1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.

The History of Employee Leasing and the evolution or PEO’s

The first employee leasing firm originated in the 1940’s. In the 1970’s the concept gained popularity when a consultant, Martin Selter leased the employees of a doctors office in California. The concept is now being delivered by a new type of organization called a professional employment organization or PEO.

The PEO Concept

The PEO concept is very similar to that of a temporary staffing company. In the way both offer services such as; employee data management, payroll check processing, payroll deposits and cover various insurance liabilities on behalf of their contracted employers and employees. Like the temporary staffing model the PEO charges a fee for services offered to multiple employer groups.

The POOL

Most PEO’s contract with employers in various industries to form a group or “pool” of employees. The PEO relationships or service contracts commonly known in the industry as co-employment contracts facilitate a way for the PEO and the employer clients to share liabilities with other employers. Once the employer agrees to enter the PEO’s pool the PEO and the employer enter into a co-employment relationship and share the liabilities and risks with other employee­s of the employers. One big disadvantage to a small employer with less than 100 employees is that if the when they joing a large pool the must comply with that of a Federal Laws that apply to the number of employees in the pool. Most PEO pools are made up of small to mid-sized employers under common federal and state tax ID(s).  The pool forms a buying group for the purpose of buying insurance, payroll administration and various outsourced HR services.

How do PEO’s charge?

There are many PEO’s throughout the U.S. now an many have very different ways of charging and bundling their administrative fees with other insurance premiums and payroll taxes. The most common PEO fee structure is based on a percentage of gross payroll per employee workers compensation classification code and is bundled with workers compensation insurance, employer payroll taxes, and the employer contribution towards employee benefit premiums. Other PEO’s may include workers compensation, employer payroll taxes, and administrative fees and have separate invoicing for all employee benefits.

Is the PEO right for me?

In order to determine if the PEO concept is a good deal when compared to that of a Sole Employer relationship I suggest having an insurance consultant and CPA compare the PEO fees and services to that of a sole employer.  The analysis should include a side by side comparison of employer payroll tax liabilities including FICA credits, the total employee benefits and workers compensation and payroll administration fees versus the administrative fees of the PEO. Lastly the value of any additional services offered by the PEO must be compared to the cost to outsource.

How to compare the PEO to that of a Sole Employer

The true cost analysis should be formulated by a licensed insurance with experience dealing with PEO’s and a clear understanding of current employer tax liabilities, insurance, group retirement planning, and administrative outsourcing.

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.