Professional Employer Organizations (PEOs) are growing in popularity. PEO companies perform specific employer-related tasks for their clients, including payroll, accounting, and workers’ compensation insurance. Many PEO clients first learn of PEOs when they’re searching for solutions to their biggest workers’ comp issues.
4 Ways PEO Companies Solve Workers’ Comp Issues
If workers’ comp is causing you to lose sleep at night, here are four ways PEOs can help you rest easy and keep your business focused on succeeding.
Issue: High MOD Rates
Insurance providers determine a businesses’ risk by calculating a formula known as an Experience Modifier Rate (EMR). This EMR is also known as a MOD rate, E-MOD, or Experience Rating. Whatever you call it, this number impacts your annual workers’ comp insurance rates (and more).
A MOD rate is a numeric representation of the claims history and safety record of your business compared to others in the same industry and state.
- A business of average risk will have a MOD rate of 1.0
- A business that is safer (less risky) than average will have a MOD less than 1.0
- A business that is riskier than average will have a MOD higher than 1.0
If your business has a high MOD rate, and higher than average workers’ comp premiums, a PEO company could be a cost-effective solution.
How PEO Companies Can Lower MOD Rates
PEO companies offer workers’ comp insurance policies for their clients. When a PEO company obtains workers’ comp insurance for its client companies, it can do so in one of two ways:
- Master Policy
- Multiple Coordinated Policy
With a Master Policy, a single experience rating modification of the PEO applies to the master policy. In this arrangement, the single policy provides coverage for all of the PEO’s leased workers for each client and the PEO company’s MOD rate applies for all of the leased employees of its clients.
That means your business can take on the MOD rate of the PEO, which can be beneficial if your MOD is higher than average.
With a Multiple Coordinated Policy arrangement, each client of the PEO has its own policy covering the leased workers. Each client’s premium is based on its own class codes, rates, payroll and rating programs. For a business with a lower than average MOD score, this could be more favorable than taking on the MOD of the PEO company.
Takeaway: If high MOD rates are having a negative impact on your workers’ comp rates, partnering with a PEO company could reduce rates when your business is added to their Master Policy.
Issue: High Workers’ Comp Premiums
Large corporations with thousands of employees can typically negotiate competitive programs with insurance providers, a move that is nearly impossible for smaller companies to pull off.
How PEO Companies Lower Insurance Rates
When a small business partners with a PEO company, it can experience the same cost-saving benefits as the “big guys.”
PEO companies can represent large groups of employees as they shop insurance markets, commanding far better rates than most small companies could ever obtain for the same coverage.
Not only can Professional Employer Organizations offer their client-partners discounted rates on workers’ compensation insurance, they can use this same economies-of-scale principle to obtain better rates from insurance providers for health insurance and retirement benefits, as well.
Takeaway: If insurance rates are inhibiting business growth, partnering with a PEO can provide your small business with bulk-buying power and discounted insurance rates.
Issue: Managing Risk and Workers’ Comp Claims
Unfortunately for many small business owners, premium costs aren’t the only challenge that workers’ comp insurance brings. Claims and risk management can take a tremendous amount of time and resources from a small business and can be a complicated issue for a small HR department who may already be over-extended.
How PEO Companies Manage Risk and Claims
PEO companies often offer loss prevention and claims management services to their client-partners. These services can include:
- Workplace safety evaluation
- Safety program design and implementation
- Efficient claims resolution
- Return-to-work program implementation
Improved claims management can help control workers’ comp costs. And the best way to reduce workers’ comp costs is to prevent them from occurring in the first place.
Takeaway: PEO companies can offer their client-partners effective risk management and claims management services that can reduce the length and cost of workers’ comp claims.
Issue: Needing an Alternative Market
For some small businesses, the standard workers’ comp market is out of reach. Riskier industries, new businesses without 3 years of claims history, or small employers who find themselves non-renewed due to changing rules in the standard market may feel like they have no choice but to seek workers’ comp from their State Fund.
When the standard market is out-of-reach for a small business, the state fund is there as a “last resort” to ensure that you’re compliant with any state laws requiring workers’ comp coverage. Unfortunately, the rates, terms, and service aren’t going to be as competitive or consumer friendly as you would find from private companies competing for your business in the standard market.
How PEO Companies Provide an Alternative to State Fund
Many business owners think they only have two options when it comes to workers’ compensation insurance: private insurance through the standard market or State Fund insurance.
However, PEO companies offer a creative alternative to state-funded workers’ comp insurance if the standard market feels out of reach for your business, which can be the case for:
- New businesses with no claims history
- Businesses with coverage lapses
- High-risk industries
- Business with high MOD rates
Takeaway: PEOs are an attractive alternative to State Fund when your business isn’t a perfect fit for the standard workers’ comp market.
And PEO’s offer so much more than affordable workers’ comp coverage, as well.
When PEOs partner with small businesses, they can provide a number of administrative services that can benefit their client-partners. PEOs typically administer workers’ comp through payroll services, which provides a pay-as-you-go model that eliminates the need for audits.
PEO companies can also provide best-in-class health and retirement benefits to your employees utilizing economies-of-scale principles. This is how small businesses can compete with Fortune 500 companies to find and retain a talented workforce. When your business partners with a PEO, the PEO company takes care of managing employees while you focus on business operations and growth. And often at a lower price than you would pay for a single, stand-alone workers’ comp policy.
Workers’ comp doesn’t have to be a challenge for your small business. When you partner with a PEO, you can find a solution to your biggest - and most costly - workers’ comp challenges.