professional employer organizations

clock June 11, 2021

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Should You Get Workers’ Comp Coverage Through Professional Employer Organizations (PEO)?

Workers’ compensation insurance is a necessary part of doing business. It can also be a stressful and time-consuming one. Professional employer organizations (PEOs) let you outsource your workers’ comp. PEOs provide services to 175,000 small and mid-sized businesses in the US. Is it time for your business to join them?

Find out more about what professional employer organizations do. You’ll learn why getting workers’ comp coverage through a PEO might be the best option for your business.

What Do Professional Employer Organizations Do?

A professional employer organization (PEO) provides HR services for small and mid-sized businesses. These services can include payroll, benefits, employment taxes, workers’ compensation, and help with regulatory compliance. Depending on the PEO and the contract, employers can outsource some or all of their HR functions.

The PEO has a joint-employment relationship with the employer. PEOs don’t technically lease workers to the employer. You’ll still see many sources use leasing terminology to describe PEOs, however.

Both the PEO and the employer have some control over the affected worker or workers. Each party has individual responsibility for certain employment obligations. The two parties share responsibility for other obligations.

The employer reports its wages under the PEO’s federal employer identification number (FEIN). This shifts employee liability to the PEO.

How Do an ASO and HRO Differ from a PEO?

Using a PEO, ASO, or HRO is a way to outsource some or all of your HR functions. These types of organizations may seem similar, but they have several differences in what they offer:

Administrative Services Organization

An Administrative Services Organization (ASO) offers a suite of services similar to a PEO. The biggest difference is in the employment relationship. Employers keep their status as the employer of record. Employers report and file payroll taxes under their own FEIN.

Human Resources Outsourcing

Human Resources Outsourcing (HRO) is an independent company that provides some or all of the HR services that a business needs. Depending on the HRO, it may provide basic HR services or more detailed and strategic ones. The employer can choose which HR services to outsource.

People often refer to the HRO model as “à la carte” because it usually focuses on specific HR tasks. Larger companies are more likely to consider the HRO option. They already have internal staff and technology to manage many of their own HR functions and only need to outsource select capabilities.

Like an ASO, an HRO doesn’t have any employment control over the employees.


To sum up, you remain the sole employer under an ASO or an HRO. These options don’t use the co-employment model like a PEO.

An ASO offers a bundle of HR services like a PEO does. An HRO differs from the other two options because it more commonly offers specific HR tasks instead of a suite.

The specific solutions a PEO offers may make it the right choice for your HR needs.

What Is a PEO Workers’ Comp Insurance Policy?

One of the functions a PEO can handle for your business is your workers’ compensation insurance. These policies provide the workers’ comp coverage that the law requires for your business:

Multiple Coordinated Policy vs Master Policy

State laws regulate workers’ comp insurance and PEO guidelines for administering it. Your workers’ comp policy can be in one of two formats: a multiple coordinated policy or a master policy.

A multiple coordinated policy arrangement gives you your own policy that covers the affected workers. Your premium depends on the factors that affect your business, like your payroll and class codes. Endorsements coordinate the coverage between you and the PEO.

A master policy arrangement means that the PEO has a single policy in its own name. The PEO adds you to the policy by endorsement.

The type of policy arrangement you have determines how the National Council on Compensation Insurance (NCCI) calculates your experience modification factor. The experience modification factor helps determine how much you pay for insurance. It takes into account data such as:

  • How any losses you had compare to expected losses in your industry
  • Frequency of losses
  • Severity of losses

If you have a multiple coordinated policy, you get an experience rating modification based on your own data. If you have a master policy, all of the PEO’s clients are grouped together. Your rating modification depends on this combined data.

What Are the Benefits of Workers’ Comp Through a PEO?

Using professional employer organization services for your workers’ comp insurance brings several benefits to your business. You can reduce costs while creating a safer workplace. You have a team of HR professionals to help resolve claims efficiently and answer your questions:

Lower Costs and Increase Efficiency

A PEO lets you fully outsource your HR. This is a good option for small businesses that don’t have the resources to effectively manage their own HR functions.

Using a PEO for worker’s compensation insurance reduces your administration costs. You’re under the PEO’s workers’ compensation plan. You don’t need annual audits and premium deposits.

In addition, you increase productivity. Your management team isn’t spending time on the clerical tasks surrounding workers’ comp.

Safer Work Environment

When PEOs are the workers’ comp policyholders, they have an incentive to create safer workplaces. Fewer accidents mean fewer insurance claims.

A PEO can implement practices like pre-employment drug tests, safety training, and OSHA training. A PEO will often implement a back-to-work program for employees who have been temporarily unable to work due to injury or illness.

Effective Resolution of Workers’ Comp Claims

PEOs give you comprehensive case management in the event of a workers’ compensation claim. This begins with claims management and employee assistance. The PEO will monitor treatment and stay in contact with the insurance carrier to be sure the affected employee gets the right care.

A return-to-work program will help the employee get back to work in the best possible conditions. A modified job that accommodates the worker’s injury or a job with a different employer are some of the ways to do this.

Access to Expert Advice

Almost all PEOs give you access to HR professionals as part of their services to your business. These professionals help you comply with local, state, and federal laws. They also help your employees understand their rights and responsibilities under applicable labor laws.

Is PEO Worker’s Comp Insurance Right for Your Business?

There are professional employer organization pros and cons. However, many businesses have found that the benefits outweigh any potential negatives. Small to mid-sized businesses can lower costs, increase productivity, and better serve their clients and employees.

National Workman’s Comp Solutions (NWCS) has helped more than 1,000 businesses find the right worker’s comp solution. Our network of professional employer organizations gives you cost-effective options to outsource the management of your worker’s compensation insurance.

Request a free quote today and start seeing the benefits tomorrow.

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