Objections to PEO's & Employee Leasing

Chad Filley · Post by **Chad Filley** » Wed Jul 19, 2006 1:37 pm

I am just curious as to everyone's thoughts/opinions of PEO's and Employee Leasing. I ask because I have volunteered assistance with the placement of many risks on this "Hard-to-place" accounts board and have not had much success, in getting anyone to call to see how I may be able to help through the PEO markets.

Thus I have to believe that there is a general objection to using PEO's as an option, amongst the viewers of this board. I am just curious as to what the objections are and why.

I have yet to run across a work comp risk on this board that I cannot place through one of the PEO's that I currently work with. (I have no doubt that there is a risk out there that I can't place through a PEO, I am not challenging anyone) I have had some risks on this board that I have declined to offer help on because of location of the client and the difficulties that PEO's have operating in certain states.

At any rate please take a moment to give me your feed back, as it would be greatly appreciated.

Thanks for your time and consideration.

volstrike3 · Post by **volstrike3** » Wed Jul 19, 2006 1:54 pm

To tell you the truth, agents are hesitant to use PEO's because they feel like they will lose control of the relationship with the client.

Also, there have been several PEO's that were poorly run and/or downright scams. Most insurance people are not comfortable with that industry. I do not have a problem with well established PEO's but I know most insurnance people would prefer not to use one if there is a alternative.

crossins · Post by **crossins** » Fri Jul 21, 2006 5:53 am

Ditto to what VOL says. There is one in our state that has been in major trouble with the insurance department for failure to maintain coverage. They have burned several w/c insurers on unpaid premiums over the years, and are now using the "market of last resort". They even tried to convince our insurance regulators that they did not need w/c. What a joke! The sad part is, "standard" w/c carriers will not take an account that is coming out of the PEO. So, once an account is sold into the "leased employee" game, it is extremely difficult to get out. The "fee" on a $85,000 w/c premium is about $6 Grand. My opinion......it's a rip off!

PEO-Advisor · Post by **PEO-Advisor** » Fri Jul 21, 2006 7:23 am

The criticisms by insurance agents here of the PEO industry have some merit. Are there a few PEOs who are bad actors? Of course, every industry has a few and they are eventually dealt with by the regulators, the courts and the marketplace. I believe most of the frustration agents have with PEOs is caused by the fact that they are not aligned with an MGA like StaffMarket or Staffbrokers. Consider these companies "PEO MGAs"

crossins · Post by **crossins** » Fri Jul 21, 2006 10:01 am

Neglected to mention in prior post that there is an advantage (really the only one I can see) to the PEO. That is the ability of w/c premium payment with payroll. As a result, no nasty audits. This advantage is dwindling however, as at least one national carrier (The Hartford) has an arrangement for similar payment options.

volstrike3 · Post by **volstrike3** » Fri Jul 21, 2006 3:19 pm

In California, Applied Underwriters requires payroll services along with WC coverage. It is fairly risky to place coverage there because your client will either like it or hate it, they will react strongly either way. You will either retain the account for a long time without competition or you will have to move it quickly.

Chad Filley · Post by **Chad Filley** » Mon Jul 24, 2006 12:19 pm

Thanks you for your responses, please share a bit more info.

Crossins "" When you say standard market carriers will not take clients coming out of PEO's. Is this something that is state specific to your location? As a PEO Broker/MGA I have lost accounts that went back into the standard market after being with a PEO.
Why are standard market carriers not taking clients coming out of a PEO?

You mention that a fee of $6,000 on 85K in premium you feel is a rip off. What fee are you referencing? Are you referencing the administration fee? A set-up fee? Please specify.

Volstrike "" What exactly do you mean by lose control of the relationship with the client?

The question may sound dumb, but having never been associated with the standard insurance market and strictly dealing with PEO business only, I am looking for a comparison between what standard market agents define as the relationship with the client versus what myself a PEO broker defines as the client relationship.

I feel that my roll as a broker is specifically customer service when it is needed, and an occasional how is everything going follow up call. Whether that be directly to the client, or agent. I can and will be as involved or uninvolved with a client, only as much as the referring agent would like me to be. If an agent doesn't want the client to even be aware that I (Staff Brokers) exist, that is fine as well. Please explain what/how the agent/client relationship works in the standard market.

