PEO insurance is insurance administered by a Professional Employer Organization (PEO). This often refers to employee health insurance, but could be any kind of insurance that benefits employees (such as unemployment insurance or life insurance).
Here we explain what PEO insurance is and the pros and cons of using a PEO for employee insurance.
1. In some countries it is compulsory for employers to offer various forms of insurance for their employees. In other jurisdictions, businesses choose to offer insurances to employees as an additional benefit.
2. Companies can often benefit from engaging a Professional Employer Organization (PEO) to administer benefits, including insurance, on their behalf.
3. There are pros and cons to PEO insurance, and every company needs to consider whether it is better to engage a PEO or to insure workers directly.
What Does PEO Insurance Mean?
In many countries (such as the USA or Germany), employers have compulsory health insurance obligations. In PEO arrangements, the PEO often (but not always) becomes responsible for health insurance, rather than the company that the employee works for on a day-to-day basis.
A Professional Employer Organization, or ‘PEO’, provides payroll and HR solutions for client companies ensuring compliant payroll, tax withholding and HR services for employees. Where the PEO operates internationally, they are known as a ‘Global PEO’ or ‘International PEO’.
In some countries it is not compulsory for employers to provide health insurance, but it is nevertheless customarily expected by employees (in these cases they are known as non-mandatory benefits). In other cases, businesses decide to offer private health insurance as a purely optional extra to make working with that company more appealing. For example, in Australia (which has a publicly funded healthcare system), some employees can avoid paying a medicare levy surcharge (an extra income-related tax) if they have appropriate private health insurance. It is also common for private health insurance to be provided as an optional employee benefit in Canada.
For more information on health insurance specifically check out The Expert Guide to Health Insurance for Remote Workers.
Other types of insurance that a PEO may be required, or choose to provide include:
- Workers compensation. A form of insurance replacing employee wages in case of injury, in lieu of suing the employer for negligence;
- Disability insurance. This is a form of insurance that kicks in when a worker becomes disabled;
- Life insurance. This pays out a lump sum to an employee’s family in case of death;
- Unemployment insurance. Unemployment insurance is often funded partly by employers and partly by employees and provides extra payment in the case of unemployment than would otherwise be applicable under social security or social welfare programs. For more information see What is Payroll Tax?
Why Should a Business Choose PEO Insurance?
The core original purpose of a PEO, and their historical predecessor, a ‘labor leasing’ company, was to manage the pension and health insurance obligations of employers.
Originally, employers may have simply seen the benefit of outsourcing the compliance obligation of offering health insurance: By arranging for a third party to provide the insurance, the client company could focus on its core business. To read more about the origin of labor leasing and PEO solutions see What is an Employer of Record?
However, in recent years it has been seen as an effective mechanism for acquiring better healthcare benefits for employees. In countries like the US, where employers are often obliged to provide health insurance, it can be difficult for smaller employers to afford ‘good deals’ for their employees.
As a PEO employs staff at many different client companies, it is in a position to purchase health insurance ‘as a collective’. This greater purchasing power often means the PEO can negotiate better health insurance coverage than any individual client company could get on its own. We discuss this feature in more detail below.
What are the Benefits of PEO Insurance?
The benefits of PEO insurance include:
What Are the Disadvantages of PEO Insurance?
The disadvantages of PEO insurance might include:
Frequently Asked Questions
There are many different types of insurance that a company can offer to its employees. Sometimes this is compulsory, and sometimes it is offered as an additional benefit to employees. This might include health insurance, workers compensation, disability insurance, unemployment insurance and life insurance.
Companies can seek out insurers directly, engage insurance brokers, or use a PEO to acquire insurance for employees. Where the PEO is used to acquire insurance the insurance is sometimes referred to as 'PEO insurance'.
'PEO' stands for 'Professional Employer Organization'. These companies, sometimes known as 'umbrella companies' or 'staffing agencies', provide comprehensive payroll and HR solutions for client businesses.
Commonly a PEO acts as an 'Employer of Record' on behalf of a client business: This means becoming the legal employer of the workers in that client business and being responsible for payroll, employee income tax, payroll tax, compulsory social contributions and so on.
For more information check out What Does PEO Stand For?
A PEO medical plan means that a Professional Employer Organization is providing a medical or healthcare plan to employees, rather that the company that the individual works for on a day-to-day basis.
They can be.
A 'TPA' or 'third party administrator' is an organization which helps a company who has decided to self-fund insurance for their employees. It is quite common for PEOs in the US to provide TPA services.
By managing the compliance risks of self-funding, a TPA can provide a cost-effective insurance solution for some businesses.
Choose PEO Insurance with an International Employer of Record
PEOs often provide many forms of PEO insurance as part of their benefits administration services to client companies.
New Horizons Global Partners provides full-service Employer of Record and PEO solutions, ensuring that employees get excellent insurance coverage in full compliance with local laws.
Contact us now for more information.