Things You Need to Know Before Signing Up With PEO Services and Understanding Your PEO Quote

A little history never hurt anyone! The PEO industry took a grapple on the business sector back in the 80’s. With health insurance costs increasing along with the inability of small business to be competitive due to the costs of Workers’ Compensation, the PEO became an effective product for the problem at hand. For example, for every dollar paid in salary for a roofer in home construction, the owner had to pay approx. 25 cents. So if a roofer made $500 that week, the owner paid $125 according to the average W/C rates. That is just one roofer per week.

Professional Employer Organizations have the ability to be competitive using what is known as the law of numbers. In lamens terms, the more people you have in a group sharing risks, the cheaper the monthly costs there are to protect against those risks. Health Insurance is a prime example of this. So what this means to businesses looking for PEO quotes is that when they sign up, you will be joining an organization that has the power of numbers and allows you to utilize these numbers to get cheaper rates. Along with these savings is the fact that companies transfer liability of payroll compliance to the PEO as well.

A PEO salesman knows this and approaches businesses knowing that he can get clients by using the fact that the PEO can charge a much lesser rate on Workers’ Compensation. In the end, a business owner paid less in W/C and also had the total liability of payroll and salary tax compliance. It is a win-win for business and the PEO services alike. But not every company has the need for a PEO. Also, some companies were put into a huge liability risk for not understanding a few principles about the transition from in-house payroll to PEO services.

First off, the technology that Professional Employer Organizations have acquired the past few years have made the PEO quote easier to understand and compare to what they were formally doing. So let’s say, you have a quote in your hand and want to start today. But something is telling you that a informational piece is missing from the broker that you are dealing with. So here is a list of 5 things to look at when looking at a PEO Quote and PEO Service

1. Are they licensed to do business in your State?

2. Get your current workers compensation policy and compare W/C codes with your PEO quote to make sure you are going to be rated correctly

3. DO NOT, I REPEAT, DO NOT cancel anything that you are doing with your payroll until you have confirmation from the PEO company that all the applications have been approved. There is a YouTube video from a lawyer in Florida about things to know before signing up with a PEO, if you want to check it out.

4. When dealing with a broker that tries to sign you up with a particular PEO company, call that company to find out if he is allowed to represent them in business sign-up transactions.

5. Last, but not least, consult your lawyer to make sure you are covered contractually within that particular PEO.

Now, there is a new reason why PEO companies are starting to gain even more speed in the market. Unemployment not only hits the workers and their families, every time a company let’s an employee go, the company has increases on its State Unemployment Tax Rates (SUTA). So now, there are companies that pay close to 5% of its payroll to SUTA. A PEO can be helpful with this as well to lower the SUTA rate that the PEO currently has through the state. Sometimes the PEO company can get as low as a 1-2% SUTA rate for its clients.

Here are some reasons for not getting with a PEO. The main reason is the human control factor. Some business owners like the fact that they know if the business goes down, it is because of the owner themselves. They like to be in control and not share it with anyone else. When I come across this type, I mention the fact that many of their competitors (I do my research on this first of course) are using PEO services to cut overhead costs. But it is up to personal preference.

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