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Insurance
Benefits through PEOs
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Professional
Employer Organizations make comprehensive insurance benefits available
to small employers.
By William Poe
When it comes to insurance, many small employers find it difficult
to provide the comprehensive benefits that larger employers typically
provide. And that can put smaller companies at a competitive disadvantage
in the recruitment and retention of workers who rank benefits high
on their list of employee needs.
Fortunately, Professional Employer Organizations (PEOs) can help
smaller businesses offer the same kinds of insurance packages of
even the largest employers.
“The idea is to provide Fortune 500-style benefits to small- and
medium-sized businesses,” says Mike Butler, general manager of Kelly
Staff Leasing, which has since 1995 provided PEO services across
the nation, including in St. Louis.
And clients say PEOs deliver on their promise.
“We’re not big enough to have a human resources department,” says
Dan Lauer, founder of St. Louis-based Haystack Toys, which employs
13. “People want great benefits and using a PEO allows us to operate
bigger than we are.”
A PEO, of which there are about 2,000 nationwide, essentially serves
as a full-service human resources department for small- and medium-sized
businesses. The PEO is a relatively new service and was virtually
unheard of a decade ago. PEOs are not well known even today.
“Our first task is always education,” says Michael Berger, district
manager for Administaff, Inc., which serves about 100 client companies
in the St. Louis area. “When people hear about PEOs for the first
time, they ask why they have not heard of it earlier. But we have
made great strides in the last 15 years.”
In fact, many employers have more than heard of PEOs. Administaff
has seen explosive growth since its 1986 founding. The company now
serves approximately 4,000 client companies across the nation and
this year moved into the Fortune 500 list of the nation’s largest
corporations with revenues last year of $3.7 billion. Kelly Services,
Inc. got into the PEO business in 1995 when it purchased Your Staff,
the nation’s first PEO, and began offering PEO services through
1,500 Kelly branch offices in the U.S., Butler says.
Administaff, Kelly and other PEOs serve individually as an off-site
HR department providing employers with a wide range of personnel
management services such as employment administration, benefits
management, government compliance, liability management, employee
recruitment and selection, manager training and development, and
even performance management, Berger says.
Administaff serves companies with 10 to 1,000 employees.
PEOs, Berger says, “level the playing field so small- to medium-size
companies can offer the same benefits packages as larger companies
and compete for and retain the talent they need to grow their businesses.”
One important area for PEOs, Berger says, is insurance. Products
include comprehensive medical, dental and vision care, pharmacy,
life, personal accident, and short- and long-term disability. Administaff
and Kelly also provide employment practices liability insurance
to protect the employer against employment-related claims.
Administaff’s health insurance products, Berger says, are underwritten
by Aetna U.S. Healthcare. Life insurance, disability coverage and
accident insurance are provided through CIGNA. Kelly’s providers
vary somewhat by market served, Butler says.
“All of our vendors are top-tier providers,” Berger says.
Administaff client company employees may choose from several health
care plans. Options include a Health Maintenance Organization (HMO),
or a Preferred Provider Organization (PPO). Employees who live outside
the corresponding network area enroll in an out-of-area option,
Berger says. Administaff also administers a Section 125 plan, which
allows employee contributions toward medical benefits to be made
on a pre-tax basis. All medical options include a maternity program,
and most options include access to a health help line.
Client companies especially appreciate the health insurance products,
Berger says, since “small companies are typically forced to change
providers each year or two as rates rise. Obviously, it takes up
a lot of management time and is disruptive to employees.” In contrast,
Berger says Administaff has had a relationship with Aetna for more
than 10 years. “PEOs provide stability,” he says, “and provide a
broader range of insurance options at a lower cost than many companies,
especially small ones, can negotiate themselves.” Many small employers,
for instance, do not provide maternity coverage in their health
plans, Berger says.
“Because of Administaff’s large volume buying power, we offer several
competitive benefits packages to employees,” Berger says. “We also
manage the administrative side of maintaining these benefits. We
take care of most questions and paperwork and act as a liaison between
employees and the benefits providers.”
In fact, Haystack Toy’s Lauer says a primary benefit of a PEO is
that it relieves him of administrative duties surrounding benefits
plans.
“I don’t have to worry about payroll filings, taxes, 401K, and the
like,” Lauer says. “It’s really peace of mind, and I can concentrate
on what I’m best at.”
Lauer says he does not take advantage of the full range of PEO services
and knows that he should. “The more you use your PEO, the more valuable
it becomes.”
Administaff, Lauer says, also provides services in personnel management,
training and development, and even e-business support through IBM.
Administaff and Kelly also provide benefits and programs in other
areas, including educational assistance, dependent care spending,
retirement savings, liability management, government compliance,
worker’s compensation, and other areas, Berger and Butler say.
“These are things that small- and medium-size businesses have to
handle the best way they can even if they don’t have core competencies
in those areas,” Berger says. “We are an efficient, cost-effective
option for them.”
Employment Practices Liability Insurance (EPLI), Butler says, is
becoming more important to businesses as employer-employee disputes
are said to be the fastest growing area of litigation in the U.S.
EPLI insures employers against claims of wrongful termination, discrimination,
sexual harassment, and other workplace torts.
Before providing PEO services, Kelly and Administaff enter into
a co-employment agreement with client companies, thereby turning
a two-party relationship into a three-party employment relationship,
Butler and Berger say.
In return for its PEO services, Berger says, Administaff is paid
a fee that is a percentage of the client’s payroll size. “Companies
usually find the cost of a PEO to be no more than they are spending
anyway, and they receive much, much more in return.”
William V. Poe is principal of Poe Communications, a St. Louis
advertising and marketing communications firm. |
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