Working with PEOs: Do you know the risks?

PEO’s (Professional Employer Organizations) comprise a nearly $10 billion industry in the United States. These companies provide valuable services to clients who want to leverage a 3^rd party employer to handle the statutory employer responsibilities as a co-employer of their workers. 

PEOs essentially hire their clients’ workers, thereby becoming their employer of record for tax and insurance purposes, charging a service fee (usually between 4 – 12% of payroll) in return for taking over the payrolling and HR functions of the workers performing services for their clients.  

In recent years many staffing companies have looked to PEOs to help employ the workers they recruit who perform services at client sites. This relationship is a bit more complex that a direct one between a PEO and a client company because there may be three employers rather than two – the staffing company, the client company, and the PEO.

Some staffing companies are attracted to using PEOs because they be able to leverage the PEO’s workers’ compensation coverage at a much lower rate than their company could obtain directly through a broker or through State insurance.  However, many staffing companies that use PEOs are unaware of the risks involved in using these resources to lower workers’ compensation costs.  

Problems occur when staffing companies attempt to obtain a lower worker’s compensation rate by “piggybacking” off of another PEOs insurance policy.  In California piggybacking was barred in 2003, but some staffing companies and PEOs do not understand the complexities of this type of engagement which may be primarily based on saving on workers’ compensation insurance.

Recently, California’s State Compensation Insurance Fund (SCIF) won a case that found a staffing company and a PEO in violation of subverting payment of millions of dollars worth of worker’s compensation premiums.

According to sources close to the case, the damages and penalties could end up costing upward of $300 million dollars – due in part, to Code Section 756 which says an employer is liable for 10 times the amount of premium it avoided paying due to its fraudulent actions.

Because of the potentially ruinous penalties, consult your legal counsel if you are considering engaging a PEO to make sure that the arrangement you undertake is in compliance with federal and state law and that the PEO has a proper arrangement with their insurance carrier. The rules and regulations for employing contingent workers can be complex and it can be easy to fall into non-compliance of them.

Emergent is a trusted employer of temporary and project-based contingent workers throughout the U.S. Our family of companies services are utilized by Fortune 500 companies and small businesses alike. Emergent is not a PEO, we screen and employ the workers staffing companies recruit, looking after employer obligations such as HR, Legal, Risk Management, Payrolling and Worker’s Compensation.

To find out more about how Emergent can help your business today call us at (855) 850-5000 or e-mail us at info@emergent.com. 

Benefits of Temp-To-Hire

Hiring a worker on a temporary basis is a great way to try out a potential new employee before extending them an offer for direct hire employment.  It’s also a great way to implement a new position within a company before creating a new role.

Rather than hiring the worker as a full-time, internal employee – engage a worker can be done easily through an Employer of Record service. 

During a probationary period, usually lasting from 8 to 14 weeks, the temporary employee’s performance can be evaluated and a decision on whether he or she should be hired full-time or let go can be made.

BENEFITS OF TEMP-TO-HIRE

·         Extended interview period - Temp-to-hire allows a company to “get a feel” for someone over a period of time in a way that is difficult to accomplish during a short interview. For example, does the worker fit with the rest of the team? Do they have a good work ethic? Can they work under pressure?

·         Engage workers quickly and easily - Temp-to-hire candidates can be engaged quickly and easily through an Employer of Record service. These services (see Emergent's website for more information) handle all statutory employer responsibilities, including background screening, on-boarding, and payroll processing during the workers assignment – enabling you to focus on your core business needs.

·         No obligation to hire - If a company finds that the worker is not a good fit, they can disengage with the worker before or at the end of the contract. without having the obligation to hire them.

·         Evaluate long-term hiring need - Whether a company is hiring to address recent growth or a newly created positions, temp-to-hire provides the time to ensure that the position is needed before adding to the internal headcount.

·         Free to end assignment at any time - If a temp-to-hire candidate isn't a good fit, the assignment can be ended at any time.  When the candidate is the employee of an employer of record service, legal exposure is minimized.

·         Reduced benefits spend - Companies that use temp-to-hire workers do not incur benefits or vacation time costs during the probationary period when engaged through an Employer of Record service. 

·         Alternative to high recruiting costs - Temp-to-Hire and Employer of Record arrangements can offer significant cost savings versus hiring a permanent employee through traditional means.