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PEO Alternatives

Small business owners juggle a surprising number of job functions every day. As their business grows, it soon becomes impossible for the owners to handle every administrative function. If your business has grown to that stage, you are at a crossroad. Do you hire staff to handle the additional workflows associated with key functions such as payroll and employee benefits, or do you outsource those functions?  

Thinking about this decision may lead you to explore the concept of PEOs and PEO alternatives such as EnrollMe.  

 

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What are PEOs? Are there PEO alternatives? 

PEO stands for “professional employer organization.” A PEO outsources, among other things, payroll, human resources, workers compensation, and employee benefits. According to SHRM, PEOs typically serve as a professional employer of their clients' employees, which allows the PEO to share and manage many employee-related responsibilities and liabilities. 

Although PEOs work well for some businesses, they do not meet the needs of every business. For that reason, many organizations look for PEO alternatives. Here are a few to consider: 

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HROs

You can turn to HROs for specific HR needs. An HRO offers a more affordable, less restrictive option than a PEO.

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ASOs

There are also administrative service offerings (ASOs), which manage third-party providers such as health insurers. You choose your third-party provider, and the ASO handles the relationship. The drawback to this arrangement is that the ASO can’t guarantee compliance.

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ICHRAs or self-directed insurance

As of January 2020, a new type of PEO alternative became available in the form of ICHRAs. WIth an ICHRA, employers provide reimbursement funds to help cover the cost of employee individual health insurance. Employees pick their individual insurance plans, and employers determine the reimbursement amount that will be paid to the employees. EnrollMe is a great example of this type of PEO alternative.

If you are torn between choosing a PEO or one of the above-mentioned alternatives, here’s what you should know about PEOs.

A Brief History of PEOs

PEOs first became popular in the 1980s and were mainly used to process payroll for clients. That involved: 

  • Preparing and distributing payroll checks 
  • Depositing wages directly into employee bank accounts 
  • Maintaining payroll data 
  • Filing paperwork at the local, state, and federal levels 
  • Tracking vacation and sick leave 

To increase efficiency, PEOs started putting their clients’ employees on their own payroll. They would carry out all payroll tasks (for their employees and for those of their clients) at the same time.  

However, that led to confusion; for whom did the clients’ employees really work? Some client employees took advantage of this confusion and tried to reduce their legal responsibilities. To clarify the situation, regulators and insurance companies created new policies. The PEO became a joint employer (also known as a co-employer) with its client firms, responsible for HR functions; essentially, it became an outsourced HR department. 

Over the years, regulations changed, making HR functions more complex. As a result, PEOs offered more and more services, including hiring and employee benefits. 

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Is a PEO Always a Co-Employer? 

Every time a PEO enters into a relationship with a client company, it becomes a co-employer of the people who work there. 

What exactly does “co-employment” mean? Co-employment refers to a situation in which the business manages its employees on a day-to-day basis, while the PEO provides requisite HR services (be they insurance, payroll, or other benefits administration). 

What Types of Businesses Use PEOs or PEO Alternatives? 

There isn’t one type of industry that uses a PEO or PEO alternative more than others. Small businesses often explore PEOs because those businesses may not have the resources (financial or human) to take care of HR-related tasks. 
 
There are occasionally larger businesses that choose PEO options simply because they don’t want the hassle of dealing with HR functions. 
 
 
 
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What Services Do PEOs Offer? 

Here are some common services that PEOs may offer: 

- Benefits administration 

- Recruiting and hiring 

- Payroll administration 

- Unemployment administration 

- Workers’ compensation administration 

- Regulatory compliance assistance 

- Drug testing programs 

- Family and Medical Leave Act administration 

What Services Do PEOs Offer? 

Here are some common services that PEOs may offer: 

- Benefits administration 

- Recruiting and hiring 

- Payroll administration 

- Unemployment administration 

- Workers’ compensation administration 

- Regulatory compliance assistance 

- Drug testing programs 

- Family and Medical Leave Act administration 

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PEOs and Employee Benefits

One of the primary reasons small businesses investigate PEOs as an option is that PEOs administer employee benefits. 

PEOs have purchasing power. They can purchase better insurance plans than a small business could on its own, which makes PEOs an option for small businesses. The reason that some PEOs have so much purchasing power is that they offer the same group health benefits to multiple businesses through a large master policy. That means that the PEO may have little incentive to find a health plan package that is specifically tailored to the needs of your small business. 

