Two paths diverging: PEO and standalone workers’ compensation

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PEO vs. Standalone Workers’ Compensation: Making the Right Choice

As businesses navigate the complex landscape of workers’ compensation, they often face a critical decision: Should they opt for a Professional Employer Organization (PEO) or stick with standalone workers’ compensation (WC) coverage?

In this article, we unravel the key points, benefits, and considerations associated with both options. Whether you’re an employer, HR professional, or curious reader, let’s explore the nuances and help you make an informed choice.

PEOs offer unique benefits that can significantly impact your clients’ businesses. Here’s why you might want to consider a PEO perspective:

The PEO Advantage

  • PEO can save premium dollars by “pooling” multiple companies into a large group getting buying power from the insurance companies.
  • They could help reduce your E-mod to be more competitive on bids.
  • Unlike standalone WC, PEOs do not require annual audits you pay-as-you-go through payroll.
  • Often a PEO does not require any down payment deposits.
  • A PEO will provide multiple State coverage and help manage the State funds.
  • Most PEOs have a large deductible program so safety & claims management is an essential focus of their process.
  • PEOs manage the claims process to help close claims quicker and with less money paid; also weed out fraudulent claims.
  • They will help establish a return-to-work program to mitigate claim costs.
  • They cover hard-to-place businesses and start-ups.
  • Most PEO programs can add a per-claim deductible to lower premiums
  • Comprehensive safety programs are included to help eliminate claims upfront.
  • A safety incentive program may be added on larger premium deals ($100k+). This will benefit employers with a safe 12-month WC claims history.
  • Unlike the open market, the safety incentive is based on the client’s individual experience, not the entire book of clients.
  • PEOs handle payroll services exclusively, allowing clients to focus on their core business operations.
  • By outsourcing payroll, clients can streamline administrative tasks and reduce the burden of payroll management.

Risk Acceptance and Quoting:

  • PEOs often quote risks that standalone markets decline.
  • They cover ONLY enrolled employees on WC, ensuring that claims are appropriately managed.

SUTA and Payroll Tax Considerations:

  • While SUTA (State Unemployment Tax Act) rates may vary with each PEO, clients benefit from simplified payroll tax management.
  • Some PEOs allow for payroll tax cutoffs, which is why it is important to do due diligence to fit the right PEO partner.

No Audits Required:

This saves time and resources for clients.

Flexible Payment Options:

  • PEOs usually do not demand a large initial payment.
  • Payments are conveniently made through weekly or biweekly payroll cycles.

Additional Benefits:

  • PEOs offer HR services, healthcare benefits, and other coverages beyond WC.
  • Clients can access a broader range of services through a single provider.

Liability Exposure and Uninsured Subs:

  • PEOs may provide added liability exposure protection. Most PEOs will assist with policies to protect clients from uninsured subs.
  • However, uninsured subcontractors are not covered under PEO policies.

Expertise and Advice:

  • While PEO sales staff may not be licensed insurance agents, they offer valuable advice on HR, compliance, safety, and other related matters.

Flexibility and Termination:

  • PEOs can adapt to changing needs and adjust pricing.
  • Some PEOs charge early termination fees, so clients should be aware of contract terms.


Choosing between PEOs and standalone WC depends on various factors:

Client Needs: Consider whether PEO services align with the client’s requirements.

Payroll Management: Evaluate if clients struggle with payroll administration.

Cost Comparison: Compare costs between PEOs and standalone WC.

Risk Tolerance: Assess the client’s risk tolerance and willingness to manage audits.

Dividend Options: Investigate if an open market dividend program or a PEO’s safety incentive (if available) is a better option.

Ultimately, PEOs provide a holistic solution, combining payroll, HR, Compliance, and complete WC services. Clients seeking convenience, expert advice, and comprehensive benefits may find PEOs to be the ideal choice. Remember that exceptions exist, so tailor the decision based on individual circumstances.

With over 600 PEO companies, how do you choose? As your dedicated PEO broker, we take a holistic approach to finding the right PEO partner for your business, helping you maximize your savings potential and avoid any undue risks.

Ready to optimize your worker’s comp, and employee benefit plans and streamline your HR processes? Contact today for personalized assistance or schedule a chat with us.

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PEO vs. standalone workers’ compensation
Workers’ compensation comparison
PEO benefits
Standalone policy management
Dividends and risk control

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