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1.     What is a PEO?

A Professional Employer Organization (PEO) is a multi-service provider that allows companies to outsource the management of payroll administration, employee benefits, workers comp insurance, 401(k), and Human Resources under one roof. What ultimately defines and differentiates a PEO  from other HR Outsourcing vendors is the concept of coemployment.

2.     What Companies use a Professional Employer Organization?

In most cases small businesses with US operations that have 5-250 employees. Larger companies with several thousand employees are also known to work with PEOs although it is much less likely as many key facets of the PEO value proposition are diluted as companies get larger. PEO clients come from almost every business vertical. Some PEOs cater to white collar verticals like technology and professional services. Other PEOs cater specifically to blue-collar verticals such as trucking and manufacturing. There are also boutique-like PEOs that cater to start-ups and international companies. The common thread between all PEO clients is the desire to reduce HR liabilities and streamline HR administration. Some PEOs provide employee benefits, many do not; so although improving employee benefits is a very popular entry way to a PEO, it is not always the case.

3.      Can a company save money by using a PEO?

Yes, depending on the situation PEOs have a significant ability to reduce a company’s HR overhead.  PEO’s use their buying power for the cooperative purchasing of items such as  health insurance and workers comp insurance, the most common place PEOs save companies money. PEOs also save companies significant soft cost as PEOs are proven to improve employee retention, increase employee motivation, and reduce employment litigation and legal fees.

4.     How large is the PEO Industry?

There are over 700 PEOs nationwide. The PEO industry has seen steady growth since its inception in the early 1980s.  It is estimated that about 2-3 million American employees are in a coemployed relationship, yet overall PEO industry market penetration is still lower than 2%. Many PEOs  have reported record growth since 2010, which is largely attributed to the onset of Patient Protection and Affordable Care Act (Obamacare). The PEO value proposition gets more valuable as American employers are faced with increased employment regulations and healthcare costs.

5.     Do business owners loose control of their employees when they use a PEO?

No. PEO clients retain ownership of their company and have control over its operations. Through coemployment, PEOs and clients essentially split the responsibilities of employing a workforce. The PEO will become the “employer of record”, which means all back office functions associated with HR are performed by the PEO. For example the PEO files all clients’ payroll taxes under its own tax ID #s. The PEO will sponsor the health insurance plan that is offered to employees, which means they are responsible for its administration and compliance with all regulations, including Healthcare Reform. Under coemployment the PEO client will become the “work-site employer” which means the client still controls, among many other things,  employee job functions, hours of operation, hiring and firing.

Shopping for Professional Employer Organizations (PEOs) in New York? Check out these 3 tips before making a decision.

In the last 10 years, New York has transformed from a barren desert to a thriving ecosystem in terms of PEO market penetration. Almost every national PEO has a foothold here, and there are also some interesting boutique players making ripples as well. Options are a good thing, but they also increase the risk of getting into bed with the wrong vendor. Be mindful of these tips when considering New York PEOs.

Tip #1:  If you have less than 50 employees enrolled in healthcare and you haven’t received multiple quotes from the PEO industry, you need to do so. We’ve helped some New York companies save 50% on their health insurance overnight.

New York’s health insurance market for small business (less than 50 employees) is community-rated. This basically means that your company’s health insurance rates have almost nothing to do with your company’s demographic makeup, which is the crux of what real health insurance underwriting is all about (younger people are usually healthier = less use of healthcare = less price for healthcare).

Professional Employer Organizations coemploy with their clients, which essentially allows them to form a conglomerate of smaller companies for the purposes of procuring health insurance. Using their buying power and their ability to underwrite and take demographics into account can result in impactful cost savings, or vice versa for an older population.

Tip #2: Use PEO Spectrum’s free PEO Comparison service to quickly shop multiple PEOs.

A 15 minute conversation to cover your company’s goals & challenges, 15 minutes in gathering a few underwriting documents, and the rest is on us.

Based on what you’re looking for, we’ll identify 3-5 top vendors that fit your needs and provide you with a customized financial comparison, as well as PEO reviews, benchmarks, and service comparisons.

If you see something you like, we’ll help guide you through the next appropriate steps; if not, you at least know you’ve done your homework.

