PEO – Frequently Asked Questions
What is a PEO / Employee Leasing Agency?
PEO stands for Professional Employer Organization. They are also known as employee leasing companies and co-employment models. Employee leasing services have been in existence for over 30 years. These services have been widely used by the contracting industry to help save money in direct labor costs, as well as manage payroll taxes, and reporting requirements mandated by state and federal authorities. Employee leasing has been legally defined as a co-employment relationship. The client continues to maintain the directing and supervisory role of their business, and uses the PEO to outsource the administrative functions associated with the employees. To the employee, the relationship is invisible. Your employees will always look to you and your company as their employer and not to the employee leasing firm.
Who uses a PEO?
Any business can find value in a PEO relationship. A typical PEO client is a business with 30 work site employees. PEOs have now got the attention of larger companies, 100 + employees, due to the complex reporting mandates of the ACA, as a means of offering ACA compliant plans. PEOs work in conjunction with the client’s existing HR departments too. Clients include many different types of businesses ranging from accounting firms, high-tech companies and small manufacturers. Many different types of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.
How Does Employee Leasing Save Money?
Employer’s direct labor costs are Gross Wages, FICA taxes, FUTA taxes, SUTA taxes plus workers compensation insurance, and possibly general liability insurance premiums. All taxes are calculated as a percentage of gross wages. FICA taxes are 7.65%. FUTA taxes are 0.80%. SUTA taxes vary from client to client and from state to state. Insurance premium charges also vary in the same manner. The total of all these charges levied against gross wages is the labor burden.
An employee leasing agency with a large payroll, spread over several clients, can buy insurance in the private market at much deeper discounts than the average company can achieve on its own. The leasing firm passes a portion of that savings to their client.
For instance, a company paying a total labor burden rate of 18.5% on their gross annual wages would break down their costs in this manner:
Work Comp 6.05% (1.2 EMOD)
In this example, if the client company used employee leasing, the contractor could expect a 2.0% reduction in their overall rate. On $1,500,000.00 in payroll, that is $30,000 back in the client’s pocket. Savings like that would go along way to boost working capital. In addition, there won’t be any year-end audits, nor up front deposits to drain cash flow. This is a pay as you go program.
What Does the Service Cost?
The service is included in the total labor burden quoted. The employee leasing firm will provide payroll production, all federal reporting, workers comp claims edministration, workforce commission hearings, employment commission filings, W2 printing and distribution, and reports needed for their workforce needs. The fee associated with these services is expressed as a percentage of your gross annual payroll, and is based on many different factors. However, the average fee rate will be between 2.5% & 4.5% depending on the prior loss history.
Why would a Business Owner want to use a PEO?
Business owners need to focus their time and energy on the “business of their business” and not on the “business of employment.” As businesses grow, most business owners don’t have the necessary human resource training; payroll and accounting skills; knowledge of regulatory compliance; or background in risk management, insurance and employee benefit programs to meet the demands of being an employer. By outsourcing most employer responsibilities and liabilities to experts, a business owner is able to refocus on bottom line activities. The client will experience: (1) Reduction in labor burden cost. (2) Reduction in time and money spent fighting workers’ compensation and unemployment claims. (3) Reduction in costs and time expended on payroll and administrative related functions, and government regulatory requirements.
Why would an employee want to participate in a PEO?
Workers seek financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. PEOs can provide Fortune 500 quality benefits including health insurance, 401k savings plans, and aggressive workplace risk management. Job satisfaction and productivity increases when workers are provided quality human resource services like employee manuals, grievance procedures, and improved communications.
What If My Employee Gets Hurt?
Because the client is a co-employer with the leasing firm, the client is now eligible to become a named insured on the leasing firm’s master workers compensation policy. The policy carries a $1,000,000.00 per occurrence limit with a $2,000,000.00 aggregate limit. If your employee is hurt on the job, the client will notify the leasing firm by telephone and through faxed injury reports. The leasing firm will authorize medical care at a local treatment center. The claim will be turned over to the third party administrator for the carrier. The third party administrator pays the bills and manages the claim until its resolution.
What Documentation Is Required To Quote?
Getting a quote is a simple process. First, the Client Company would provide the declaration page of their work comp policy. The declaration page lists out the client’s workers comp class codes, rates, experience modifiers and any other discounts that the client may have received. In addition, the client will provide the employment commission tax form to verify their SUTA rate. It would be helpful if the client provided their loss runs for workers comp and general liability. The information provided is held in strict confidence, and if requested the material will be returned after the bid is completed. Some clients may want the leasing firm to bid without the information requested. In such case, the Client Company can provide the leasing company with as much information as possible. Quotes can be done over the phone, by fax or by email. However, the best way to receive a preliminary indication, is to utilize our totally free E-Quote system. We specifically designed this system for our clients, who would like to know what to expect going into the first meeting. The E-quote system has the ability to gather your company’s information, and deliver to you an indication of the typical labor burden rates you should expect to receive from a PEO. However, our staff will go wherever the client is, and meet them whenever they can regardless of the time.
What is the difference between a PEO and a Staffing Firm?
A PEO or co-employment arrangement involves all of the client’s existing worksite employees in a long-term, non-project related, employment relationship. If a PEO relationship is terminated, the co-employees will cease to work for the PEO, but will continue as employees of the client. By comparison, a temporary or staffing service supplies new workers on a temporary or project-specific basis. These borrowed employees return to the staffing service for reassignment after completing their assignments.
Who Maintains Control of the Employees?
You do- The Client Company.
Is my company locked into a long-term commitment?
No. Most PEOs allow you to cancel your contract with a 30 day notice.
Can I print checks at my office?
Yes. Most PEOs will allow you to print your own checks, if you have a laser printer and are connected to the internet.
Can our company name be on the checks?
Yes. If you feel that you need your name on the checks, it can be arranged with the PEO.
Do PEOs work in Union Shops?
Yes. PEOs work great in union settings too.
What benefits do PEOs offer?
Read more about benefits of PEO
Can I get payroll turned around in 24 hours?
Yes. PEOs can process payroll and ship it to you for same day delivery. You are also able to set whatever pay cycles you wish.
What if my company has many types of deductions for its employees?
PEOs are are staffed by payroll experts- They’ve seen it all and any deductions will not be a problem.