Just like staffing companies, PEO’s (Professional Employer Organizations) are not created equal. In the United States there are over 700 PEO’s that manage about 90B of payroll. And while these numbers may give you the impression that there are many PEO’s with experience to partner with light industrial staffing companies, the reality is that there are only a small minority of these 700 PEO’s that have the experience, and are willing to work with light industrial staffing companies.
Here are the reasons why most PEO’s do not work with staffing companies–especially light industrial firms.
- The insurance carriers that underwrite PEO’s have moved away from underwriting staffing companies in the last 18 months because of the risk involved
- PEO’s find it more profitable to work with non staffing companies.
- The high turnover of employees (associated with staffing) increase internal costs for most PEO’s.
Not coincidentally these are all reasons that insurance carriers working directly in the staffing industry have become much more selective with the staffing firms they underwrite; and therefore forcing more staffing firms into the State insurance pools or funds. In turn, these State Pools have become the dumping ground of very high risk staffing firms, resulting in these Pools raising rates to all staffing companies. Effectively your rates will increase because you are “guilty by association” when you are in the State Fund or Pool.
This reduction in the number of PEO’s willing to service staffing companies over the last 18 months has unfortunately led to the increase of “phony” or fake PEO solutions in the market place. What I mean here is that some staffing companies will act as a PEO (to other staffing companies) and “share their work comp insurance policy” with another staffing firm without the carrier being aware of this inter staffing company arrangement.
This “piggy backing” scheme is essentially defrauding the insurance company (and the staffing company clients!) When the insurance company finds out this is happening (and they do find out) then claims are denied, and legal action may be taken by the insurance company against all staffing companies involved. Staffing firms may engage a piggy back staffing firm (versus a legitimate PEO) because the piggy back staffing firm’s rates may be very very low (sometimes as a result of misclassifying employees- hence another fraud) — and not realize the consequences of their action.
So how does a staffing firm find a legitimate PEO to work with? First, the staffing firm should use a seasoned PEO broker that has years of experience in dealing with PEO’s that service staffing firms, and has many clients that they can use as references. Second, a legitimate PEO relationship will allow the staffing company to have their name on the insurance “certs” to show the staffing firms clients. A piggy back relationship will not allow this– hence the fraud. Lastly, ask for a copy of the current insurance policy from the PEO– make sure it is from a good carrier and is current.
As a PEO broker for 6 years, a former client of a PEO for 10 years, and a staffing company owner for 16 years, I really enjoy matching staffing companies with the few choice PEO’s still servicing staffing companies.
Please feel free to contact me at 202-302-1212 to get a free PEO quote.
All the best
David
David Schek
President
david@StaffingCompSolutions.com
www.StaffingCompSolutions.com
American Staffing Association Member
California Staffing Association Member
Exclusive PEO Broker for the United States Staffing Association