PEOs and Employer Risk vs Benefit of outsourcing

[Guest llerner]

I understand a record number of PEOs went bankrupt in 2002 requiring employers to pay payroll taxes, workers comp when funds had already been paid to PEO however liability was still the employers', doubling their expenses. One of my clients wants to use a PEO based in Bradenton, FL - client in CA wondering if DOI stance is positive etc to outsourcing workers comp. They don't require any retainer for workers comp etc.due to the "power of many". Any experience with PEOs? Team America, one of the largest recently went bankrupt. Is the magic about smoke and mirrors? Do they cover expenses with new sales? How can they make money handling all including business and employer liability legal fees, COBRA, HIPAA, health, 401(k).HR, employee manuals, new hire processing, complete HR outsourcing including covering all HR related lawsuits etc for only 20% admin fee? Any comments, info, trend info or feedback would be helpful. We may want to use one as well since we have about 38 employees, same as our client. It seems too good to be true! Hidden fees? Appreciate your experience with PEOs you can email me directly as well. Thanks again.

[GBurns]

The situation you outline seems quite common. That is what you get for believing sales presentations and not doing proper research.

While the outsourcing of DOI might be condoned by the DOI this is really irrelevant. Outsourcing does not mean that there is either proper coverage, any coverage at all, or that premiums get paid. The only entity that knows if the PEO pays premiums etc would be the WC insurance company/companies. What have they said about the track record of this PEO?

Aside from the "up front" deposit, How do their rates for the same coverage etc compare?

As for "handling all including business and employer liability legal fees, COBRA, HIPAA, health, 401(k).HR, employee manuals, new hire processing, complete HR outsourcing including covering all HR related lawsuits etc for only 20% admin fee?" Who and what makes you think that they really do these things and will do these things legally? Listing possible services is not the same as being able to provide and not the same as really providing.

Remember the recent Revenue Ruling regarding PEOs and 401(k) plans? The same situation exists regarding health plans and section 125 plans. Are they providing benefits as in being the Plan Sponsor or are they providing as in being insurance sales agents? Will there be a Trust or VEBA etc etc and will whatever it is be compliant etc etc.

As for "covering all HR related lawsuits etc ", I suggest that you ask a lawyer and do a search on places like findlaw.com and other legal websites to see how often it was the client who was left standing alone as the common-law employer.

[mroberts]

I am not an advocate of PEO's. I have heard of way too many horror stories. It doesn't sound like they staff themselves properly and can't seem to keep their clients straight. I have a client who recently pulled out of a PEO and I think she would commit suicide if the company was forced to go back into one.

A better solution may be to go to an HR consulting firm and hire one of its employees for a couple days per week. This is a very common practice for a company that might not need someone working 40 hours per week in HR. The HR professionals are usually very well trained and have a whole office of backup if they need it.