Spending too much on recruitment, payroll or global HR?
Small and medium businesses (SMBs) often face an uphill battle when competing with large enterprises with seemingly unlimited resources. While these smaller businesses may have unique and important things to offer the market, they can struggle to attract top-performing employees who can help them succeed in their ventures. By working with Professional Employer Organizations (PEOs), however, they can manage their employees’ HR needs professionally and offer them enterprise-level benefits.
PEO insurance represents all the different types of insurance that clients can offer their employees as supplementary benefits when they partner with PEOs. By doing so, they make themselves more attractive and competitive, increasing their chances of success in even the most challenging markets.
What is a PEO, and How Does it Relate to Insurance?
A Professional Employer Organization is a service provider that helps you take care of your employees by acting as a co-employer. Whether you’re employing a distributed team across several states or you own multiple entities around the world, you can outsource most of your HR functions to a PEO. In this arrangement, the PEO will typically:
- Run your payroll and pay your employees
- Administer their mandatory benefits like annual leave and public holidays
- Manage contributions to mandatory social security programs from you and your employees
- Withhold your employees’ personal income taxes and remit them to the relevant tax authority
- Provide tools to help you record time and attendance data
- Ensure that your business maintains compliance with labor and tax laws
- Onboard new employees, including adding them to your payroll and registering them with the authorities
- Report to tax and social security authorities as required on your behalf
- Process workers’ compensation claims when they are filed
- Generate compliant contracts for you to enter into with your employees, storing and managing these contracts for you
- Some PEOs also provide recruitment services, helping you source the talent you need in various locations.
One other crucially important service that PEOs provide, and the subject of this article, is offering supplementary benefits that you can choose to give to your employees. These additional benefits are generally used to improve your compensation packages to make them competitive and more attractive so you can attract and keep top talent for your company.
Among the supplementary benefits that many PEOs offer are private pension funds, employee stock option plans (ESOPs), and various kinds of private insurance.
While our focus here is on PEOs in the United States, including certified PEOs, it is also common for global PEOs to handle employee insurance.
What is PEO Insurance, Specifically?
In simple terms, PEO insurance is any coverage provided by PEOs to their clients and clients’ employees. This can include vision, dental, wellness, disability, retirement, life, and pet insurance, as well as workers’ compensation and employment practices liability insurance (EPLI) to protect them from claims.
Health insurance is the most common form of insurance offered by PEOs because, in many countries, healthcare coverage isn’t public and universal. Instead, most working people depend on private health insurance coverage provided by their employers. In many jurisdictions, employers are required to provide health insurance options for their employees.
For example, in the US, employers with 50 or more employees must provide health coverage to their qualifying employees, according to the Affordable Care Act.
How Does PEO Insurance Work?
When you partner with a PEO to manage your workforce, it takes on responsibility for managing your employees. In many jurisdictions, including the US, the PEO actually uses its tax identification number, not the client’s, to report employee earnings. Thus, it takes on responsibility for these employees as if they were its own.
When it comes to providing them with benefits, the PEO can offer insurance plans to all of its clients at the same time. By putting all of these employees together, PEOs can create enterprise-size employee pools and use them to shop for affordable prices from insurance providers that lower their rates when their risk is spread over larger groups.
The PEO takes care of monitoring which employees are eligible for coverage of different kinds and enrolls participating employees. As part of payroll processing, it also deducts employee contributions if needed and pays them to insurance plan providers.
What Are the Benefits of PEO Insurance?
There are some clear benefits to using PEO insurance when employers partner with Professional Employer Organizations. These include:
| ✓ Affordable Prices | Because they work with large numbers of employees, PEOs can leverage these groups for strong negotiating power with insurance providers. This normally results in far lower rates than any of their clients could negotiate on their own, and lets them access quality benefits plans that wouldn’t normally be available to them. |
| ✓ Smooth Administration | PEOs work as a mediator between insurance providers and their clients. It takes on the responsibility for managing compliance with all insurance regulations and ensures that payments are properly calculated and remitted on schedule. |
| ✓ Happier Employees | Quality workers are more likely to apply for jobs that they know offer solid benefits packages. They’re also much more likely to stay with you when they’re receiving great benefits at highly competitive rates. |
What Are the Drawbacks of PEO Insurance?
Although there are clear benefits, PEO insurance isn’t the right choice for every organization. Its downsides can include:
| ✗ Limited Choice | Your PEO will collect all the employees it manages into large group plans that are pre-negotiated with providers. This means you have limited plan options and, though coverage may be affordable, it might not match your employees’ needs well. |
| ✗ Fluctuating Costs | If your employees are grouped with those from higher-risk industries, they might find that their plan premiums go up if a lot of claims are made in the group. |
| ✗ Data Security Risks | When you share your employees’ data with a PEO, rather than directly with insurance providers, there’s an increased risk that it could be intercepted and misused. It’s important to look for PEOs with high levels of security and extensive certifications. |
Get the Best Deal on PEO Insurance, with RemotePad
When you partner with a PEO, you can often access high-quality, affordable benefits for your employees that can help make you an ideal employer. For an additional fee, your PEO will administer insurance plans for you, ensuring compliance while letting you show your employees how much you value them.
To get the best deal on insurance for PEO employees, get in touch with us here at RemotePad. We connect businesses with the best PEOs for insurance provision.
Frequently Asked Questions
You could try to set up plans on your own instead, though your negotiation power with insurance providers will be comparatively limited as an SMB. HRAs (health reimbursement arrangements) are an alternative that lets you set a budget for coverage and then have your employees choose their own plans according to their needs.
If you already work with a PEO, simply request a consultation to find out what kinds of insurance it offers, plan options, and rates. Choose your plans and the PEO will handle the rest.
