PEO is not the answer if you just want cheap health insurance
In the last 5-10 years, the group health insurance landscape has been turned upside down. Double-digit increases, new regulations, fines and penalties, shrinking carrier options, all have contributed to many business owners left scratching their heads for answers. Many trusted advisors, insurance brokers and general agencies have promoted that working with a Professional Employer Organization (PEO) is the easy answer to lower costs and offer Fortune 500 benefits. While that answer may partly be accurate, it is important to explain the “other” more important issues a PEO can solve.
In the late 1980’s when the PEO industry was in its infancy, the idea of co-employment was hard for many to grasp, and more importantly, there were very few to choose from. Today, the industry has greatly evolved and grown to $156 billion in annual revenue. Currently, there are over 800 PEOs operating in the US, each with their suite of services, and hand-picked insurance vendors. Competition has grown fierce, and with that PEOs needed to address more than affordable health insurance options.
The real reason a business should contract with a PEO is more complex. First, the human resources burden and compliance regulations a small business (under 250 employees) must contend with is daunting. The ever-growing list of HR acronyms (ACA, FLSA, OSHA, etc.) is too complex and costly to keep up with. It typically is not cost effective to hire an HR professional in the small business landscape. Most PEOs will help you navigate through these complexities and avoid expensive pitfalls. Secondly, employees have become more litigious in the last ten years. A PEO will help protect your business from an employment related lawsuit through Employers Practices Liability Insurance (EPLI). These policies can be rather expensive for small businesses to purchase but are paramount in protecting the assets of any company.
Finally, and any trusted advisor will admit, it is very important for a small business to reduce their liability. Simply buying insurance policies to reduce liability is not financially feasible, or practical. Through co-employment a PEO is not just a vendor to your small business, more importantly, they act as a partner to help shield you from liability. As the employer of record for payroll, new IRS regulations (SBEA) maintain the PEO to become solely responsible for payroll and tax purposes. Also, because a PEO sponsors the employee benefits, workers’ compensation insurance, and retirement plans they become the responsible party for compliance filing, payment remittance and staying up-to-date with changing regulations.
Overall, most businesses are typically drawn to the idea of a PEO through affordable healthcare options. While this may be true, these companies soon come to realize that PEOs have tremendous merit in effectively and efficiently managing all facets of employment-related activities. With all that being said, it is essential that a company fully research the provider they choose. Longevity, financial health, underwriting practices, and management team are all important factors that will ensure your needs are met.
Shawn has been involved in many facets of the PEO industry for over 15 years. He has extensive experience in sales and sales management, along with owning his own regional PEO. Shawn has familiarity with small start-up PEOs, as well as large national providers. With a background in operations and sales/marketing, his insights and industry knowledge have helped many businesses make successful the transition into the PEO relationship.