| In this article, PEO Services 101, we review three main | | | | can potentially bring on a company with high risk, which |
| services offered by Professional Employer | | | | inevitably effects the rates all clients pay. |
| Organizations; Employee Benefits, Payroll, and Tax | | | | Payroll and Tax Administration |
| Administration. | | | | Many Professional Employer Organizations offer a |
| We remain general in our description in order to | | | | payroll platform second to none, giving clients the ability |
| account for the various differences in how PEOs | | | | to report payroll via phone, fax, or online. Many offer |
| structure themselves. Each structure has its own set | | | | direct deposit, paperless checks, and state of the art |
| of pros and cons, and each should be weighed | | | | time-clocks. Most PEOs integrate all payroll data into |
| carefully when evaluating vendors. | | | | an HRMS system in order to generate various reports |
| We will also explain how each service relates to | | | | and to track vital employee information such as hours |
| coemployment, the concept that makes PEOs unique | | | | worked, over-time, vacation accruals, sick days, W-4 |
| from all other HR Outsourcing service providers. | | | | information. |
| Big Company Benefits and Administration | | | | Most readers are thinking, this isn't so special, all of |
| Professional Employer Organizations usually offer an | | | | these payroll functions can be offered by a normal |
| employee benefits package that is comparable to that | | | | payroll company that charges cents on the dollar |
| of a Fortune-500 firm. The PEO originates the | | | | when compared to a PEO. However, the real value is |
| package, and manages all aspects of its administration | | | | driven through coemployment, specifically how it |
| including carrier negotiation, billing reconciliation, | | | | pertains to payroll taxes. |
| employee enrollments & inquiries, etc. In many cases | | | | Coemployment factor: Through a coemployed |
| the PEO's customer service representative actually | | | | relationship the PEO takes on most fiduciary |
| becomes the first point of contact for all employee | | | | responsibilities pertaining to managing employees, this |
| benefit concerns. This way the employer isn't bogged | | | | includes the management of payroll taxes. Not only do |
| down in administration, and can remain focused on | | | | PEOs deduct and remit all tax payments to the |
| their core competencies. | | | | appropriate governing body, they take on the risk of |
| Professional Employer Organization Benefit Packages | | | | making payments on-time, and in the right amount, |
| often include: | | | | since they are operating under their own state tax |
| - Medical Insurance | | | | identification number for all of their clients with |
| - Dental & Vision Insurance | | | | employees in that particular state. |
| - Group Life Insurance | | | | This means that if one of your employees is |
| - Short-Term & Long-Term Disability | | | | terminated and takes unemployment, it is the PEO that |
| - Flexible Spending Accounts | | | | must administer and/or fight the claim. If the |
| - 401k Plans | | | | unemployment benefit is granted by the state office, |
| - Qualified Transportation Benefits | | | | the PEO's unemployment rate is effected, not the |
| - Employee Assistance Programs | | | | client's. Why is that good? The PEO could potentially |
| - Employee Discount Programs | | | | have thousands of employees working in any given |
| Coemployment factor: Through coemploying with each | | | | state, therefore a single unemployment claim doesn't |
| client PEOs essentially form one large conglomerate; | | | | affect the PEO's future state unemployment rate quite |
| they then use their economies of scale to purchase | | | | like it would for a company of 20 employees. |
| health insurance and other benefits collectively. Often | | | | However, as with medical benefits, there is a potential |
| they provide their clients significant healthcare savings, | | | | downside, if a PEO doesn't manage claims well, or if |
| as negotiating for 50,000 employees is easier then | | | | they cater to an industry with historically high |
| negotiating for 50 employees. If a PEO properly | | | | unemployment rates, it will affect the rates of the |
| manages their risk, they can save clients enough | | | | PEO's entire client base. |
| money on medical insurance that the savings will | | | | A fun anecdote to understand the coemployment |
| offset their administration fee, and perhaps more. | | | | concept; if a rock is thrown into a bathtub (a single |
| Healthcare savings of 20% or more on medical | | | | company's state unemployment standing), a lot of |
| insurance is not uncommon. | | | | water will splash out, and there will be a messy floor. |
| On the flip side, since a PEO is essentially one large | | | | However when a rock is thrown into a swimming pool |
| company, the loss ratio of each client ultimately affects | | | | (the PEO's state unemployment standing), there is |
| the entire group. Be wary of a PEO that performs | | | | enough water to absorb the splash, and very little |
| minimal due diligence before accepting you as a client, | | | | water is displaced! |
| if they simply let any company into their group, they | | | | |