HR Outsourcing - PEO Services 102 - Workers Compensation Insurance
In this article we review one major service offered by Professional Employer Organizations; Workers Comp Insurance.
Like other articles we've produced regarding Professional Employer Organizations, we take a general standpoint.
Every PEO is arranged differently, and therefore how they deliver service varies.
We also point out how each service we cover pertains to coemployment, since this is the main concept that differentiates PEOs from all other HR Outsourcing providers.
Workers Compensation Insurance Workers Comp Insurance is pretty cut and dry, when you have W-2 employees, the government requires employers to purchase workers comp insurance.
PEOs capitalize on their economies of scale, and can most likely provide workers comp at a discount for 9 out of 10 small businesses.
Workers Comp insurance provided by PEOs is a "pay as you go" system, which means the PEO calculates the exact amount of workers comp premium necessary for each individual payroll.
Why is this good? It helps companies, especially those with a huge workers comp bill, improve their cash flow.
It is a stark improvement from how a company purchases worker's comp insurance through status quo means, namely, the deposit and audit system.
Coemployment Factor: The underlying concept we covered in PEO Services 101, namely how coemployment effects a company's state unemployment rate, also applies to how workers comp behaves through a Professional Employer Organization.
Basically, when operating with a PEO the employer operates under the PEO's workers comp policy.
So if a claim is filed by an employee, the claim hits the PEO's policy, not yours.
It is not only the PEO's job, it is financially in their best interest to manage all claims efficiently, and more importantly, to instill best practices and perform risk management procedures at your place of business.
If an employer employs moderately risky classification code , a responsible PEO will perform a safety inspection at your facility to make sure you're doing everything possible to prevent workforce injuries.
Another facet worth mentioning is that all Professional Employer Organizations have specific industries they target.
Some focus primarily on white collar business, while some focus on grey or blue collar businesses.
It is not unlikely that a PEO will actually turn down business from a willing customer if they do not fit their particular appetite for risk.
It all ties into the concept of coemployment, and how the risk of each PEO client is shared with the entire group.
It doesn't make sense to put a roofing company, known for high workers comp claims, into a group primarily consisting of white collar professionals that barely make a claim.
So when performing your due diligence, ask about what other clients the PEO has.
For companies with a big worker's comp bill, PEO's sometimes offer an incentive program whereby if you have a good year with no claims, they return some of the premium back to you at the end of the year, we've seen this check equal up to 30% of the entire year's premium, you do the math!
Like other articles we've produced regarding Professional Employer Organizations, we take a general standpoint.
Every PEO is arranged differently, and therefore how they deliver service varies.
We also point out how each service we cover pertains to coemployment, since this is the main concept that differentiates PEOs from all other HR Outsourcing providers.
Workers Compensation Insurance Workers Comp Insurance is pretty cut and dry, when you have W-2 employees, the government requires employers to purchase workers comp insurance.
PEOs capitalize on their economies of scale, and can most likely provide workers comp at a discount for 9 out of 10 small businesses.
Workers Comp insurance provided by PEOs is a "pay as you go" system, which means the PEO calculates the exact amount of workers comp premium necessary for each individual payroll.
Why is this good? It helps companies, especially those with a huge workers comp bill, improve their cash flow.
It is a stark improvement from how a company purchases worker's comp insurance through status quo means, namely, the deposit and audit system.
Coemployment Factor: The underlying concept we covered in PEO Services 101, namely how coemployment effects a company's state unemployment rate, also applies to how workers comp behaves through a Professional Employer Organization.
Basically, when operating with a PEO the employer operates under the PEO's workers comp policy.
So if a claim is filed by an employee, the claim hits the PEO's policy, not yours.
It is not only the PEO's job, it is financially in their best interest to manage all claims efficiently, and more importantly, to instill best practices and perform risk management procedures at your place of business.
If an employer employs moderately risky classification code , a responsible PEO will perform a safety inspection at your facility to make sure you're doing everything possible to prevent workforce injuries.
Another facet worth mentioning is that all Professional Employer Organizations have specific industries they target.
Some focus primarily on white collar business, while some focus on grey or blue collar businesses.
It is not unlikely that a PEO will actually turn down business from a willing customer if they do not fit their particular appetite for risk.
It all ties into the concept of coemployment, and how the risk of each PEO client is shared with the entire group.
It doesn't make sense to put a roofing company, known for high workers comp claims, into a group primarily consisting of white collar professionals that barely make a claim.
So when performing your due diligence, ask about what other clients the PEO has.
For companies with a big worker's comp bill, PEO's sometimes offer an incentive program whereby if you have a good year with no claims, they return some of the premium back to you at the end of the year, we've seen this check equal up to 30% of the entire year's premium, you do the math!