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Employee Leasing FAQ

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Pay As You Go Work Comp

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Employee Leasing Companies (PEO’s) can be a good option for employers that do not want the hassle of completing a work comp audit at the end of the year. They can also provide work comp coverage when the standard market cannot because of claims history.

What is a PEO?

A professional employer organization (PEO) is often also referred to as an employee leasing company. These companies provide payroll services and workers compensation coverage to their clients. Some PEO’s also provide health insurance and 401k options. The relationship between a PEO and it’s client is that of a co-employment relationship where both the client and the PEO share specific duties when it comes to payroll processing, benefits processing and workers comp.

Who is covered by work comp when I use a PEO?

Unlike standalone work comp policies – the PEO only covers employee’s who are active and on payroll. If an employee is not paid and an injury occurs during the time period that no pay is present – there is no coverage. Likewise, independent contractors, cash laborers and subcontractors are not afforded coverage by the PEO. For this reason it is imperative that client companies utilizing PEO’s are adhering to best practices for subcontractor and independent contractor risk transfer techniques. This includes use of subcontractor agreements and proper collection of COI’s for these individuals and companies. Our company can help you develop sample COI requirements for your vendors and subcontractors.

Are leased employee’s my employee’s?

The employee works for the client company. The client company still has control over all aspects of that employee’s job duties, rate of pay and hiring and firing decisions. The only areas that the leasing company are considered the employer of record are for tax purposes and for work comp claim purposes. They are liable for and control the decisions being made from a tax and work comp perspective.

When does a PEO make sense?

A PEO normally makes sense when a business has a high work comp rate, frequent work comp claims, a high experience modification factor and/or excessive health insurance premiums. Since a PEO charges it’s clients a percentage based fee on payroll of between 1%-6% those costs need to be made up on the labor burden elsewhere in order to achieve financial gain. Reductions in work comp premiums, SUTA charges and health insurance premiums are all examples of areas that the PEO can offer you better rates.

Employee Leasing Company vs. PEO

These two terms are interchangeable. PEO’s and employee leasing companies are the same thing. They are companies that provide payroll processing services under their tax profile – along with workers compensation benefits or other benefits like health insurance and 401k.

What is a 941 report?

Client companies of PEO’s do not have a 941 report that applies to their business. This is because all the tax filing for state and federal taxes are filed under the name of the employee leasing company or PEO.

Are employee leasing services legal?

Yes, they are legal. There is nothing illegal about using an employee leasing company to process your payroll and provide your workers with work comp.

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PEO and Leasing - Business Meeting Looking Over Workers Compensation Claims

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