The Hidden
Costs of Professional Employee Organizations (PEOs) to Dallas-Fort
Worth, and Texas Businesses
Professional employment organizations, or PEOs, are
a convenient way for small to mid size businesses to handle their
human resources demands. Many PEOs will offer employers a array of
HR related support services, including payroll and benefits like
group health insurance. Other PEO services may include legal, tax,
administrative or outsourcing of the entire HR function.
PEOs often base their rates on a percentage of billing, plus charges
for services rendered. For growing businesses, professional
employment organizations may allow companies to hire more "front
office" positions such as in sales or marketing, which could help
the company secure the talent they need to grow faster.
The hidden cost to PEOs which is usually not discussed with
prospective business clients in Dallas Fort Worth, Texas. These
costs could add significantly to the actual cost of a company
joining a PEO.
When a company contracts with a PEO, the business's employees
legally become employees of the PEO and the business entity.
Employees then are paid a salary or wage by the PEO, enroll in
benefits provided by the PEO, and then the PEO bills the business
entity.
Often times, because the PEO has thousands of employees under their
Texas group benefits program, the PEO could offer more affordable
group health insurance than if the company offered benefits to its
own employees.
This could in fact be the case if the Texas business has unhealthy
employees, as insurance carriers would "rate up" (charge higher
rates) to unhealthy companies. In fact, according to Texas insurance
laws, insurance companies can rate up the group health insurance
premiums to a texas small business by up to 66% over standard rates
if the company has unhealthy employees.
Because of this, the PEO may tend to attract companies with
unhealthy employees. And over time, companies with healthy companies
may tend to leave the PEO as they could qualify for lower group
health insurance rates on their own.
And group health insurance carriers, knowing this tendency of the
PEO, often rate up the PEO vs. other business industrial
classifications. So the rates may start higher for employees of the
PEO, and may climb at a higher rate over time.
So a Dallas Fort Worth small to mid size business that starts out
thinking a PEO is a good deal vs. staffing for back office positions
should know all of the hidden costs of a PEO.
Any such staffing savings could easily be negated by the higher
rates for benefits through a PEO. For example, since the current
annual cost of health insurance for an employee in Texas is about
$4500 to $5,000 (less the portion that the employee pays), if there
is a premium of 20% in the cost of group health insurance through a
PEO, that could mean an employer with employees of average age and
health would pay perhaps $1,000 more for purchasing group health
insurance benefits per employee per year through a PEO.
Before signing a contract with a professional employer organization,
a North Texas business should first get an independent assessment of
their company's employee health and obtain quotes for employee
benefits and group health insurance for their company from a Dallas
Fort Worth group benefits advisor preferably one who is a Chartered
Benefits Consultant (CBC) or texas group health insurance broker. A
Texas business currently contracted with a PEO should annually check
the cost of obtaining group health insurance and other employee
benefits as a stand alone company.
If your Texas business is contracted with or is considering
contracting with a PEO , you can receive a a no obligation
assessment of your group health insurance and employee benefits and
receive recommendations for alternate employee benefits solutions by
contacting a Chartered Benefits Consultant (CBC)/group benefits
advisors, Dallas Fort Worth, Texas, (214) 501-8985. |
