The Right PEO Partner Can Be Good for Brokers

Reaching out to a past opponent can be difficult, but it can also be rewarding. It’s important to remember that people and organizations can change. A rival from childhood could become a good friend later in life. A former competitor could be your future business partner. Old attitudes fade because they need to change. It’s a new world to grow your business, if not to retain your client base, you need to look at market solutions with fresh eyes.

In our world, let’s look at professional employer organizations (PEOs). Employers outsource their employee benefits and other management tasks like payroll, workers’ compensation, risk and safety management, HR, and training to these firms. A few years back, brokers perceived PEOs as a threat due to their success at taking appointments from brokers. Since then, there have been some decidedly broker-oriented changes at a few of these organizations. That said, not all have made the migration (or full migration) to broker friendly status.

Understanding why PEOs have suddenly become a hot item – and discovering how to tell the broker friendly from the phony – is critical. First, let’s explore why the model appeals to some groups. Some PEOs allows small groups to fall under a single, large group banner in terms of accessing benefits. This is accomplished through a co-employment agreement with the group. This simply means that, while the owner of the group continues to own, manage, and control the company, the PEO implements compliance and HR activities as well as other administrative tasks – all while allowing the employer to retain their own State Tax ID number. This is all overseen by in-house HR professionals and attorneys to help avoid litigation and compliance exposures, and, importantly, to keep your employer client from having to wrestle with the hassles of performing all these HR related tasks.


From a benefits perspective, let’s look at how this works by taking a fictitious PEO with 100 groups, each with 10 employees. Under the co-employment
arrangement, this now becomes a single 1,000-life group, which allows carriers to issue a single master policy for large group benefits. However, each
sub-group can still be underwritten (for both the health and workers’ compensation). Since they are no longer under a small group policy or rating rule each sub-group’s premium will reflect its true experience, risks, and ages. As a result, the PEO can generate an accurate composite rate for each sub-group. That is something to keep in mind for 51 to 100 groups that will otherwise lose their comfort-zone composite rates, as they move to Affordable Care Act (ACA) compliant coverage and the new definition of small group.

This means potentially favorable rates for healthier and younger groups along with single, integrated professional HR management for the perplexing range
of California and federal labor laws along with ACA reporting requirements. Interestingly, under Department of Labor and IRS rules, each of the fictional PEO’s 100 groups with 10 lives can enjoy the advantages of a large group policy without having to meet ACA rules for 50+ groups. In some ways, this produces a
best of both worlds opportunity. Each group can still maintain its own state Tax ID Number.

PEOs have made significant efforts to be more broker-friendly. A current PEO model offers a single, integrated health, payroll, and HR platform – in the same way that online agencies and e-brokers are gaining broker-of record letters. Where these e-brokers do not deliver, the PEO does deliver on this promise because it is truly an integrated platform, with no smoke and mirrors. From the employer’s perspective, a functioning single source, integrated health, total benefits, and HR/ compliance solution is very appealing. Employers want to manage their businesses, not their benefits, especially if they can keep their current broker. That’s where the new PEOs come in – few have always only worked with brokers. However, as many of you can unfortunately confirm, most have not. In fact, many have been quite aggressive in their efforts to take business from you.

Because of the growing success of broker-friendly PEOs, a few of the more aggressive direct sale entities are now testing broker channels. In fact, at least three California general agencies now have these relationships. A critical test of a PEO’s new found broker faith would be to ask two questions:
1.) Do they still take cases directly or do they rely 100 percent on broker sales?
2.) If they claim to take only cases through brokers, ask them if you can take back any of your cases they may have taken.

Here’s my recommendation: Use the accompanying checklist to help find a reliable PEO partner you can trust without the fear of their direct sales channel calling on the group, with or without you, next year. To determine if your current or prospect group is a fit for a PEO, a good prospecting place to begin is with the following:
• Any group you lost to a PEO in the past;
• One that is at risk of going to an ebroker or another PEO; or
• A 51 to 100 employee group that is uncomfortable at the idea of losing its composite rating (this group would be a candidate for a PEO because it can retain composites on certain PEOs).

Because the sale is more than just medical, you will want presentation support from your PEO partner to ensure the value proposition is fully explained to your group – and to manage that on-boarding and installation. The good news is that many of the PEOs do that for you. Your PEO partner needs to guide the sale through the integrated road map of payroll, HR, workers’ compensation, and benefits. The many technical issues require an expert’s presence and, ideally, you (as the group’s broker) and the PEO consultant will co-present the solution together. Finally, a truly broker-friendly PEO will insist you retain your visibility and assist with health-related service issues throughout the year, leading up to the group’s renewal where they will assist with your open enrollment. There are broker-friendly PEO products available that truly deliver an integrated employer system, a solution that the broker community has been asking for. Due to the changes in our industry, to maintain your success, I strongly urge you to consider reviewing a PEO product for those clients that fit the profile.

Source Link and Broker’s PEO Checklist