PEO/Employee leasing…What is it?

Professional Employer Organizations (PEO) are one of the best ways for small companies to streamline and lower their operating costs. A PEO in its simplest form is really a large buying group. Not much different from say Sam’s, Costco, or BJ’s. These PEO’s go to the market with their massive buying power and purchase insurance and systems that smaller businesses can tap into. The PEO’s are basically using thousands of small companies to make one large company for purposes of buying insurance and systems. What type of insurance do they buy? PEO’s purchase workers compensation, employment practices insurance, and some offer General liability and Health insurance. The end result is that PEO’s leverage their size to get discounts that smaller companies could not qualify for in the retail market. The PEO’s also take on large deductibles that allow them to manage these programs more effectively. Other PEO’s have gone as far as to start their own insurance carrier for the sole purpose of providing insurance to their PEO clients.

When you partner with the PEO you get access to this buying power. You get discounts or acceptance in many cases where you would not by yourself. In addition you also get built in financing. The PEO only requires a very small amount of money as a down payment. Once set up the PEO then bills the client on a per payroll basis. Subsequently the client gets improved cash flow and a potential for lower overall cost for the workers compensation. With no large out of pocket down payment. Additionally the client company gets access to systems and processes. The PEO does the payroll, handles the taxes, W2’s, quarterly filings, production of certificates, handles the workers compensation audit, manages the worker compensation claims. All this is done from just inputting payroll online. Tons of non-revenue tasks are shifted to the PEO, so the client can focus on what they do best. Run their company. The client is guaranteed in compliance with all state and federal laws.

You can summarize the relationship like this. Think if you went to work for Google. You would get all the benefits that employees at Google receive. In this situation you get all the benefits of being a co-employer with the PEO. You see this is not a sale of insurance but a contractual arrangement. It’s an arrangement whereby the PEO becomes legally responsible for many of the day to day tasks of being an employer. Subsequently the PEO has the obligation and liability to perform these tasks for the client company. They must respond to unemployment claims, assist with HR functions, provide loss prevention, and on and on.

At the end of the day you end up getting more for your dollar. You save time and money but end up with more for what you spend. It’s one of the most effective ways out there for a small to midsize company to stay compliant, handle employees and most important save money.

So what does this all mean to a small business? And why are we sending this email? It means protecting your company from a potential catastrophe by having the right employee insurance in place. And since Workers Compensation is getting harder to obtain and more and more expensive it’s vital to look and consider all options like a PEO. It’s a terrific alternative to the standard market for Workers Compensation.

RISC is here to assist. Email us at [email protected].

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