Large-company benefits for small business
One key advantage of the PEO relationship is that you become part of a larger group for employee benefits purposes. This enables you to take advantage of the economies of scale achieved through the large number of client employees on the benefit plans of the PEO.
The most important employee benefit is usually health insurance, and a good plan with good rates can be critical in attracting and retaining top talent. The PEO is generally able to provide more plans for the employees to choose from, and with premiums lower than what you can obtain on your own in the open market. The PEO also handles the administration of the plan, so you don't need to worry about adding and removing employees from the plan, paying the invoice, handling renewals, or fielding insurance questions from your employees.
The PEO also enables you to offer large-group dental, vision, supplemental (AFLAC, etc.) insurance, and a 401k.
Offering a 401k on your own entails significant initial and ongoing expense for plan documents, annual testing and reporting, along with the fiduciary liability of sponsoring your own plan. The PEO removes all the cost and liability, while still enabling you to customize the plan in terms of matching contributions, vesting schedule, Safe Harbor options, etc.
Offering a 401k on your own entails significant initial and ongoing expense for plan documents, annual testing and reporting, along with the fiduciary liability of sponsoring your own plan. The PEO removes all the cost and liability, while still enabling you to customize the plan in terms of matching contributions, vesting schedule, Safe Harbor options, etc.
Workers Compensation
If you are in a higher-risk industry, the savings possible through the PEO relationship can be significant. PEOs can often provide workers comp premium savings over your own plan for several reasons:
If your business is strictly clerical, the possible savings will be limited. But for all other groups, the workers comp advantage is reason in itself to consider a PEO.
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Employment Law Compliance
Countless business owners have discovered employment law compliance deficiencies only when it is too late, via a Department of Labor audit, EEOC complaint, or employee lawsuit.
Even companies with only a few employees have exposure to significant liability, particularly through the Fair Labor Standards Act. Commonly known as “wage & hour,” the FLSA is the greatest area of exposure for most businesses. While minimum wage and overtime compliance seems simple on the surface, there are thousands of plaintiffs attorneys making a good living because of that assumption. Misclassifying employees as exempt from overtime is a common violation, and one that leaves employers subject to significant claims and attorneys' fees. Lack of a good timekeeping system and policies is often a contributing factor to this liability, but those are also easily remedied by the PEO relationship.
The exposure to employment claims increases rapidly once you exceed the 15-employee mark, when Title VII, Americans with Disabilities Act, etc. are now an issue, and additional laws apply when you reach 20 and 50 employees. |
The following infographic just lists the federal laws affecting employers. Every state has its own employment laws, varying in the degree of burden that they impose. California and the northeastern states are justifiably notorious for the burden placed on employers.
Fortunately, we at PEO Counsel can help you identify a PEO with the state-law knowledge you need to navigate the minefield and minimize your exposure. |
Integration of HR functions and consolidation of vendors
With a PEO, you will have an integrated approach to HR, and will no longer need to worry about whether your payroll system communicates with your employee benefits vendors and workers comp carrier. You will reduce the considerable number of vendors you need to manage as they will be consolidated under the PEO. All this results in more time for you to grow your business (or spend productively in other ways, like a much-needed vacation).
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