A professional employer organization (PEO) is a firm that enables an employer to outsource employee management tasks, such as employee benefits, payroll and workers’ compensation, recruiting, risk and safety management, and training and development. The PEO relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and the client.
This shared employment relationship is called co-employment. In co-employment, the PEO becomes the employer of record for tax purposes. A PEO takes on a huge amount of risk as a co-employer and needs peo insurance to handle these assumed risks and exposures. Use of a PEO however saves time for employers (and their staff that would be used to prepare payroll and administer benefits plans), and may reduce legal liabilities or obligations to employees that the employer would otherwise have.
The client company may be able to offer a better overall package of benefits, and thus can attract more skilled employees. The PEO model is very attractive to small and mid-sized businesses and associations, and is typically directed toward this segment. One key service usually provided by a PEO is to secure workers’ compensation insurance coverage at a lower cost than client companies can obtain on an individual basis. Essentially, a PEO obtains workers’ compensation coverage for its clients by negotiating insurance coverage that covers not just the PEO, but also the client companies as well.
Workers Compensation insurance
Remember that not only does workers compensation insurance protect the employee; it also protects the firm from litigation from their employees. Owners should make sure to obtain workers compensation insurance from a qualified, highly rated insurance company with a program specifically for PEOs, staffing firms, and the like.
Professional Liability insurance
Another large area of risk and expense is professional liability insurance. Professional liability exposures will vary depending upon what types of employees are staffed. For example, those that staff doctors or paralegals have a professional liability exposure that will be higher than someone that staffs blue-collar positions. However, for example, if a forklift operator a company has provided runs into a building, backs into a car, or worst-case scenario, runs over someone else then that could be construed as a professional service provided by the company and any negligence on the part of the company (or the employee’s part) will likely be declined under a general liability insurance policy.
There are additional coverages that should be researched and considered, but all in all, peo insurance provides a level of security for many exposures related to businesses of this type.