How Professional Employer Organizations (PEOs) work
For many people, health insurance is a necessary expense that we have to pay for. Some employees have cost of insurance and other benefits deducted from their paychecks, others work for companies that fully cover those costs which can help employees keep more of their take home pay; but it costs business owners to provide health insurance to their employees, and with rates on the rise, and the implementation of the Affordable Care Act, an increasing number of businesses are looking to professional employer organizations (PEOs) to help minimize these costs.
The Affordable Care Act, also referred to as Obamacare, businesses with more than 50 employees are required to provide health insurance. While larger businesses may have already been in the practice of offering an employee benefits program, smaller businesses are now faced with refiguring their finances and considering the cost of healthcare along with other line items in the budget.
Businesses coming together
PEOs provide a way for businesses to meet the new requirements by creating group insurance plans that allow for cheaper costs overall due to economies of scale.
In this type of plan, a group of several businesses pays a certain amount per month to the PEO, which in turn provides a selection of health care options to the employees of the participating business, and also allows owners to outsource the administrative work that comes along with rolling out and maintaining a benefits plan.
The caveats to know about PEOs
Many businesses are attracted to this option because they would rather not deal with the complexities of the new law, and instead, focus on their core business functions. However, those interested in joining a PEO should keep in mind that joining doesn’t guarantee lower rates – those will depend on the overall health and composition of the employee pool that feeds into the PEO.
Businesses that already have in-house human resources staff and an existing benefits plan may not feel the need to consider other options; but professional employer organization revenue increased by more than 13 percent from 2010 to 2012 to $9 billion, providing business owners with an alternative solution if they are in the market for a potentially more competitive plan.