Workers compensation is one of the largest pain points when it comes to running a business, not to mention expensive. Depending on the state and work classification, business owners could be charged anywhere from 10%-30% in workers comp rates. With rates that high, it’s almost like paying your taxes twice, and who wants to do that? On top of that, business owners also have to be prepared to deal with any workers comp claims. This can be time consuming and additional claims increases the rates, meaning you spend more for the same level of coverage.
Fortunately, there is a better solution for small to medium sized businesses to get more affordable workers compensation insurance. That solution is known as a Professional Employer Organization (PEO). A business owner would partner with a PEO, and outsource the responsibilities of workers comp, human resources, payroll, employee benefits and risk management. The PEO take over responsibility for these areas, allowing the business owner to focus on core operations and scaling their company.
In order to partner with a PEO, the business must enter into a co-employment agreement. This means the PEO becomes the employer of record and leases the employees back to the company. The company still retains control over the day to day, including hiring and firing, but the employees would be filed under the PEO’s EIN.
The PEO can then leverage their size and number of employees by purchasing insurance and employee benefits at a much cheaper price, passing those savings onto their clients. By combining all their client’s employees under one EIN, PEOs are able to provide better health insurance, disability, retirement plans, and other employee benefits that a smaller employer would not be able to afford.
While better employee benefits at a lower price is a selling point of PEOs, the most frequent reason an employer joins a PEO is for better control of the employer’s workers’ compensation cost.
Workers Comp Savings
As stated before, PEOs use economies of scale to purchase workers comp insurance. Most PEOs will have coverage with the large, nationwide workers comp providers. Aside from saving clients money with reduced workers comp prices, PEOs also reduce or even eliminate down payments frequently associated with workers comp.
Employers with high experience modifiers (E-mods) usually benefit the most from partnering with a PEO. Once partnered with a PEO, the client company takes on the experience modifier of the PEO, which is usually significantly lower. This bodes well for clients with an unusual string of claims or a few bad accidents.
Workers Compensation Cost Containment
PEOs lower their experience modifier by pooling together their client’s claims. However, a PEO is often relatively picky since it doesn’t want one client’s poor safety practices raise the work comp rates for all other clients. In order to ensure a low experience modifier, PEOs will sometimes mandate the client company has a safety program.
If the PEO finds out that the client company is not living up to the premises of the safety program, the PEO has the right to sever its business relationship with the client.
PEOs are a great way for small and medium sized businesses to save money on workers comp and other employee benefits. By leveraging the amount of employees PEOs carry, they can purchase works comp insurance at a much cheaper price, passing those savings to their clients. Clients also enjoy a lowered experience modifier as long as they demonstrate that they are being responsible in terms of safety.
Partnering with a PEO like CornerstonePEO may be in your best interest. CornerstonePEO covers everything from HR and employee benefits to payroll and workers comp. Our industry leading PEO services offer innovative, cost effective, easy to understand business solutions for companies of any size and industry. Contact us to learn more.