As agents continue to try and find the best fit for themselves and their clients as it relates to workers’ compensation insurance coverage, it is important to consider all options available in today’s marketplace. One option that needs to be strongly considered is the use of a PEO (Professional Employer Organization) for not only workers’ compensation coverage, but for all of the added benefits that can be gained for both agents and clients alike.
In a PEO relationship, client companies are partnered as co-employers. While maintaining the benefits of ownership, such as the ability to hire and fire employees, set wages, and autonomously manage your own business, companies that partner with a PEO are free from many of the liabilities associated with being an employer. With the expertise PEOs have in the field of payroll, unemployment taxes and health benefits, business owners no longer have the risk and headaches associated with these responsibilities. PEOs, particularly the more established ones in the industry, have experts in these areas that will ensure payroll, benefits and taxes are processed and reported correctly. As co-employers, they also take on the liability for correct reporting associated with these programs.
Besides the obvious advantages a PEO can offer to business owners, agents can benefit tremendously from placing their clients with a PEO as well. This is particularly true in the areas of marketing support and agent commissions. While the standard workers’ compensation market pays commission solely as a percentage of the total premium generated on a given account, PEOs offer a much wider range of commission structures that will allow agents to increase commission revenue while still providing their clients with the lowest cost workers’ compensation option. PEOs will typically pay agents on a percentage of gross wages or as a combination of gross wages and workers’ compensation premium. In addition, commissions do not decline upon renewal, and there are no volume commitments placed on agents by most PEOs. This arrangement helps agents to maximize client retention and foster loyalty within their client base while building a profitable residual revenue stream.
As opposed to earning commission on just the workers’ comp piece, agents earn commission on the entire HR outsourcing model through a PEO. The benefit to the agent is particularly eye-opening in the white and grey-collar sectors, where premiums and commissions are particularly low due to the inexpensive nature of the associated workers’ compensation classifications. For example, take a clerical risk with $1 million in annual payroll. The premium on this level of payroll may be only $5,000. Where an agent can expect to collect possibly 10% of this premium ($500) in annual commissions, a PEO commission structure equal to 1% of that $1 million in annual payroll would garner an agent $10,000.00 in annual commission. This 2000% increase in commission revenue cannot be ignored. While the commission benefits related to these low-risk classes of business are astonishing, there are additional commission dollars available for all types of businesses, even high-risk exposures. Agents can almost always earn more commission through a PEO than through typical stand-alone policy arrangements.
What many agents do not realize is that some PEOs actually own their own insurance companies and are able to offer workers’ compensation coverage not only on a payas-you-go basis, but often for a much lower annual cost than a typical stand-alone policy. PEOs that own their own insurance companies are also positioned favorably to write certain classes of business that are frowned upon by many insurance carriers, such as trucking, staffing and roofing risks.
Another great benefit of entering into a business relationship with a PEO that owns its own insurance company is that the PEO will have the same agenda as business owners when it comes to limiting and properly managing workers’ compensation claims. Since they are responsible to pay any workers’ compensation claims, it is in the PEOs best interest to manage and minimize claims, and, as such, they have fully staffed divisions dedicated just to this purpose. While the PEO benefits from keeping claims down, so do their client companies. Through loss control and risk management efforts initiated by the PEO (at no cost to their clients) as well as their claim management expertise, client companies ultimately benefit through reduced experience mods, lowering workers’ compensation costs for many years to come. A company with a stand-alone workers’ compensation policy is on its own when it comes to loss control and managing claims. There is typically no one fighting to keep costs down on their behalf, and, even if there is, they rarely have the level of expertise that a PEO with its own in house insurance company will possess.
Just from a workers’ compensation standpoint, these factors alone make the PEO a unique and cost-saving option. However, in addition to the potential cost savings on workers’ compensation insurance, PEO’s also offer many other benefits to agents and clients that do not exist in the standard Workers’ Comp market. For example, PEOs will perform payroll services, provide and manage benefit packages, file both state and federal unemployment taxes, and most importantly allow business owners and executives more time to focus on the core of their business, free from the burdens of these intricate and time-consuming responsibilities.
As a word to the wise, agents need to ask themselves, “Have I ever risked losing or even lost an account to a PEO?” If the answer to that is “Yes”, then it only makes sense to consider fostering a relationship with at least one PEO that can be used as an option to place their accounts. Agents that have used PEOs as a replacement or supplement to their current carrier options can find PEOs to be an effective solution for businesses large and small in virtually all types of industries. It is important, however, to partner with an established and reputable PEO (preferably one with its own insurance company) that has the financial stability and expertise needed to service their accounts for the long haul. Finding the right PEO will maximize the potential benefits to both agents and clients alike, providing a valuable resource and an outstanding additional option to agents looking to find the best fit for themselves and their clients.
Elizabeth L. Porter is the Mid-Atlantic region’s broker manager for FrankCrum, a professional employment organization based in Clearwater, Fla. She can be reached at 301-922-6578 or lizp@frankcrum.com
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