Tip # 3: Keep your eye on the State Unemployment Rates that a PEO quotes.

One of the biggest misconceptions amongst our clients is that ‘taxes are taxes’ and that each PEO will charge equally for tax obligations. Although this may be true for Federal payroll taxes, it is most certainly not for state unemployment payroll taxes.

PEOs have the ability to adjust state unemployment rates within the statutory limits, which in New York can be anywhere from 1.5% to 9.9% of the first $8500 of payroll for each employee, a $714 per employee difference. This range can increase in other states, especially New Jersey, where state unemployment rates are out of control.

So don’t let a PEO bundle state unemployment rates into a percentage of payroll; be stern and demand transparency!

Companies looking into Professional Employer Organizations (PEOs) in Maryland must consider the 3 Tips in this article before making a decision. Maryland is an extraordinarily unique state for the Professional Employer Organization industry due to a specific state law that is found nowhere else in the United States. Maryland law does not allow Professional Employer Organizations (PEOs) to offer multi-employer healthcare plans to companies with less than 50 employees. This is a complete game-changer for companies that are looking into a PEO as an HR outsourcing vendor.

Hold on a minute! Before we get to the tips, let’s first cover one of the basics of the Professional Employer Organization industry.

What is a multi-employer healthcare plan?

A multi-employer healthcare plan is when a PEO bundles a multitude of companies onto one health insurance policy in order to leverage economies of scale and achieve lower health insurance costs for all of its small business clients. The amount of business on one PEO’s policy can range from a handful to well into the thousands. For most PEO clients, access to a multi-employer healthcare plan is the most important piece of the PEO value proposition.

Tip #1:

• -Don’t look to the PEO industry solely for the purpose of lowering your health insurance premiums if you have less than 50 employees.

The wide range of insurance products and regulatory guidance that PEOs provide to small businesses can certainly lessen the administrative burden and inherent risk of offering a benefit package to employees. However, Maryland law forces PEOs to offer plans equivalent in price and description to those found in the Maryland small business open market; essentially, the same plans and rates a business can find through a normal health insurance broker.

Tip #2:

• -Understand every aspect of your PEO expenses (the differences between necessary payroll taxes, optional healthcare costs, and tricky PEO administrative fees) and use this knowledge to get the best price.

There are a few big name PEOs out there that have non-transparent billing practices. Often these PEOs will bundle a client’s health insurance costs, administrative fees, workers comp insurance, and taxes into one large percentage of payroll. This method is great for simplicity, and doubly great for a PEO that wants to make a ton of money on their clients. Ask for a complete break-out of your bills from your PEO and request that your administrative fee be structured as a flat dollar amount per employee per check instead of a percentage of payroll.

Tip #3:

• -Complete a PEO Competitive Analysis at least every two years

Professional Employer Organizations are some of the most complex vendors that a small business will work with, but their services keep our businesses running smoothly and reach far into the lives of our employees and their health insurance. This multitude of moving parts makes shopping and comparing PEOs an exhausting process for most companies, even causing some companies to never assess and compare their PEO.

PEO Spectrum’s Free PEO Comparison was created to answer this need. Our mission is to create educated PEO customers throughout the country, including the state of Maryland!

We shorten the PEO shopping process from multiple weeks to about an hour of time and help clients save up to 30% off their PEO costs each and every day. Give us a call today to learn more about PEOs and how to get the most out of them.

Recently Empire Blue Cross Blue Shield has announced reducing the plans available to New York’s small business market. More recently we published an article describing our opinion on the factors that lead to Empire’s decision, which will change the New York health insurance landscape for small businesses.

Now let’s learn how small businesses in New York that want to keep Empire can do so and how.

Professional Employer Organizations

PEOs provide HR Outsourcing services to small companies usually with 10-100 employees and have been operating in the US for about 30 years. Typical PEO Services include payroll services, HR services, workers compensation insurance, 401(k) plans, and health insurance. However it is the concept of Coemployment that allows PEOs to offer Empire to small businesses.

