an HR infrastructure and help offload HR administrative tasks. PEOs keep up on the state and federal regulations and laws because if they miss something and you incur a penalty the PEO handles it.
So there you have it, what every company has to do, how most do it and the difference in being in PEO and not being in a PEO. To sum up everything being in a PEO makes life easier for a company and alleviates the headaches associated with having employees. If you would like to know if a PEO is right for you, let's talk.