PEOs shoulder the burden of administering the health insurance plan, meaning that small businesses do not have to worry about plan administration. Instead of needing a dedicated HR person on-site to answer employees’ questions or walk them through the insurance enrollment process, the PEO handles that. That means, of course, that you must choose your PEO wisely, since your employees will be directly impacted by the level of service offered by the PEO.  

PEO insurance means the PEO is responsible for the entire relationship with the carrier, from policy selection to renewals to pricing changes. Clients don’t have to worry about those issues, so they can focus on their core business instead.  

That said, if any issues arise that make you wish to terminate the agreement between your business and the PEO, it may not be as simple as you think to do so. 

State-Specific Guidelines for PEOs 

Guidelines for PEOs vary from state to state. Below is a rough breakdown of regulations: 

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States where no registration is necessary

Alaska

California

Delaware

Georgia

Idaho

Iowa

Maryland

Mississippi

Missouri

Pennsylvania

South Dakota

Washington

Wyoming

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States where registration IS required

Alabama

Arizona

Colorado

Connecticut

Indiana

Kansas

Kentucky

Louisiana

Maine

Massachusetts

Minnesota

Nebraska

Nevada

New Mexico

New York

Ohio

Oklahoma

Tennessee

Utah

Virginia

Wisconsin

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States where licensing is required

Arkansas

Florida

Michigan

Montana

New Hampshire

North Carolina

South Carolina

Texas

Vermont

West Virginia

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States with special PEO requirements

Hawaii

Hawaii requires PEOs to register. The registration requirements include registration fees, confirmation that the PEO used for payroll operates and maintains branches in Hawaii, the most recent IRS W-3 form, and a surety bond or an irrevocable letter of credit equivalent to the bond amount based on a sliding scale as written in Hawaii state law. Registrations expire on June 30th of even-numbered years. 

Illinois

Illinois requires a license. PEOs must register with the Department of Insurance before obtaining workers’ compensation insurance or self-insurance in the state. 

Rhode Island

Rhode Island requires PEOs to submit a tax certificate. 

Is a PEO Different Than an HRO?

The term “HRO” stands for “human resources outsourcing.” There are some similarities between PEOs and HROs, but there are also some significant differences. 

In contrast to a PEO, an HRO coordinates and manages selected HR functions. Think of it as an a la carte PEO; you can pick and choose which services you like. An HRO can assume as few or as many of your HR services as you choose. 

HROs are an appealing option for small businesses, although occasionally, larger firms will use them as well to fill knowledge and skill gaps (for example, writing HR policies). 

PEOs always offer a co-employment relationship. An HRO does not. When you sign a contract with a PEO, you’re bundling HR services with benefits or payroll administration; that isn’t the case with an HRO. An HRO can offer a more affordable, less restrictive option than a PEO. 

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How Much Does a PEO Cost? 

The cost of PEO options varies from organization to organization. A PEO typically charges based on the client’s headcount, and costs can run from about $100 per employee to thousands of dollars a year based on a percentage of each employee’s salary or a flat rate per employee. 

Other factors that affect the cost of PEO options are: 

  • Setup fees
  • Training and consulting costs
  • Monthly service fees
  • Contributions to health insurance premiums
  • Workers' compensation premiums
  • Other company-sponsored benefits

In addition, some PEOs charge their clients based on the client’s situation. These can include: 

  • Business credit rating 
  • Risk level for workers’ compensation 
  • Health benefits history 

How Much Does a PEO Cost? 

The cost of PEO options varies from organization to organization. A PEO typically charges based on the client’s headcount, and costs can run from about $100 per employee to thousands of dollars a year based on a percentage of each employee’s salary or a flat rate per employee. 

Other factors that affect the cost of PEO options are: 

  • Setup fees
  • Training and consulting costs
  • Monthly service fees
  • Contributions to health insurance premiums
  • Workers' compensation premiums
  • Other company-sponsored benefits

In addition, some PEOs charge their clients based on the client’s situation. These can include: 

  • Business credit rating 
  • Risk level for workers’ compensation 
  • Health benefits history 
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Some Questions to Ask when Looking at a PEO 

When a company signs with a PEO, they enter a legal relationship in which the company and the PEO must fulfill certain obligations. That’s why it’s crucial to choose a PEO for your small business carefully. 