A Moment on Coemployment

Coemployment is what differentiates PEOs from your everyday payroll service provider or HR outsourcing company. Here is how it works: Company ABC and PEO ABC agree on a relationship whereby both companies employ the employees of Company ABC and split the various responsibilities of being an employer. Company ABC will be considered the worksite employer, and will retain all responsibilities of managing employees in their day-to-day activities: when to show up, what to do, how much they’re paid, etc. PEO ABC will be considered the employer of record, and will be responsible for filing payroll taxes, managing unemployment and workers comp claims, as well as administering the employee benefit plans.

Through coemploying with all of its clients, a PEO forms a conglomerate comprised of its many small business clients in order to create operational efficiencies and more importantly, gain leverage and bulk buying discounts in the procurement of health insurance. PEOs typically contract with a sole health insurance carrier and drive all of their clients to working with them. This allows them to leverage the law of large numbers, and spread risk over exponentially more subjects. So instead of being a 20 person company standing alone and dealing directly with a health insurance carrier, PEO clients are a part of 100,000 employee group dealing collectively with a health insurance carrier.

So how can PEOs offer Empire to Small Businesses?

When a small business coemploys with a PEO, they technically become a part of a multi-thousand employee company and for various purposes they are no longer considered a small business. In New York most PEO clients are considered to be large employers and are therefore subject to the regulations beset upon the New York Large Group market. Empire Blue Cross Blue Shield still offers a full breadth of health insurance plans for Large Groups in the state of New York, and therefore most PEO clients will have access to them. It must be noted that Large Group underwriting practices are different from those belonging to Small Group in New York, and depending on each specific company this will create favorable or unfavorable conditions. Do not jump about whether a PEO is right for your company, we recommend dealing with a sourcing advisory service like PEO Spectrum where you will have access to unbiased information on multiple PEOs instead of meeting directly with each PEO as this will be very time consuming. All PEOs are not created equally, and all PEOs do not provide access to Empire.

We welcome our readers to contact us at PEO Spectrum in order to arrange a free PEO analysis to determine whether a PEO will work for your specific company and to compare multiple PEOs simultaneously in order to gain the optimal vendor-client match.

Empire Blue Cross Blue Shield has long been one of New York’s premier small business health insurance carriers. Known for an expansive network and fairly priced EPO products, Empire is a household name that New York’s employees recognize and desire.

As of April 1st, 2012 Empire is reportedly reducing the amount of plans available to Small Businesses, which in New York includes all employers with 2-50 employees enrolled in healthcare. The overriding sentiment in the broker community is that the policies planned for discontinuation are of the most desired by their clients: Empire EPO Stepped, Empire EPO Essential Options 1-9, Empire Prism EPO, amongst many others.

Why is Empire leaving the Small Business market in New York?

Three terms can sum this up: Profitability, Community-Rated, and Guarantee Issue.

Profitability: Actually earning money after covering costs

Community-Rated: Applies to all New York small employers with 2-50 employees enrolled in health insurance. It means a health insurance carrier must base the rates it gives to a company largely off of the overall health and welfare of its surrounding community, in this case, all Small Businesses in New York. This is the opposite of underwriting, which includes collecting information on the employee population of a company in order to assess the risk that specific company presents from a health insurance perspective and assigning a set of rates that reflects that specific risk. Underwriting is still allowed for Large Groups with over 50 enrolled employees.

Guarantee Issue: Applies to all New York small employers with 2-50 employees enrolled in health insurance. It means a health insurance carrier must offer insurance to all qualified companies that approach them. Health Insurance is not guarantee issue for Large Groups with over 50 enrolled employees.

The latter two terms create a perfect storm for obliterating a health insurance carrier’s long term profitability. They essentially abolish the two biggest tools an insurance company has to defend the cost of service for its existing client base: Choice, and Mathematics.

So … Why is Empire leaving the Small Business market in New York!?

Quite simply, they can’t turn a decent profit, or rather their desired profit, in New York under the Small Business market conditions. So they face a decision:  remain in an environment where they are stripped of their ability to properly underwrite risk and lose millions upon millions, or bail on the Small Business market, and reinsert themselves in an environment that is more opportunistic for profitability; namely New York’s Large Group market along with the help of the Professional Employer Organizations.

Check out part 2 of this article which describes the coupling of a PEO with Blue Cross Blue Shield.