What Should I Know About PEOs?

Sandy Alexander 0038I have spoken to several companies about Professional Employers Organizations (PEOs). They often ask me what a PEO does for its clients. PEOs provide administrative assistance to employers with human resources, payroll, benefits, workers’ compensation, and related tasks. PEOs become coemployers with their employer-clients and assume control over many aspects of the employment relationship. Some PEOs even hire the employer’s employees.

Companies joining PEOs may realize cost savings in workers’ compensation and benefits administration, at least initially. Small companies see the most significant up-front savings in health plan costs. Rates increase; however, at the same rate as they do for employers who are not part of PEOs. Moreover, inclusion of the underinsured and uninsured affects rates over time in the same way as it would for any employer. Depending upon how the PEO administers workers’ compensation, companies may or may not realize a savings in their rates.

I make these recommendations to companies interested in joining a PEO:

  • Carefully review the Client Services Agreement (CSA). Many PEO agreements have language indemnifying or fully releasing them from liability for the worksite employer’s actions.
  • Make sure you understand your financial obligations. Pricing can be confusing and is often different from one PEO to another. Employer-clients should be clear about how much they will pay and about what services are included for that price.
  • Ensure the PEO is knowledgeable of state laws and other requirements in the states where you operate. Requirements may be different from the state where the PEO is located.

There is a lot to consider. If you need more information, we can help. We have two FYIs on the topic, Considerations in Joining a PEO and A Guide to Exiting a PEO on our website. Please don’t hesitate to give me a call at 800.884.1328 or email me at salexander@msec.org to discuss this further.