- PEO-Employer Taxes-(FICA, FUTA, SUTA) – Most PEO’s take the FICA tax credit as the employer of record to discount their employer taxes and for a mid-sized company this could be thousands of dollars in tax credit that you lose annually. Any employee pre-taxed deduction taken through a Section 125 that qualifies gives the employer of record a tax free deduction at 7.65%-FICA per dollar deducted. Also if the PEO pays under their State Unemployment ID at a higher rate then your company could be paying taxes at a higher unemployment rate than your own.
- Pooled Groups – Pooled groups are managed by insurance underwriters as a whole and it is up to the PEO to manage the insurance risk and keep the pool clean, ha ha! If the PEO is unable to attract low risk groups or manage the insurance risk of their multi-employer group the rates can dramatically increase above the trend in the open market.
- What happens when I move to or from a PEO mid-year? The biggest downside of a mid-year conversion is the risk of double payment of employer taxes. Most states do not credit back to the sole employer the taxes paid to the PEO if the leave mid year and most PEO’s will not issue a check for credit after they leave their PEO. So FICA, FUTA, SUTA taxes clear out and start over mid-year and need to be re-paid until the year clears out in January. In many cases the difference is small enough to warrant conversion but should be uncovered and factored in to the time best for the move.
- What happens if my PEO goes out of business? Most of the PEO bankruptcies have been due to termination of workers compensation contracts from the carrier. Once the contract termination is sent the PEO much find a replacement or shut down. Then the issue of who owes becomes the argument. Under a co-employment agreement both employer and PEO are both sharing Federal ID’s and both share risk.
- If a POOL becomes high risk does it increase my insurance rate – Yes. The greater the risk the greater the premium to cover that risk.
- Do they make me comply with FMLA-FMLA is the biggest concern. If an employer has greater than 50 employees in a 75 mile radius they must comply with FMLA. So technically if the PEO has more greater than 50 employees in a 75 mile radius your will have to comply.
- How do I figure out the PEO fees over and above the healthcare costs. Uncovering the bundle can be tough depending on the PEO. To get a true cost of the PEO you must first determine all services and/or insurance premiums that are bundled in their fee per employee/per pay period or per dollar of employee payroll. You will need to understand your employer taxes outside of the PEO which are FICA (Social Security), FUTA (Federal Unemployment) and SUTA State Unemployment then you can work backwards and deduct workers compensation as a sole employer or any insurance premiums that are bundles plus the rate for healthcare outside of the PEO and the FICA tax credits for being sole employer of record.
To find out more or get a quick analysis of your PEO call Matt Williams (972)490-2326 at CoVerica or e-mail matt@CoVerica.com.