Not Just Payroll with Benefits

For many types of businesses, partnering with a PEO can be a blessing. A simple way for the small business owner to obtain workers’ compensation, payroll processing, employee benefits as well as guidance in following state and federal regulatory and compliance requirements. A PEO partnership can also alleviate the burden of the weekly processing of payroll and paychecks, freeing up a precious bookkeeping/accounting hours. But putting a Temporary Staffing Company inside a PEO can also be nothing less than a curse when either party is not completely prepared and capable of working together.

First, not all PEO’s work with Temporary Staffing companies. And while most PEO’s would be thrilled to pick-up millions of dollars in payroll processing fees, but learn quickly about the impact even a small Temporary Staffing Company will have on their operations. It’s easy to process a hundred some odd checks per week for a small client company, or even a hundred of them. But consider the demands of a medium sized Temporary Staffing Company with $100+ million in annual payroll, an ever-changing work-force, increased claims activity will have on the wrong PEO vendor. And then toss in a couple of Murphy’s proverbial wrenches and see how quickly the relationship falls apart. Ultimately, selecting a ‘Staffing Friendly’ PEO is critically important to the mutual success of a potential relationship.

Staffing Friendly PEOs report annually to the rating bureaus, provide carrier or TPA loss runs, and follow NCCI rules for classifications. While it may not be a priority going into a PEO, it will be one when you’re on your way out. Without Loss Runs, MOD Worksheets, and accurate classifications your temporary staffing company will not be able to obtain a standard or preferred workers’ compensation market quote at any reasonable price.

It is usually a surprise when the Temporary Staffing Company learns that the PEO they are with doesn’t report to the rating bureaus annually, meaning that the staffing company no longer has an Experience Modification Factor. It is nearly impossible to get the standard or preferred workers’ compensation markets to consider a temporary staffing company that doesn’t have a promulgated experience modification factor. Many staffing companies find themselves without a workers’ compensation option other than the PEO industry. Stuck.

The next bad news the Temporary Staffing Company learns is the PEO loss runs are not in a format or do not include the data that is acceptable to the standard/preferred workers’ compensation market underwriters; maybe only barely acceptable to other PEOs. No loss runs, no standard or preferred workers’ compensation markets. Stuck again.

Finally, the business owner realizes all too late that the PEO has inaccurately assigned workers’ compensation classifications per NCCI rules, to “better accommodate their underwriting objectives”; skewing the developed loss pic. Now the codes, premiums, and loss data applied to those codes are inaccurate. Very Stuck.

No MOD, sketchy loss information and an inaccurate/misclassified class codes usually result in immediate carrier/PEO declinations or at the very least, much higher pricing.

Many California staffing companies entered into ‘Staffing on Staffing’ and Employer of Record arrangements to obtain workers’ compensation over the past 5-10 years. The fall out over these arrangments has just started, but now these companies have found themselves with very few viable options for a legitimate PEO or workers’ compensation solution. These business owners should speak to a reputable, staffing industry insurance expert to help them navigate away from the ‘Dark Markets.’

Temporary Staffing Companies will need to provide much of the same information that a workers’ compensation carrier might require. Make sure that you have the following six items ready before you begin the process. The PEO should be able to provide basic proposal numbers based on this information; then if you decide you want to move forward into quoting, be prepared to provide more.

So what’s going to be needed?

  1. Prior Year Payroll, by Class Code, by State (Prior 12 Physical Months)
    1. Corporate Employees
    2. Temporary Employees
  2. Projected Year Payroll, by Class Code, by State
    1. Corporate Employees
    2. Temporary Employees
  3. Workers’ Compensation Acord Application
  4. Experience MOD Worksheet
    1. Minimum – Current Year
    2. Preferred – Current & 5 Prior Years
  5. 3-5 Years Currently Valued Loss Runs
  6. SUTA Rates by State, Current

Other Items That May be Required

  • Current Certificate of Insurance (All Lines)
  • Client List (Company Legal Name, FEIN, Website, Physical Address)
  • Current Work Comp Policy Declaration & Rating Pages
  • Current PEO Contract and Rating
  • Certified Drug-Free Workplace Documentation
  • Copy of Employee Safety Program (Safety Manual)
  • Copy of Employee Handbook
  • “No-Loss Letters”
  • “Large Loss Explanation Letters”
  • Copies of MSP or VMS Contracts
  • Last 4 Quarters of 941’s
  • Last 1-5 Years – PEO Payroll Billing Statements
  • Reviewed Financials
  • Past EOR Relationships Narrative (Company Letterhead – Owner Signature)
  • No MOD Worksheet Narrative (Company Letterhead – Owner Signature)
  • No Loss Runs Narrative (Company Letterhead – Owner Signature)
  • Submission Narrative (Past – Present – Future – Company Letterhead – Owner Signature)
  • Owners Resumes

Payroll by Class Code Projections. Prior & Projected Year Payroll, by Class Code, by State. The prior 12 months should closely reflect the last four quarters of 941’s or PEO Annual Payroll Billing Summary. There is no need to exaggerate payroll figures. Doing so may only result in skewed ‘weekly minimum’ requirements.

Loss Runs. You’ll hear, “three to five years of currently valued loss runs.” Three-to-Five can be the same as saying that the staffing company needs to have been in business for at least three years and be able to provide carrier or TPA loss runs. However, if the staffing company has been in business for four years, four years of loss runs will be requested. And five years of loss runs will be required if the staffing company has been in business for five years, or six, or twenty. The loss runs must also be what the insurance industry refers to as ‘currently valued.’ In the recent past, this meant that the loss run report must have been printed by the carrier no more than 90 days prior; now it means no more than 30 days old.

MOD Worksheet. Some underwriters will ask for only the current year’s worksheet; savvy underwriters will ask for up to five years of Experience Modification Worksheets. There are many reasons a company might not have mod worksheets; be prepared to provide a good explanation if mod worksheets can’t be provided.

SUTA rates by state. This information will help the PEO develop the most competitive pricing for your company.

In most cases, a PEOs basic pricing structure will be the aggregate of the following:

WC Manual Rate (+/-) + State SUTA Rate (Discounted) + Admin Fee

PEO Deductibles typically range from $500 to $500,000 and are used to add deductible credits to lower final rate and/or offset a higher risk with a little extra protection. These are usually per claim, on a paid basis, and have no aggregate. It’s easy to look at prior years losses to come up with an idea of what the average deductible cost per year is. Most PEO’s are in deductible programs themselves, usually in the $500,000 to $1,000,000 range. While this allows these PEOs the freedom to write business without carrier interference, because they have ‘skin in the game,’ and they understand to be profitable that they must write good solid business.

A good independent insurance agent will discuss reasonable target pricing expectations based on present underwriting data and loss experience. In other words, you should have a good idea about what the numbers or costs will be before you make the underwriting submission. But if you only focus on these three main areas, you may be missing others that might end up costing your company later.

So does this mean that if the staffing company has less than three years in business and loss runs, there is no way to get a PEO to offer a quote? No; it means there must be a good explanation or well-told story for anything that is out of place. Underwriters hate surprises, so be sure to discuss any issues with your agent right away.

My final advice is to always deal directly with an independent insurance agent who can target the most viable markets and explain all the options available. A good agent’s ultimate goal is to help the client find the best solution at the most competitive rates and have a fiduciary responsibility to their clients.

Apply here to get some numbers for your staffing company. It’s easy.

#staffingfriendlypeo #staffingcomp #peo #workerscompensation #temporarystaffing

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Rob Schild