With so many benefits to pairing your clients with a PEO, it can be tempting to try and match every business owner that walks through your front door with a professional employer organization. But some of your clients will be a better fit -- and experience bigger benefits -- from a PEO than others.
What’s their MOD rate?
If your client has a lower than average experience modifier rate, you’re likely going to have no problems finding them affordable workers’ comp coverage from any number of A-rated carriers.
However, if your client has a MOD rate that’s higher than average, such as 1.25- 3.0, for example, increasing premiums can make them harder to place.
It’s in these situations that a PEO can be the perfect solution for your client’s high MOD business.
When an employer and a PEO form a co-employer relationship, the employer usually takes on the MOD of the PEO, which is typically around 1.0. This can lead to an immediate premium reduction compared to a stand-alone policy.
But that’s not all.
With a PEO, the workers’ comp cost savings continue.
- PEOs often provide a pay-as-you-go model billed on earned premium, not estimated. That eliminates the need for annual audits and lets your client avoid overpaying for workers’ comp.
- The bulk buying power of a PEO can also reduce premiums by negotiating superior rates with A-rated carriers.
- PEOs typically provide safety training, return to work programs, and claim management systems that efficiently manage open claims.
All of this can add up to big savings for your high MOD, hard-to-place client looking for affordable workers’ comp solutions.
But the benefits of a professional employer organization go beyond workers’ comp.
How Big is their Business?
The majority of businesses that benefit from partnering with a PEO are small- to midsize. The key to a smart pairing between client and PEO is to find that sweet spot between not-too-small and not-too-large.
- Extremely small businesses with only a couple of employees may not meet minimum PEO premium requirements.
- Extremely large corporations generally already have the in-house capabilities that a PEO can provide, plus the buying power to get affordable insurance rates.
But if you’ve got a high MOD business owner, with a few dozen employees, who is short on resources (and high on workers comp premiums).... a PEO may be the perfect solution that addresses many of their biggest challenges.
How Risky is their Business?
Your client may have an average (or better) MOD score but still be in a high-risk industry.
PEOs service a variety of industries, including white-, gray-, and blue-collar. High-risk industries such as construction and manufacturing may benefit the most from the cost savings component and administrative services of a PEO.
PEOs are great for clients in high-risk industries, such as:
- Artisan trades and construction
- Asbestos abatement
- Mold remediation
- Fuel delivery
- Homecare and assisted living
- Cable or solar installation
A high-risk industry can be a sign that your client is a good match for a PEO. But that doesn’t mean PEOs are only for risky business. According to a 2015 Brown Gibbons Lang report, three industries that make up the bulk of PEO clients are computer and IT, finance, and management/ administration/consulting.
What’s their Biggest Business Challenge?
Want to build a long-lasting relationship with your client and be seen as a trusted advisor? Help them find solutions to their biggest business problems.
The biggest benefit of a PEO isn’t a reduced workers’ comp premium… it’s the ability to address some of the primary pain points facing a small business owner.
Small business owners are struggling with healthcare, taxes, regulations, hiring, and growing their business. PEOs create tangible value for their clients by solving these problems.
According to the National Association of Professional Employer Organizations (NAPEO), small businesses in PEO arrangements have higher growth rates, lower employee turnover rates, and higher rates of business survival.
Most smaller organizations usually have only a “bare bones” HR functionality, which typically focuses on the most basic HR needs. And taking care of these basics can take a tremendous amount of time and resources for a small business.
Worse, they can be fraught with potential for error.
PEOs typically take over these key HR responsibilities when they partner with a client, including:
- administering employee payroll and benefits
- personnel management
- workers’ compensation services
- monitoring and managing risk
In addition, PEOs make available to their clients a broad array of additional employee-related services and hands-on expertise, including the ability to advise on issues such as workplace diversity, employee retention, and up-to-date information on changing employment laws.
PEOs also typically bring increased access to employer-sponsored retirement plans, such as 401ks, and robust healthcare coverage that can give an employer a competitive edge when recruiting and retaining talent.
Despite the broad administrative benefits and HR offerings that comes with partnering with a PEO, these services are generally offered at a lower price than your client would pay for even the most basic HR services.
Not every client will be a good fit for a PEO, but many just might. If you’ve got a business owner client who owns a small business, wants to grow but lacks the resources, or is searching for affordable workers’ comp due to a high MOD score or high-risk industry ... you just may have the perfect solution in a PEO partnership.