Professional employee organizations typically provide smaller companies with benefits, HR, payroll and many of the services that smaller startup companies need. The pricing is either based on a fixed fee or a percentage of payroll. They are designed for companies that lack the internal staffing to have a professional HR department or the desire to manage these administrative tasks.

PEOs are frequently used by startups. We have seen many examples of situations where the startup has grown to 150-200 employees and the company, by default, continues to use the PEO. However, at that size, the PEO is probably no longer a cost-effective resource. Perhaps this is an opportunity for you.

Why would a company consider a PEO in the first place? Simplicity, single administrative source for services, no internal staffing capabilities and large-group composite medical pricing in a small-group age-rated pricing world, to name a few reasons.

So, how do we deal with the 50-99 marketplace in 2016? We will go from composite to age rated in most markets. Does this create an opportunity for the PEOs and a potential threat to your block of business? It may, depending on your value and what you bring to the table.

Friend or foe?

Although there may be some pricing concessions in the PEO market, some or much of it can be mitigated by offering self-funded or level-funded options which will continue to be composite rated. It will be critical for you to not only continue to bring value to your clients but also be able to demonstrate the value you bring.

Much of our value is not readily transparent … claim adjudication, billing resolution, individual counseling with employees, etc. We need to elevate our value. Perhaps this is the time to initiate stewardship reports, where we can demonstrate our value to management at our annual strategy meetings. These reports would provide a detailed accounting of all the touch points during the year — those that are visible and those that are done behind the scenes.

PEO friend or foe? The choice may be yours. There may be an opportunity to partner with some of the PEOs and have them become another tool in your quiver. Many currently pay a modest commission or fee. Perhaps, they will recognize the additional value we bring and a more traditional compensation model can be developed. These are discussions you may want to have with the PEOs in your market.

Torelli is an EBA Advisory Board member and area senior vice president at Arthur J. Gallagher & Co. Reach him andy_torelli@ajg.com.

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