Thanks for your time and consideration.

crossins · Post by **crossins** » Tue Jul 25, 2006 10:41 am

I think it may be state specific. The only carrier in our state willing to take a former PEO insured is our market of last resort. As to the reasons why, I really cannot say. I'm not an underwriter. The $6 grand was an administrative fee. The PEO I referenced has all of its accounts bundled, with one carrier. They get the coverage through a very small agent. A windfall for them I'm sure.

Chad Filley · Post by **Chad Filley** » Tue Jul 25, 2006 12:51 pm

Crossins,

Thanks again for your input. As far as standard carriers not taking previous PEO clients, that is something I have not run into here in Florida, I have lost accounts back to the standard market.

In reference to the admin fee of 6K on 85K in premium. I guess a better measure of the admin cost can be made be comparing it to the payroll and not the premium.

How much payroll generates that premium? Is it a steel erecting code? In Florida code 5069 is 83.87 per hundred. So a payroll just over 100K will generate 85K. Where as a $4.25 code would take 2 million in payroll to get 85K in premium.

Being that below are a few of the services provided by a PEO, in your opinion what is a fair cost (on an annual basis) to the client for the services that are provided by a PEO?

I am saying that I can't hire one person to handle all of this for a business. Let alone pay them 6K a year to do it.

"¢ Employee Information Policy Handbook
"¢ Human Resources Management Consulting
"¢ Personnel File Maintenance
"¢ Personnel Form Management
"¢ Vacation Tracking and Reporting
"¢ Sick Leave Tracking and Reporting
"¢ New Hire Reporting
"¢ Unemployment Claims Management
"¢ DOL Compliance Expertise
"¢ FLSA Regulation Consulting
"¢ Wage and Hour Compliance and Audits
"¢ E.E.O.C.
"¢ Family Medical Leave Act
"¢ I-9 Form Management

"¢ Payroll Check Preparation
"¢ Payroll Reporting
"¢ Federal Withholding Calculation
"¢ State Withholding Calculation
"¢ Local Occupation Tax Calculation
"¢ W-4 Forms Management
"¢ State Withholding Form Management
"¢ QTD/YTD Reporting
"¢ Wage Garnishments
"¢ Direct Deposit Processing
"¢ Benefit Premium Collection
"¢ Specialized Payroll Reports

"¢ Deposit of Federal, State, and Local Tax Liabilities
"¢ Preparation of Timely Filing of: Monthly, Quarterly or Annual Withholding Returns
"¢ W-2 Preparation
"¢ Deposit of Federal and State Unemployment Tax Liabilities
"¢ Preparation and Timely Filing of Federal and State Unemployment Tax Returns

"¢ Professional claims administration
"¢ Best Pricing Negotiation
"¢ State Reports Filing
"¢ Safety Incentives
"¢ Risk Management Inspections
"¢ OSHA Requirement Consultation
"¢ Accident and Injury Reporting Forms
"¢ Light Duty "Return to Work"

Peobigwig · Post by **Peobigwig** » Tue Jul 25, 2006 2:30 pm

From talking with several insurance agents and working with them on a daily basis, the most common reason insurance brokers don't like to work with a PEO is because a few have been burned; and you have heard the adage, " burn me once, shame on you, burn me twice shame on me".

I don't blame the insurance broker for feeling this way. This perception is not only felt by insurance brokers, but by insurers, banks, previous PEO clients, and various vendors that have had the misfortune of aligning themselves with less than reputable PEOs.

I have heard every reason imaginable how some clients and vendors got burned; "the PEO was not paying commissions"; "the PEO tapped the tax money for personal greed and was shut down, sticking the client with the bill"; "health insurance premiums were not paid and employees were left with having to pay the hospital bills". The fact is, not every PEO operates like this; but all PEO companies are forced to defend themselves against these misrepresentations caused by a few unscrupulous people in our industry; struggling to convince insurers, banks and vendors that all PEOs are not unscrupulous thieves.

Using a PEO can and should be a very good experience for clients; in fact, our clients are our best sales force, sharing their good experience with our PEO with peers and friends. The benefits that a PEO can provide are very cost effective for almost any business, the services alone most can't afford on their own. Think about it, there is no way that a company with 5-20 employees can begin to match the savings procured by economies of scale that a PEO can pass along to its clients.

My advice is to find a PEO that has a proven record and reputation; not only within the PEO industry, but with banks, brokers, vendors and, of course, its clients.

PML Worldwide (PML and affiliates) is such a company, serving growing businesses since 1985; and, it is one of the longest operating PEO companies in the United States.

Jasen A. Burcham
National Sales Director
PML Worldwide
http://www.planmarc.com
800-567-0235