PEO Services 101 – Payroll & Benefits

In this article, we will review three main PEO services offered by Professional Employer Organizations; Employee Benefits, Payroll, and Tax Administration.   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.   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 co-employment, the concept that makes a PEO unique.  

PEO Services Offer Big Company Benefits and Administration

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

Co-employment factor: Since PEO services 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 PEO services that perform 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 co-employment, check out What is a PEO?