Workers Compensation Coverage Through A Peo

Thus, where an entity performs the same functions as a statutory PEO, the board is willing to extend liability even though the company may not be required, by statute or contract, to provide workers’ compensation coverage. PEOs provide services for many small employers, such as weekly payroll processing and access to group benefit plans. The segment of the Florida workers’ compensation marketplace that turns to PEOs is growing. There’s not a problem when a contractor subs out to a company with a valid workers’ compensation policy issued by a traditional workers’ compensation carrier. The subcontractor’s policy will take care of all of the workers the subcontractor brings to the job site, even if it’s just for one day or even one hour. Businesses with more than one employee need to carry workers’ compensation insurance.

Blue collar clients, on the other hand, include restaurant, nursing home, manufacturing, logistics, construction and other types of industries where employees are subject to the risk of accident due to their occupation. For blue collar clients, workers compensation costs are a significant portion of total employee benefits costs. When referencing workers compensation in the PEO environment, blue collar PEO clients are primarily being discussed since workers compensation costs are material for blue collar clients. White collar clients are those with no risk of occupational accident other than office work. The Workers’ Compensation Board has previously found a payroll service company acting akin to a PEO liable for workers’ compensation insurance coverage as a result of a general-special employment relationship.

Find Your Peo

Kurt Murray is a Principal at Assurance who focuses on mid-sized companies in the staffing industry. With over 20 years of experience, his primary client responsibility is to provide cost-effective solutions and develop insurance programs that are individualized to a company’s specific needs. He deems it necessary to fully understand a client and their specific needs in order to properly develop their risk management program. Kurt graduated from Northern Illinois University with a Bachelor of Science degree in Finance. He’s been a presenter at numerous staffing industry events and conferences, including TempNet, American Staffing Association , New Jersey Staffing Association and Staffing Services Association of Illinois . PEO companies not only provide you with pay as you go workers compensation but also outsourced benefits and a variety of resources that help you comply with employment related issues and administrative paperwork.

In fact, many businesses under 100 employees should be able to significanly reduce their in-house administrative burden through the use of a Professional Employer Organization which provides additional value. PEOs improve the employer’s cash flow by reducing or eliminating the down payments frequently associated with the purchase of workers’ compensation insurance. A PEO contracts with client businesses to allocate employer rights and responsibilities. As a co-employer, the PEO pays wages and taxes and may be responsible for providing benefits and maintaining workers’ compensation coverage. The PEO establishes and maintains an employer relationship with the workers, addressing worker complaints, retaining a right to hire, reassign and dismiss workers, and maintaining employer records. In a co-employment relationship, some authority as to the direction and control over the details of the work performed is exercised by each employer. As such, it is appropriate that the exclusive remedy doctrine protect both the PEO and the client.

In addition, the underlying exposure of PEOs’ employees are subject to much greater shifts than a typical employer and there is no way in the regulated system for rates to adjust appropriately and quickly. As a result, these organizations have been forced to retain a large portion of the workers compensation risk themselves. Since workers compensation risk can be very material for a PEO, they must also be vigilant about underwriting, pricing and loss control in order to thrive. The history of professional employer organizations’ involvement in workers compensation has been fraught with bad actor scams1 and insurance company insolvencies2. Now, through the rise of technology and the prevalence of PEOs in the workers compensation market, companies may see truly useful transformation within traditional workers compensation models.

Employee Benefits

There may even be employees performing the same job functions while being treated differently when it comes workers’ compensation liability. This becomes even more confusing as the insurance policy is often held in the client company’s name. When a company signs up with a professional employer organization (known as a “PEO”), that company’s employees are technically no longer employees of that company; they become “employees” of the PEO. While the employees still report to work at the same place, their payroll checks now come from the PEO. The PEO also assumes responsibility for providing workers’ compensation coverage for these employees through the PEO’s workers’ compensation carrier. Under this arrangement, the PEO is the actual policyholder; the employer itself is not insured by the PEO’s carrier and does not have its own workers’ compensation policy. In this day and age, insurance carriers are more cognizant of the dangers presented by PEOs.

