PEO….. Let’s take a look at the number$
The question most often raised is, what’s the catch, or how does the PEO company make their money? To answer this, let’s illustrate a recent quote to a customer.
The client, a BBQ restaurant, has been in business for 2 years, entering their third year. The first year, there weren’t any Workers Compensation claims. Year 2, they had 4 claims, one more under “investigation”. An employee slipped in the kitchen and took a tumble, a cardboard box filled with Styrofoam cups fell on an employee’s head as she was reaching for something. A third employee suffered a cut while slicing meat, the fourth one, suffered some burns. All the employees returned to work less than a week, with the exception of the burn injury, who was out for 3 weeks.
Now, let’s look at the actual numbers. To keep this simple, we will not consider SUTA or FUTA taxes.
Workers Compensation Comparison
| Expiring | Renewal | PEO | |
| Rates | Quote | Alternative | |
| Payroll | $575,000 | $575,000 | $575,000 |
| Work Comp Premium | $8,970 | $29,670 | |
| FICA | $43,988 | $43,988 | |
| FICA + Work Comp | $52,958 | $73,658 | |
| Total Payroll | $627,958 | $648,658 | $649,290 |
| Cost of FICA & Work Comp | 9.210% | 12.810% | 12.92% |
| In-house cost to process | $15,600 | $15,600 | $0.00 |
| Weekly Payroll 20 Employees | |||
| Average 16 hours a week to | |||
| process payroll and pay taxes | |||
| @ $15.00. $300/week | |||
| 940, 941, W2 | $500 | $500 | $0.00 |
| Total Cost Payroll/Processing | $644,058 | $664,758 | $649,290 |
Expiring premiums, Column 1: Payroll $575,000. The Work Comp premium was $8,970. Employer FICA tax is 7.65%. Total payroll expense, including FICA & Work Comp was $627,957, the cost of Employer FICA & Work Comp 9.21%.
Renewal, Column 2: Due to the four claims, the premiums increased by almost $20,000 to $29,670. Keeping everything else identical, the Total payroll expense, including FICA & Work Comp was $648,657, cost of Employer FICA & Work Comp jumped to 12.81%.
Peo Quote, Column 3: At a quoted rate of 12.92%, the total cost of Employer FICA & Work Comp was $649,290. Cost of Employer FICA and Work Comp is 12.92%
Comparing the Renewal Quote (Column 2) with the PEO Quote (Column 3), the decision to go with the PEO is obviously a no brainer. For an additional $650 per year, the PEO will do the payroll, file taxes, dispute any hour / wage labor issues, provide EPLI insurance coverage against wrongful termination or sexual harassment law suit, a fully staffed HR Department, Employee Handbooks, Safety Manuals, Loss Control, representation with the IRS for payroll tax issue. It can do direct deposits, issue payroll with prepaid debit cards, offer a host of other insurance and disability options. And, when SUTA and FUTA limits are reached, the cost of payroll will decrease too. They can even install time clocks to transmit information electronically, eliminating manual entries.
If we compare the cost of a PEO with Expiring premiums in Year 1 (Column 1), the PEO Quote (Column 3) costs approximately $20,000 more. However, when you take into consideration the in-house cost to process payroll, pay taxes, file quarterly and annual reports, W2 etc, for a minimum of $15,000 per year, all of a sudden the PEO starts looking good. And the best part, clients with a high EMR can take the PEO’s lower EMR when they leave after 2 years. For a company who works in a refinery or O&G environment, where a EMR of 0.8 is needed before they can enter the premises, this is a life saver
How can a PEO do all this and yet remain competitive? With about 12,000 – 15,000 employees under their umbrella, PEOs are able to purchase Work Comp at ridiculously low rates. Same with Health Care, Dental, 401K, Disability etc. Carriers will aggressively vie for their business, because of the sheer volume PEO’s bring to the table. Employees love them because they get benefits which are usually reserved for Fortune 500 companies, and employers get to reap the benefits and savings.
PEO’s. Call us to see if it works for you.
Call today to see how a PEO can help bring about a positive change in your business. At Commercial Global PEO, www.cglobalpeo.com we help you with your employees so you can manage your business. Click here for an instant online PEO quote.
Call 281-930-1600 or email shahrukhs@cglobalins.com for more information on PEO Services
Commercial Global Insurance Services, www.cglobalins.com and Commercial Global PEO www.cglobalpeo.com are full service Commercial Property and Casualty agencies, committed to assisting our clients in every aspect of their business. Call today to discuss how a customized risk management program can benefit your company.
