| PEO Services 101 In this article, PEO Services 101, we will review three main services offered by Professional Employer Organizations; Employee Benefits, Payroll, and Tax Administration. Workers Comp Insurance will be covered in PEO Services 102, and Human Resources will be covered in PEO Services 103.
We will remain general in our description in order to account for the various ways a Professional Employer Organization can structure themselves, and how each structure can result in differences in how service is delivered to clients. To learn more about these differences, check out Differences in PEOs.
Also, in order to discern between how a PEO provides these services and how, for example, a company can use various vendors to piece all of these components together, we will explain how each service relates to coemployment, the concept that makes a PEO unique.
Professional Employer Organizations usually offer an employee benefits package that is comparable to that of a Fortune-500 firm. The PEO originates the package, and manages all aspects of its administration including negotiation, payment and billing reconciliation with insurance carriers, employee enrollments, etc. In many cases the PEO's customer service representative becomes the first point of contact for all employee questions about their benefits, this way the employer doesn't get bogged down in administration, and can remain focused on their business. A good PEO will come to their client's worksite(s) to explain all benefit programs to employees prior to enrollments.
Benefit packages most Professional Employer Organizations offer will include:
- Medical Insurance
- Dental & Vision Insurance
- Group Life Insurance
- Short-Term & Long-Term Disability
- Flexible Spending Accounts
- Qualified Transportation Benefits
- Employee Assistance Programs
- Employee Discount Programs
Coemployment factor: Since PEOs combine their clients into one large conglomerate, they have more purchasing power than a smaller company when negotiating with health carriers; this usually means a reduction in health premiums. In fact, if a PEO properly manages their risk, they can save clients enough money on medical insurance that the savings will offset their fees, and perhaps more.
On the flip side, since a PEO is essentially one large company, the Loss Ratio of each one of their clients effects all of the others; so be weary of a PEO that performs minimal due diligence before accepting you as a client, if they simply let any company into their pool, they run of the risk infecting the entire pool, which means all clients suffer. Although most PEOs do not operate as such, there are always the bad apples. For more on coemployment, check out What is a PEO?
Many Professional Employer Organizations offer a payroll platform second to none, giving clients the ability to report payroll via phone, fax, or online. Many offer direct deposit, paperless checks, and access to state of the art time-clocks allowing employees to clock-in online, in person, or even through bio-metric scanners. The time-clocks should interface directly into an HRMS system, also offered by many PEOs. A good HRMS system should track all employee information including hours worked, over-time, vacation accruals, sick days, W-4 information.
Most readers are thinking, this isn’t so special, all of these payroll functions can be offered by a normal payroll company that charges cents on the dollar when compared to a PEO. However, the real value is driven through coemployment, specifically how it pertains to payroll taxes.
Coemployment factor: Through a coemployed relationship, a PEO is responsible for all payroll tax deductions and remittances to the appropriate authorities for all of its work-site employees (work-site employees = the total of all a PEO's clients’ employees). As a result, the PEO maintains its own standing with each state as far as state unemployment tax is concerned.
This means that if one of your employees is terminated and takes unemployment, it is the PEO that must administer and/or fight the claim. If the unemployment benefit is granted to the employee by the state office, the PEO’s unemployment rate is effected, not the client’s. Why is that good? The PEO could have thousands of employees working in that state, therefore a single unemployment claim doesn’t effect the PEO’s future state unemployment rate quite like it would for a company of 20 employees.
However, as with medical benefits, there is a potential downside, if a PEO doesn't manage claims well, or if they cater to an industry with historically high unemployment rates, it will effect the rates of the PEO's entire client base.
A fun anecdote to understand this; if a rock is thrown into a bathtub (a single company’s state unemployment standing), a lot of water will splash out, and there will be a messy floor. However when a rock is thrown into a swimming pool (the PEO’s state unemployment standing), there is enough water to absorb the splash, and very little water is displaced!
For more information on Professional Employer Organization services, check out PEO Services 102.
To determine whether a PEO is right for your business, or whether you're getting the best deal with your current vendors, contact PEO Spectrum for a free vendor comparison and labor cost analysis.
| | | “PEO Spectrum is revolutionary for this industry, I’ve started and managed multiple businesses over the years and I’ve always used a PEO. Last year we got an increase from our PEO and de” | | | | |
|
.png){kind=small}