Since any changes to underwriting and pricing procedures of workers compensation need to be approved by a regulator, insurers have little incentive to implement advancements that are expected to meet regulatory scrutiny. Compared with the relationship between the workers compensation insurer and employer, the relationship between the PEO and its clients is relatively unregulated. In this instance, the PEO is free to charge its clients any amount for a bundle of services which include workers compensation coverage. Since the rate it charges its customers for workers compensation is unregulated, this opens the door for the PEO to review new sources of data, greatly increase the number of risk classifications and increase the frequency of rate changes. This change in attitude is due largely to NCCI and member companies becoming alarmed, in the early 1990’s, about what they termed “premium leakage” from such policyholders. It was felt that such employers were often not paying the proper workers’ compensation insurance premiums. And since such employers were often in the assigned risk plans, it was felt that this premium leakage was severe enough to cause significant problems for these programs.

This generally results in liability being assigned to the client company, as PEOs typically do not direct the day-to-day work of leased employees. However, there is also the potential for the Worker’s Compensation Board to assign liability to the noncompliant PEO under the tried-and-true concept of general-special employment.

Rating bureaus may not wait until three years before establishing an experience rating for an employer. If an employer reaches a certain, relatively low threshold of workers’ compensation insurance premiums in any one of the three years in the experience period the employer is eligible for experience rating. Each state has different thresholds for premium amounts before a company is eligible for experience rating. A state designated program that ensures all employers can have access to workers’ compensation insurance even if insurance companies are not willing to voluntarily write the insurance. Often the last resort option for companies with poor experience ratings.

Gaining A Competitive Advantage

Despite the lower rates the staffing agencies were continuing to pay, their policies were covering the operations of their new higher risk clients. As a result, the mandatory rates were inadequate and a regulated workers compensation insurer was footing the bill. In the end, the most important point for PEOs and their clients to keep in mind when it comes to obtaining workers’ compensation insurance coverage is to know your partner. A client company should be sure to investigate and ensure that a PEO is properly registered with New York State prior to entering into a contractual relationship, to avoid having to litigate for services it has already paid for. Additionally, if the client company is retaining employees outside of the PEO relationship, an additional workers’ compensation insurance policy should be held to cover those non-PEO employees.

• Through co-employment, the PEO becomes the employer of record for tax purposes through filing payroll taxes under its own tax identification numbers.
• As the legal employer, the PEO is responsible for withholding proper taxes, paying unemployment insurance taxes and providing workers’ compensation coverage.
• The PEO enters into a contractual co-employment agreement with its clientele.
• PEOs are organizations that assist their clients with human resources and employee benefits, including workers compensation insurance.
• A professional employer organization is an outsourcing firm that provides services to small and medium-sized businesses .

A professional employer organization is an outsourcing firm that provides services to small and medium-sized businesses . The PEO enters into a contractual co-employment agreement with its clientele. Through co-employment, the PEO becomes the employer of record for tax purposes through filing payroll taxes under its own tax identification numbers.

How Does A Peo Operate?

As the legal employer, the PEO is responsible for withholding proper taxes, paying unemployment insurance taxes and providing workers’ compensation coverage. PEOs are organizations that assist their clients with human resources and employee benefits, including workers compensation insurance. These institutions assist with workers compensation by taking responsibility for their clients’ obligations to provide this type of insurance, essentially becoming the statutory employer . Initially, staffing agencies realized they could buy workers compensation insurance based on the staffing agency employer classification code, even if their employees were staffed in an industry with higher risks. These so-called temporary staffing, or employee leasing agencies, sold their services on the basis of being able to pass through a much reduced workers compensation cost to their clients.

