Professional employer organizations, also known as PEOs, started to see more significance in the insurance coverage industry following the adoption of the Tax Equity and Fiscal Responsibility Act of 1982. This act cleared the way for the initiation and subsequent expansion of such entities and between 800 and 900 professional employer organizations now operate throughout the United States.
According to the National Association of Professional Employer Organizations (NAPEO), there are nearly three million employees who work under a PEO arrangement. The industry of PEOs themselves earns about $92 billion in gross revenues, making it a profitable industry.
So, how do workers’ compensation plans work into PEOs and what are the needs?
An Overview of PEOs
PEO contracts are co-employment arrangements where the professional employer organization and the client in which it contracts with both keep some right of control over the individual worker or workers as a whole. This is a different kind of relationship than a leased employee, where these employees are under the absolute control of the special employer.
The PEO relationship included a contractual allocation and sharing of employer responsibilities between the PEO itself and the client. PEOs, which are co-employers with their clients, contractually assume significant employer right and risk through the maintenance of an employer relationship with the workers that are assigned to its clients.
A PEO pays wages and employment taxes of the employee out of its own accounts and establishes and maintains an employment relationship with its employees that is supposed to be a long-term opportunity. What’s more, PEO’s retain the right to hire, reassign, and fire the employees.
Insuring PEOs
There are four endorsements available for use in co-employment situations. Two are client-specific and the other two are outlined to be attached to the PEO’s policy. Workers’ compensation benefits are governed under the contractual agreement between the PEO and the employer.
When the employer/client is contractually responsible for providing workers’ compensation benefits, two endorsements provide the necessary workers’ comp benefits such as Labor Contractor Endorsement and Labor Contractor Exclusion Endorsement, which is used when the client leases out employees on a long-term basis.
Exposure to a worker’s comp claim still exists if an uninsured subcontractor is brought on for a job, if there are employees hired outside the leasing contract, such as temporary or contract workers. Without a workers’ comp policy, the employer/client can’t attach their endorsements.
Employers should have their own workers’ compensation policy even if has to be set up using payrolls known as “If Any.” The cost is low and efficient, and still leaves room for PEO’s.
About InsureMyWorkComp
InsureMyWorkComp is a digital brokerage that helps clients find the right workers’ compensation solution for their business needs. Unlike other online platforms, we will help you to work with an agent who can provide you the right solution for your risk profile. Our staff has over 50 years of workers’ compensation underwriting and sales experience, and we are confident that we will provide you the support that you need. For more information or to get a quote, contact us today at (855) 340-9138.