Generally speaking, PEO, or other HR outsourcing solution, can save their clients upwards of 10 to 25% on their current workers compensation insurance.
How can they do that? By better managing the risk management and billing process over a larger group. Again, this is basic economies of scale. If you are a 25 man manufacturing company, doesn’t it stand to reason that you would be better served piggy-backing on a larger company’s insurance program as they have the capacity to manage claims and cut costs?
In addition, most PEO’s, offer pay-as-you-go workers compensation insurance. So the “big deposit” and/or make-up payments at the end of your insurance year are no longer a factor. Giving smaller businesses a more flexible cash flow.
There are various HR outsourcing models to choose. All have their benefits and detractors. One of the most obvious detraction for PEO (professional employer organization) is the fact that under the “co-employment” arrangement that a client agrees, all tax reporting is done under the PEO’s tax identification number. Thus, an entity, such as a not-for-profit, that enjoys certain tax deferrals, will be “taxed” by the PEO as the PEO is responsible for paying all taxes.
Be sure that the benefits and cost savings are worth paying these taxes. Sometimes the savings in workers compensation insurance and benefits cost outweigh the loss of these tax breaks, but sometimes not.
I have heard more and more about States coming down on businesses that misclassify employees in order to avoid paying payroll taxes (and workers compensation insurance).
So far, Florida and New York are leading the battle.
Be sure that if you are using sub-contractors/1099’ed workers, that you are playing by the rules and conform to the 20 questions that the DOL puts out there.