The quality and diversity of employee benefits dictate the company's appeal to top talent. While enterprises have access to top-notch options at a reasonable price, SMBs (Small and Midsize Businesses) struggle to find cost-reduction opportunities.
While some other approaches are available, the simplest way to attain affordable employee benefits is to work with a PEO (Professional Employer Organization).
Outsourcing benefits to an HR partner doesn't just help you cut costs. It also gives you access to valuable HR advice, takes the administrative burden off your team's shoulders, and reduces the employee churn rate.
Let's take a look at how a PEO can unlock access to affordable employee benefits.
What is a Professional Employer Organization?
A Professional Employer Organization provides HR services to SMBs. Solutions offered by a PEO usually include:
Workers' compensation administration
When working with a PEO, you can choose the services you want to outsource. Depending on the size of your HR department and the needs of your employees, you can either take advantage of a comprehensive solution or select specific options.
How Does a PEO Help with Affordable Employee Benefits?
According to NAPEO research, collaborating with a PEO can have an ROI of 27.2%. A primary reason for such high figures is access to affordable benefits.
Lower Health Insurance Premiums
To stay compliant with the Affordable Healthcare Act, insurance companies need to account for several factors when setting their premiums:
1. Age of employees 2. Location 3. Tobacco use 4. Plan category 5. Number of employees on the plan
While all the above factors are important, the number of employees plays the biggest role since it allows risk pooling.
The more employees an organization has, the fewer risks the insurance company takes since the expenses for less-than-healthy people are offset by the lack of expenses for healthy employees.
In most cases, the number of employees with costly health issues is much lower than the number of healthy people in the company, allowing insurance companies to reduce premiums.
Professional employer organizations aggregate their clients' employees together, creating a pool large enough to gain access to low premiums. Besides offering you an opportunity to use affordable benefits immediately, this model helps stabilize rates in future years.
Reduced Workers' Compensation Costs
Affordable workers' compensation insurance can be a challenge for small and midsize businesses. Even if you aren't in a high-risk industry, the insurance company may still set substantial rates.
In most states, a PEO can help you reduce workers' compensation costs by giving you access to a lower experience rate. The experience rate is used by insurance companies to calculate your premiums.
The experience rate depends on the number of past workers' comp claims within your organization, and the average number of losses suffered by employers in the same state and industry adjusted to the company's size.
When you work with a PEO, you can take advantage of its experience rate, which can be lower than yours. Additionally, this HR outsourcing partner can reduce workers' comp costs by:
1. Helping establish a return to work program to bring back injured employees ASAP, decreasing the amount of workers' comp benefits paid to them. 2. Developing and implementing effective safety programs to reduce risks and minimize workers' comp claims.
A PEO will also investigate and analyze new workers' comp claims to make sure there isn't any fraud involved.
Affordable 401(k) Plans
According to the U.S. Bureau of Labor Statistics, in 2020, 67% of private industry workers had access to employer-provided retirement plans. Among top talent, these plans often contribute to positive decisions about job acceptance.
More than 90% of SMBs that offer 401(k) plans say that doing so supports recruitment and retention efforts. However, not all SMBs can afford this highly appealing tool.
When partnering with a PEO, in most states you can take advantage of the Multiple Employer Plan (MEP). This is a retirement savings plan used by multiple employers without a relationship for income tax purposes. The benefits of an MEP include:
Outsourced 401(k) fiduciary liability.
Reduced 401(k) administrative costs.
An MEP has more assets than an individual employer does, so employee asset-based fees are lower.
If your organization has over 100 eligible employees, you need to arrange an annual audit through form 5500. A PEO can handle this audit for you, saving the organization thousands of dollars every year.
Controlled Unemployment Insurance Costs
The cost of unemployment insurance depends on your previous unemployment claims history. The more employees file these claims, the higher rate you pay. SMBs with numerous claims can have a hard time supporting unemployment insurance premiums.
When you work with a PEO, in certain states you can take advantage of its unemployment insurance rate, which can be lower than yours.
Additionally, a PEO can handle your unemployment insurance claims, check their validity, file appropriate documents, and attend hearings on behalf of your organization.
Unlocking the Secret to Affordable Employee Benefits
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Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design.