What is EPLI insurance?
Employment Practices Liability Insurance provides coverage for an employer against claims made by former and current employees for discrimination, wrongful termination, sexual harassment and other labor law allegations. The PEO should have EPLI insurance as part of the administration fee or as a separate charge.
Does the Company have to wait for an Open Enrollment period to start with an employee leasing company?
No, because the PEO’s health insurance plan is a master plan it can add employees (the Company’s employees) to its health plan at any time of the year. If the Company currently has a health insurance plan, there is usually at least a 30 day notification period for canceling the existing health plan.
What's involved with getting started?
The client provides information on current payroll (form 940/941), workers' compensation codes, unemployment rate (UTC6), and potential safety issues. Thereafter, the company keeps the PEO informed of changes in payroll.
How does health insurance work when you join an employee leasing company (PEO)?
The PEO typically has its own master health insurance plan. Because the Client Company is joining a large organization, the costs are reasonable due to economies of scale. With a PEO’s health insurance plan, the Client Company has the flexibility of paying 100% of the premium, having the employee pay 100% or any level of contribution the Company decides. The PEO offers a cafeteria or 125 plan so the employee’s contribution is deducted from gross wages, pre-tax.
Is the employee leasing company (PEO) responsible for compliance to labor laws such as EEOC, Fair Labor Standards Act (FLSA), Family Leave Act (FMLA), COBRA, OSHA and ERISA?
Absolutely yes. As defined by the Department of Labor, the PEO has a co-employment responsibility to all tax and legal compliance. As the co-employer, the PEO will represent the Client Company by responding to any employee complaints. Should there be a judgment against the Client Company under a labor law violation; the PEO is responsible for the liability. That is why the employee leasing company (PEO) should have Employers Practice Liability Insurance (EPLI).
What is the minimum number of employees a company must have to be considered by an employee leasing company?
The minimum is 2 employees but because the PEO’s administrative fees are based on annual payroll it may be too costly if there a fewer than 5 employees. However, even with just a few employees there can still be a cost savings with the lower rates for health and workers' compensation insurance.
What is the risk in signing up with an employee leasing company?
Almost every state, including Florida, regulates the PEO industry. When the PEO industry first started in the early 1990’s, some PEOs left town after having collected the withholding taxes and not making the quarterly payments to Federal and State governments. This is no longer a risk as today, as Florida requires an up-to-date license and proof of net worth. The licensed PEOs and the requirements are listed at www.Florida.gov
What does employee leasing cost?
A better question is “Can it save me money?” With a detailed quote from the PEO, a company can make apples to apples comparisons with the current costs for unemployment insurance, workers' compensation insurance, and health care insurance. These are the hard costs, easily compared. Softer costs are the administrative costs to process payroll, prepare quarterly government reports and comply with labor and safety laws. PEOs charge an administrative fee as a cost per employee or a percentage of total gross payroll. This fee is applied to each invoice on the same schedule as your payroll period. Depending on the size of the total payroll, administrative fees typically range from 1.75% to 3.0% of total payroll.
What is the difference between a Payroll Company and an Employee Leasing Company (PEO)?
Payroll companies process the Client Company’s payroll but do not take on responsibility for employee benefits, insurance, or compliance with labor law. The Client Company typically maintains its own workers' compensation and if desired, health insurance. While most payroll companies will file payroll taxes on the client's behalf, the Client Company is still the “employer of record”, so any errors or omissions fall back on the Client Company. Only a Professional Employment Organization (PEO) can provide a Client Company with the true form of employee leasing and meet the legal requirement of “joint employer” as defined by the US Department of Labor. In most states (including Florida), the PEO must be licensed and is regulated. Licensing is necessary because the PEO becomes financially responsible for reporting and paying all mandated payroll taxes for the Client Company’s employees. Also, as the PEO is the “joint employer” it has responsibility for workers' compensation insurance, providing basic employment policies, and advising on compliance with state and federal labor laws. Employee leasing requires the Client Company to enter into a contract with the licensed PEO and, in effect, transfer or assign all employees to the PEO’s payroll. As defined by the Department of Labor, the PEO is a “joint employer contracted with the client employer to perform administrative functions such as payroll, benefits, regulatory paperwork, and updating employment policies”. The Company will sign a contract with the PEO which should clearly state “the client maintains the responsibility for managing and directing the day to day activities of the assigned employees”. In effect, the Client Company controls its employees just like before, while the PEO handles the HR compliance administration.
Does the Company sign a contract with the PEO?
Yes, for a one year period, which can be canceled at any time with 30 days written notification. The PEO makes its money each pay period. There are no upfront fees. Each pay period the Client Company receives an invoice detailing gross wages, all tax withholdings, benefit costs, and the amount of the PEO administration fee. Therefore, the PEO earns its money by keeping the Client Company for the long term as the fees earned are only received as a percentage of wages actually paid.
With employee leasing, how does the PEO handle people who work for the company as independent contractors or 1099 employees?
The Client Company can continue to use and pay directly the independent contractors and a 1099 report must be provided by each independent contractor making more than $600 per year. But, be careful. The IRS and State Revenue Departments are cracking down like never before on employers who misclassify employees as independent contractors to avoid employment taxes, especially unemployment insurance taxes. In most states, the unemployment revenue funds are depleted and the states are borrowing from the Federal government to pay the unemployment benefits. Obviously the state wants to collect all the unemployment tax it can. We recommend a Client Company properly classify its workers. If they do not meet the definition of “independent contractor” then they must be a W-2 employee. There are several IRS guidelines for determining if a person is an independent contractor. Basically these guidelines focus on how much control the employer has over the independent contractor in terms of hours worked and job requirements. Also the guidelines look at the independent contractors other sources of income.
Do I give up control of my employees?
Absolutely not. The Client Company continues to direct, train, hire and fire.
What about workers' compensation insurance?
The PEO carries workers' compensation insurance with an underwriter approved by the state (FL) insurance commission. All employees will have workers' comp insurance and the PEO will carefully review the workers' comp codes and modifiers to look for cost savings. In Florida, all companies with four (4) or more employees are required to have workers' compensation insurance. But for companies with 3 or less employees, the liability for injuries on the job will fall on the Company. In our opinion , it is not worth taking this liability risk. In our opinion, all companies should carry worker’s comp.
What is the relationship between my company and the leasing company? Who is the actual employer?
The company will find the Professional Employer Organization (PEO) to fill your specific needs. The partnership between your company and the PEO is a co-employer relationship. You continue the management of your employees as the work site employer while the PEO handles all of the human resource compliance administration of the employees.