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Certainly, your first concern is for the health of your employee, but then you start to ask yourself the “what if” questions. What if this turns into a huge claim? What if the Occupational Safety and Health Administration (OSHA) gets involved? What if the employee gets a lawyer and comes after me? What is going to happen to my workers’ compensation insurance costs?
For these kinds of issues, the typical small business owner is pretty much on his or her own and that is not a comfortable position. However, there is an alternative way to handle workers’ compensation and workplace safety — a professional employer organization (PEO).
For the average business owner, the issues of workers’ compensation and workplace safety have become overwhelmingly complex. PEOs can help level the playing field. With the right PEO, a business can have the peace of mind of knowing that an expert is available in your corner and that your costs can be contained.
When a small business partners with a PEO, the small business becomes part of the PEO’s workers’ compensation pool. As a part of a PEO’s workers’ compensation policy, the PEO then has a vested interest in your business and your safety program. This means:
- Potentially lowering the cost of workers’ compensation coverage while raising coverage limits.
- Gaining support of the PEO’s safety experts who will assist with OSHA matters and help develop a safety program with support both on-site and remotely.
- When an injury happens, the PEO steps in to manage the claim from start to finish, making sure that claim abuse is kept in check and the claim is closed as soon as possible.
- Many PEOs also offer discounts, performance rebates and other incentives for running a safe workplace.
- As part of a PEO’s pool, any claims you may have are spread evenly over the pool’s experience, so you are insulated against the likelihood of huge premium increases.
- PEOs tie your workers’ compensation premiums to your payroll, so a small business would “pay as you go.” There isn’t an upfront annual policy deposit or a need for a premium audit.
While these are several of the positives related to using a PEO, there are potential downsides to such a partnership, such as:
- Potential Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Authority (SUTA) tax duplication.
- Possible risk to your business if the PEO mishandles tax, insurance, 401(k) or other liabilities.
- Some PEOs require businesses to sign a one-year contract and the penalties to cancel the contract can be severe.
- A PEO will likely want you to comply with their policies regarding human resources and workplace safety, so you must be willing to comply with the PEO’s advice.
- PEOs usually charge on a per payroll basis in the form of either a set “check fee” or a set “percentage rate.” The fees will vary by business, but the bottom line is that most businesses will likely reduce operating costs by using a PEO. As with any vendor or partner, however, businesses should do the necessary homework before partnering with a PEO. In general, there are five key elements to consider:
- Documentation. Make sure the PEO is willing to provide proof that all tax obligations are being met.
- Performance guarantee. Look for a guarantee that forces the PEO to refund fees if it doesn’t perform as promised.
- Flexibility. You should be able to leave a PEO any time you wish if a PEO doesn’t meet your expectations, but there are PEOs that will want to lock you into an annual contract term.
- References. Ask that your potential PEO provide you with 10 clients as references that they have served for at least five years.
- Research. PEOs must comply with regulations that vary by state, so check with the PEO Industry Associations such as the Professional Administrative Co-Employers (PACE), www.pacepeo.com, and the National Association of Professional Employer Organizations (NAPEO), www.napeo.org, to learn more about PEOs in your area.
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