Here at Employers Resource, we recently published our newest eBook, The Anatomy of a PEO Invoice. This eBook is an in-depth guide to PEO billing, and covers a variety of topics that many small business owners interested in PEO services have questions about.
We want to give all of you a small preview of what we cover in the eBook, and have been posting sections of it this last month. We previously showed you our sections on what’s in a PEO invoice that you’re already paying for, PEO admin fees and types of PEO invoices, and the fine print and additional costs to watch out for in a PEO invoice. This week, the final section we’re bringing you are the sections on work comp and benefits.
Keep an eye out for more sections in the coming weeks for more information on PEO billing and invoices, or just download the full eBook here!
Workers’ Compensation Premium
Workers’ comp is administered by the state. Most states require employers to have workers’ comp coverage. Workers’ comp is billed as a percentage of payroll. The percentage will vary depending on the type of industry and the type of work a given employee on your payroll is performing.
National Council on Compensation Insurance (NCCI) is a national organization that determines which classification codes apply to employers and each state determines the rates for each of these classifications.
For example: a clerical employee may cost $0.25 per $100 while a plumber might cost $10.35 per $100 in your state. These codes basically represent the risk involved in providing coverage for them and the likelihood of experiencing a claim for that employee.
As you might expect, the more employees working in a particular risk classification, the higher the workers’ comp insurance charges. When using a PEO, employee time (hours worked) is reported to the PEO for each workers’ comp risk classification, and is used as the payroll (remuneration) basis for billing you for workers’ comp premium.
Each unbundled PEO quote you receive will identify the charges for workers’ compensation insurance. Workers’ comp charges are usually based on a “dollar per hundred” charge. For example: a $5.00 workers’ comp charge will be charged at the rate of $5.00 for each $100 of payroll in the particular workers’ comp classification.
You should expect to see workers’ comp charges identified for each type of work you identified on the proposal you receive from the PEO. Unlike many traditional workers’ compensation insurance plans, there are no up-front deposits required to secure coverage. When using a PEO, workers’ comp coverage is part of the program.
For “white collar” companies without significant workers’ comp exposure, these costs are usually a minor component of the overall price being quoted. However, for companies with higher-risk jobs, workers’ comp costs and/or savings are a significant component of the overall quote.
Participating Discount Programs (PDP)
Some PEOs offer a PDP program that allows the client to access lower monthly premium rates in exchange for sharing more in the cost of claims and risk. This can look many different ways, but most commonly you’ll see an out-of-pocket cost that the employer will agree to pay for claims up to a certain point. Sometimes it specifies a certain flat fee per work comp medical only claims. For example, $50 per incident only claim. Sometimes you will see a flat fee per claim related to indemnity/death. For example, $5,000 per indemnity/death claim. These programs are used by PEOs to allow employers to put some “skin in the game” in exchange for lower monthly premiums.
Employer-paid benefits costs on the invoice are expressed as dollars per pay period, per enrolled plan subscriber. These are costs that are not deducted from your employees’ paychecks. They are costs paid for by the employer.
Examples of employer related benefits costs you might see:
- 401k matching contributions.
- Medical insurance premium contributions.
- Dental insurance.
- Tuition reimbursement.
These will vary from employer to employer. But, if you have any benefits that you do pay for for your employees, they will be listed on the PEO invoice under this section.