First Up: PEO

  • Handles payroll service exclusively.
  • Will often quote risks that standalone markets decline.
  • Covers ONLY enrolled employees on WC.  1099 or cash labor would never be picked up for claims.Charges for WC plus Admin, and SUTA is often higher.  Some PEOs do not allow for payroll taxes Cutoffs.
  • No audits needed.
  • Usually does not require a large initial payment to start and payments are through weekly or biweekly payroll.  Set-up fees may apply.
  • Added liability exposure for any unexpected uninsured subs which are never covered in a PEO.
  • Client leases employees so, PEO collects payroll taxes and pays them from PEO not client.
  • Client cannot promulgate a mod while in a PEO, but most PEOs send loss data to NCCI once the client is no longer enrolled.
  • Many large contractors will not accept PEO coverage since there is no protection to cover uninsured subs.  Some PEOs will add a minimum premium policy to overcome this objection, but it is rarely offered.
  • Most of the PEO sales staff are not licensed insurance agents, so their advice can be inaccurate.
  • PEO can terminate or change pricing at any time with little or no notice.
  • Many PEOs charge an early termination fee or require a notice to terminate with a minimum time like 45 days.
  • PEOs do often offer other benefits like HR, Healthcare & even other coverages
  • See our 2-minute entertaining video on “What is a PEO
  • There are some rare exceptions to the above-listed items.

Next:  Standalone WC

  • Client handles payroll or uses 3rd party vendor.
  • Covers anyone working for a covered entity included unexpected uninsured subs.
  • Total charge is strictly the WC premium.  SUTA is the clients not the PEOs.
  • Payment plans vary from monthly self-reporting to monthly installments including ACH.
  • Annual audits can produce debit or credit in annual premium based on actual payroll.
  • Client reports and pays their own payroll taxes.
  • Client can promulgate a mod with NCCI.
  • No blocks for getting new contracts.
  • All WC policies are issued by admitted carriers through licensed insurance agents.
  • Policy can only be cancelled in the first 60days of new policy issuance for newly discovered information.  After that, in most circumstances the carrier must remain on the policy at least until they can non-renew at the year end date.
  • Year end audits required to confirm payroll.
  • Policy can be canceled for good reason by client with signed Lost Policy Release (LPR), or ask to not renew. Canceling midterm often results in a short-rate penalty equal to 10% of unearned premium.

There are some rare exceptions to the above-listed items.

So which choice is best for your clients?

  • It depends if they can get a standalone WC quote.
  • Do they benefit from the PEO better than their own WC?
  • Does the client have issues with managing their own payroll and/or paying their premiums?
  • Would they be better off trying to earn a credit mod from NCCI?
  • Do they manage their certificates for all sub contractors well?
  • Do they mind having an annual audit?
  • Which has the higher cost?