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PEOs Are Quickly Gaining Respect and Saving Certain Employers $$$


PEOs Are Quickly Gaining Ground and Respect

Professional Employment Organizations (PEOs) have long been haphazardly discredited as voodoo Workers Comp insurance. There were a few unscrupulous PEO companies that made the headlines each time there was a failure.

Emplyees PEO's Vector

Actually, there were just as many insurance company failures when examined by the amount of premium dollars. Check out the list of Top 10 Insurance Company Insolvencies as of 2008.  The top 10 are at the bottom of the article.  Please note that these numbers are actually smaller than the true figures as some states had not reported at the time of the article.

PEOs have been in existence for over 30 years. The addition of Workers Comp occurred approximately 15 years ago as some of the benefits offered by these organizations.

PEOs have been approved for operation in almost every state. NCCI recently analyzed PEO’s with some very interesting results.

According to NCCI, PEO’s are:

% of Market

  • 1% – 2% of the voluntary market
  • 2% – 6% of the residual market – higher number due to insurance placement difficulty
  • 6% of the voluntary market in Florida
  • 30% of the voluntary market in Arizona – a surprising number
Vector Graphic Of Businessman Climbing PEO's On Bar Graph Increase

Reputation of Underreporting Claims Disproved

  • Actually had a higher number of claims – if claims were not being reported, the frequency would be lower
  • Loss Ratios tend to be lower – showing that underreporting and misclassifying are not problems with PEO’s
  • E-Mods are comparable indicating no Mod manipulation

Industries Served

  • No cherry-picking as industries mix same as regular market
  • Loss ratios across industry groups are similar except for the transportation industry
Picture Of PEO's And Employees

A PEO is not a pure staffing agency.  That is not how they work.  The basic premise of a PEO is a certain company’s employees become employees of the PEO. The PEO agreement passes all rights of hiring/firing back to the employer. Many companies (especially truckers) have not necessarily felt at ease about this relationship.

The company usually handles:

  • Payroll processing including withholding – all IRS approved
  • Benefits – are usually much more diverse than the employer originally had in place, such as different health insurance plans, 401K options, disability insurance, etc.
  • Workers Compensation Coverage
  • Internal company personnel no longer has process payroll info – labor cost reduction

Many years ago, I was not necessarily a fan of PEO’s.  Why? – because one fears what one does not understand fully.  Over the years, I have learned the ins-and-outs of PEO’s including being able to analyze companies to see if it is a worthy undertaking to be placed with a PEO.

We do not sell PEO or Workers Comp insurance, so our opinions and this article are monetarily unbiased.   Some of the companies that may want to explore PEO coverage are companies that:

  • Have a high E-Mod – most PEO’s allow you to take on their Mod, which is usually under a 1.0 – not always
  • Had a recent spate of accidents or one bad accident that may increase the Mod over 1.0 – need E-Mod projection to analyze this area further

    Business Team PEO's Having Meeting
  • Going into the State Assigned Risk Pool for higher risk companies – the rates that are paid under a Risk Pool can easily exceed 300% of the regular voluntary market
  • Must maintain a 1.0 E-Mod to bid on contracts – almost all governmental contracts now require a  1.0 Mod or less
  • Wish to reduce their benefits processing labor costs –  no one has to process payroll any longer other than reporting the gross payroll figures
  • Diversify their benefit offerings

There are many more reasons to compare PEO’s with your current WC coverages.  The ones listed are WC based.

The insurance carrier that is ultimately going to handle any of your claims is one of the usual large carriers.  There are some PEO’s that handle their claims internally.  That is not as common today as it once was in the past.

Caveat –  not all companies should become involved with PEO’s. Once again, almost all PEO’s are above-board companies. Choosing the proper PEO company to partner with maybe one of the biggest company decisions that will be made now or in the future.

I could come up with a list of companies that should not rely on this type of insurance arrangement. However, it is only after a full analysis of your company’s situation that a PEO decision should be green-lighted.

If your company feels they should explore PEOs call or email us and we will be glad to assist in the analysis and your search.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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