Insured Solutions has partnered with the nation’s premier PEOs to assist agents with their submissions, placement, and client enrollments. These PEOs combine payroll services, workers’ compensation, risk management, EPLI and GL on a pay-as-you-go basis.

The Workers’ Compensation Board may find liability against a PEO where a PEO relationship exists in fact and absent a specific policy stating otherwise. It is important that the PEO policy is clearly identified as such and that the relationship between PEO and client be respected. Often, the determination of who is responsible for providing workers’ compensation insurance coverage to an injured worker is purely factual. When looking for qualified employees, companies will often seek candidates from a variety of places. A company could work with a PEO to retain candidates with a specific skill set, while directly hiring other candidates.

In the course of our work here at AIM, we’ve had occasion to work with a number of alternative employers–more commonly known asPEOs , temporary agencies and other kinds of staffing companies. PEOs essentially provideemployee leasing to employers, where via a legal agreement the PEO becomes a “co-employer” with the client employer. One service 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. This is allowed because, legally, the PEO is the employer of the workers at the client companies. The window of time for loss and payroll data used to calculate an experience modification factor for an employer. Traditionally a three year period, starting four years prior to the effective date of the experience modifier.

The employer outsources the responsibilities of workers’ compensation insurance along with human resource services, payroll , employee benefits and risk management to the PEO. The PEO takes over the responsibility for these areas allowing the employer to focus on the employer’s business operations. Currently, workers compensation insurers are barely scratching the surface of InsurTech with technology to improve underwriting results.

Assigned risk plans usually have higher rates than the voluntary market. Likewise, a PEO should be diligent in ensuring that a client company is maintaining proper workers’ compensation insurance coverage for its non-PEO employees.

If the agreement between the PEO and its client provides that the PEO shall provide workers’ compensation insurance coverage for employees, then the injured worker would presumably be covered under the PEO’s policy. Of course, if it was that simple we would not need lawyers, and you certainly would not be reading this article. When it comes to liability and workers’ compensation insurance coverage, as any good lawyer will say, it all depends. Safer work environments are created when PEOs are the workers’ compensation policyholders. Many of these safety practices are new to the typical PEO client-a small to mid-sized business without the time, expertise, or resources to cater to worker safety concerns.

Co-employees benefit from safer workplaces, employee, PEO, and clients alike benefit from fewer workplace injuries. Interstate ratings are calculated by a rating bureau for employers operating in more than one stated. Most, but not all states , participate in the interstate rating system. Employers can have one experience modifier applying to their operations in most states but a separate modifier calculated by the stand-alone state rating bureau. The separate state modifier apply only to workers compensation insurance premiums for the employer’s operations in that stand-alone state. The classification code on an employer’s workers’ compensation insurance policy that generates the most payroll.

Currently, there is much variation in regulated rates within employer classification codes, but the regulated rates still do not reflect all differences in expected losses. With a growing demand for skilled workers and the rising cost of overhead, many companies are turning to Professional Employer Organizations , to meet their human resources needs. A PEO, generally speaking, is an entity that acts in some ways as a co-employer, providing human resource and other solutions while allowing a company to retain day-to-day control of employees and organizational structure. Services provided by PEOs can range from payroll management to regulatory compliance assistance to leasing employees. Of particular interest here is what happens when an employee gets hurt on the job, and who is responsible for providing workers’ compensation insurance coverage – the PEO or its client. Professional Employer Organization is a different approach many small and medium size employers take to obtain workers’ compensation insurance.

The organization responsible in many states for determining proper workers’ compensation classifications, experience modification factors, and collecting data used for establishing work com rates. NCCI also writes the manuals used in many states to calculate Workers’ Compensation premiums, and also administers the assigned risk plan in many jurisdictions. A workers’ compensation insurance policy that covers worksite employees of a client of the PEO in a co-employment arrangement.

Workers’ comp insurance covers medical expenses and a portion of lost wages for employees who become injured or ill on the job. In return, employers receive protection from lawsuits by injured employees.