You want a PEO that offers the right services to meet your needs. If you’re in the market for PEO group health insurance, evaluate the company’s offerings. The insurance options might not be the best fit for your employees. 

Furthermore, read the fine print very carefully. Answer these questions before signing the dotted line: 

  • Does the contract clearly spell out your responsibilities as well as those of the PEO? 
  • What are you liable for, and what liability does the PEO bear?  
  • What does the PEO guarantee?  
  • How easy and affordable will it be for your company to end its relationship with the PEO? 
  • Does the PEO meet all the state requirements for your state? 
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Pros and Cons of PEOs 

If you choose to work with a PEO, be aware that there are some benefits and some drawbacks. 

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EnrollMe: The Flexible, Affordable Alternative to PEO Insurance 

You might be considering other options for a number of reasons. First, you might not need all the services a PEO offers. If you can handle most HR functions with no problem, you may just be looking for an affordable way to provide employee health insurance plans.  

Second, you might be concerned about what the future holds. What happens when you want to scale your business? A PEO lacks scalability, so if you are anticipating going into growth mode in the future, a PEO may not be your best option. 

Unlike PEOs, EnrollMe takes a new approach to corporate health insurance with an innovative hybrid model that leverages ICHRA for the benefit of employers and employees alike. Here’s what EnrollMe’s innovative digital health insurance marketplace provides: 

  • Freedom and Flexibility for Employees:  Employees can explore healthcare plans, choose the one that’s right for them, and contribute to that plan. 
  • Healthcare Portability: These plans are portable, so after an employee leaves, the company doesn’t have to subsidize that person’s insurance or keep up with time-intensive COBRA administration. 
  • Educational Resources and Tools: Educational resources and tools help employees find the best insurance (which further reduces the burden on HR). 
  • Reduced Regulatory Risk: The marketplace also reduces your compliance burden by simplifying ACA reporting and virtually eliminating the need for COBRA.  
  • Talent Attraction and Retention: Offering flexible insurance options can help your company attract and retain leading talent.Candidates want robust benefits, including health insurance. Flexible, affordable health insurance options allow you to attract new hires and keep them. 

Looking for an alternative to PEO insurance for small businesses? EnrollMe’s innovative digital healthcare marketplace offers self-service options to employees to find the right insurance for them. Choose a flexible, affordable option for insurance that meets employee needs. Sign up for a demo of EnrollMe today. 

EnrollMe: The Flexible, Affordable Alternative to PEO Insurance 

You might be considering other options for a number of reasons. First, you might not need all the services a PEO offers. If you can handle most HR functions with no problem, you may just be looking for an affordable way to provide employee health insurance plans.  

Second, you might be concerned about what the future holds. What happens when you want to scale your business? A PEO lacks scalability, so if you are anticipating going into growth mode in the future, a PEO may not be your best option. 

Unlike PEOs, EnrollMe takes a new approach to corporate health insurance with an innovative hybrid model that leverages ICHRA for the benefit of employers and employees alike. Here’s what EnrollMe’s innovative digital health insurance marketplace provides: 

  • Freedom and Flexibility for Employees:  Employees can explore healthcare plans, choose the one that’s right for them, and contribute to that plan. 
  • Healthcare Portability: These plans are portable, so after an employee leaves, the company doesn’t have to subsidize that person’s insurance or keep up with time-intensive COBRA administration. 
  • Educational Resources and Tools: Educational resources and tools help employees find the best insurance (which further reduces the burden on HR). 
  • Reduced Regulatory Risk: The marketplace also reduces your compliance burden by simplifying ACA reporting and virtually eliminating the need for COBRA.  
  • Talent Attraction and Retention: Offering flexible insurance options can help your company attract and retain leading talent.Candidates want robust benefits, including health insurance. Flexible, affordable health insurance options allow you to attract new hires and keep them. 

Looking for an alternative to PEO insurance for small businesses? EnrollMe’s innovative digital healthcare marketplace offers self-service options to employees to find the right insurance for them. Choose a flexible, affordable option for insurance that meets employee needs. Sign up for a demo of EnrollMe today. 

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