What is a PEO?
A Professional Employer Organization (PEO) is a firm that provides a service under which an employer can outsource employee management tasks, such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. The PEO does this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes. This practice is known as co-employment.
What are the pros and cons of using a PEO?
There are pros and cons for PEOs based on what are the actual needs of a company. This used to be the primary vehicle for small companies to get everything from one place. This means that your employees become the PEOs employees. This means you must follow the PEOs rules on hiring, handbooks, terminations, etc. It also means that your employees are now employees of the PEO (called joint employer) and everything is filed under the PEO (wages, taxes, workers compensation, etc.). The PEO makes sure to protect themselves against any wrong doing of your organization.
A) Workers Compensation Insurance
- PRO – If your organization has had multiple years of bad claims and is facing large increases. If this is the case you would go “hide” in a PEO for approx. 3 years in which case your Modification rating would like be reset to a new company.
- CON – If your organization is new or has good claims experience that you are now paying for those “bad” companies to offset that risk pool.
B) Medical Insurance
- PRO – If your organization is willing to pay at least 50-91% of the employee’s premium and has high risk/cost employees in past 2 years facing large increases or is a new organization. If this is the case you would go “hide” in a PEO for couple of years until your risk levels went away.
- CON – If your organization is new or has good claims experience that you are now paying for those “bad” companies to offset that risk pool. Additionally, some PEOs carve you out so you don’t get the benefit of lower rates and they just administer the plan for you.
C) Unemployment Tax
- CON – This used to be a pro if your company had high claims you could hide for 3 years and your rate you reset. This is no longer the case due to SUTA Dumping laws now in place as of 2012.
- CON – When you leave if you are a new organization you may not have benefited from the good claims experience thus reducing your rate from the being 2.7% to a lower number. You might in fact face increases if your part of their starting pool group and those companies have bad experience.
D) Consolidation of Services
- PRO – If your organization is a start up this was the easiest way to get things going if you are small. There were no other options prior to get help managing everything around HR and payroll.
- CON – Your organization if run properly won’t get the benefit of good experience ratings.
- CON – Every time you give an increase or bonus to an employee, if your PEO has you on a PERCENTAGE rate then you are in fact giving the PEO more money to process those checks without the benefit of more services.
How does Audax HR compare to the PEO model of business?
Audax provides many of the same services but does not engage in a co-ownership of employees. Your employees are your employees. Our pricing is simplified as compared to PEO’s which often take percentages and contain hidden fees in the “small print” of your contract. Many of our clients that were previously in a PEO said they felt “nickel and dimed to death.” We are very transparent in costing and in everything we do. Our customer care far outshines that of PEOs, because to us you are not just another number.