Staying Competitive in Florida’s Growing Professional Employment Organization Market
The Affordable Healthcare Act and the plethora of human resource laws, such as the Family Medical Leave Act, has resulted in an increase of contracts between small and mid-sized employers and Professional Insurance Organizations (PEOs). Many of these client companies struggle to address the compliance requirements of increasing complex state and federal laws, and are turning to PEOs to manage these issues. In addition, they want to lower workers’ compensation and health insurance expenses, as well as provide retirement and other benefits for their employees. To be successful, they need the leverage of a larger company to negotiate the best prices, so they turn to a PEO for help.
In Florida, the PEO market is extremely competitive so to retain current customers and improve growth potential, you must provide exceptional services and the best insurance coverages for the lowest possible cost. This means taking the time to shop around for the best value for the policy coverages your clients expect as well as selecting a carrier that provides quality customer support. There is also insurance coverage you need to protect your business from potential client lawsuits.
Florida Legal Requirements for PEOs
Florida requires a license to operate a PEO under its Employee Leasing Company or Controlling Person regulations. PEOs are reviewed and monitored by the Board of Employee leasing and must comply with:
• The Florida Administration Code
• Department of Business and Professional Regulation Requirements
• Florida Division of Workers Comp
This high level of licensure and oversight exists because PEOs manage the human resource activities for a growing number of employees, including workers’ compensation, and the state has a vested interest in their operations.
PEOs Growing in Florida
The PEO market is increasing across the country with annual revenues between $136 to $156 billion and employing around 2.7 to 3.4 million employees. Currently, Florida has the most resident PEOs in the country at 104 licensed businesses. The reason there are so many PEOs is that the economic downturn has hit Florida companies hard and business owners looking for ways to lower HR and insurance costs. This large number of PEOs doesn’t include national and regional companies, so your pool of competitors is significant. You may need to adjust your operations to stay competitive, meeting existing client expectations and attracting new business.
The reason most companies initially hire a PEO is to reduce HR costs – and for good reasons. Studies show that the average company will experience a 35% cost savings on HR Administration over similar companies that perform these tasks in-house. In addition, businesses that used PEOs for at least four quarters, were 50% less likely to permanently go out of business from one year to the next compared to the overall rate of similar US businesses.
As more companies use PEOs, the role of this industry is expanding. While many businesses initially contract with a PEO to improve insurance rates and coverages, more and more employers are demanding assistance with a variety of additional human resource activities including:
• Compliance on HR-specific regulations including EEOC and FMLA
• Retirement Plans
• Job Description Development
• Paid Time Off (PTO) Tracking and Reporting
• Customized Employee Handbooks
• HR and Personnel Telephone Consultation
• Exit Interview Assistance
• Wage and Salary Compensation Planning
• Performance Reviews
• Recruitment and Job Placement
• Employee Surveys
• Online Training Services for Employees and Supervisors
• Personality Testing
• Turnover Analysis and Reporting
• Professional Licensing and Certification Tracking
The service categories seeing the largest increase in usage are also the ones less commonly offered by PEOs. These are:
• Online Training
• Personality Testing
• Turnover Analysis and Reporting
• Employee Surveys
Demand for these services are growing and the PEO that offers them will have the competitive advantage.
Florida PEOs are exploding – both in terms of demand for services and number of companies becoming licensed in the state. One way to distinguish your company from the crowd is to develop a niche industry customer base and develop specific expertise in this area. Industries prime for a specialty niche PEO include:
• Food Service
• Golf Courses
Declaring a specialty niche allows you to target your marketing and sales efforts, which increases your success rates for signing new clients. You can also develop the support tools, including online training and licensing/certification tracking that these employers need. By creating a niche, you become a market leader in your target area, which itself becomes a marketing and sales tool. This limits competitor entry into your chosen selected industry and further enhances your market presence as an expert in this field.
Client Insurance and Benefits
For many companies, the initial motivation for using a PEO is the ability to offer quality insurance to their employees at a significantly lower cost. The 50 employee company is now bundled with others, and has the buying power of a large corporation. As the PEO, it is your job to leverage this situation to the best advantage of all your clients. You also want to deliver quality coverage at the lowest cost possible to increase you company profits. The goal is to balance customer expectations with your own bottom line.
Workers’ Compensation. Florida has an open workers compensation insurance system, so you can purchase your plans from whichever carrier you choose. The ability to bundle companies with the same classifications means everyone saves money. In additions, employers with a high experience modification factor (E-mod) may find it lowered by joining a PEO. If you choose to accept a client in this situation, you must require improved safety protocols to avoid a situation where this client’s problems raise everyone else’s costs.
When selecting a workers’ comp carrier, be smart and pick the best classifications for the companies you want to serve, rather than going as broad as possible. You will save money and improve your business focus by selecting the coverage that meets your client needs and your long-term plans for growth. If you choose to develop a niche, select an insurance company that serves the same industry. They are also experts in this field and are bundling like policies together, so they can offer better rates. These carriers also have a better understanding of the risks of niche industry than generalized companies, and may offer guidance to you and your team.
Health Insurance. Providing health insurance to your client’s employees is a critical component of your services. Whether you offer one plan or give employees a choice in coverage options, it is wise to poll them a minimum of every other year to assure that the plans meet their needs. You can’t make everyone happy, but if you offer an HMO and the majority of employees prefers a PPO, it may be time to change. You should also review the coverage at least once a year, to determine if you are getting the best rates and coverage possible, especially as your business grows and you add new employees to your roster.
401(k) and Profit Sharing Plans. For small companies to attract and retain quality employees, they need to be market competitive. This often means offering a 401(k) and/or profit sharing plan. If you don’t provide this service yet, you need to do so as demand is increasing. Rather than lose lucrative clients to competitors, provide services to help your clients establish:
• 401(k) eligibility requirements
• Tax-deductible matching
• Profit sharing contributions
As a PEO you should be able to offer clients lower cost plans than they can purchase on the open market, and administer it as well. There are online tools you can use to find the best 401(k) plans that meet your customers’ needs for the best price.
Employment Practice Liability Insurance. This insurance protects your clients from lawsuits against their employees for:
• Wrongful termination
• Sexual harassment
• Whistleblower retaliation
• Compensation disputes
• Employee claims of libel or slander
As a PEO you should already be providing your clients some protections through standardized safety practices, comprehensive employee handbook, and compliance policies and procedures. However, mistakes still happen so you should provide your clients with EPLI at a lower cost than they can purchase it independently.
Insurance You Need
To stay competitive in the market, you need to keep your doors open. Unfortunately, too many PEOs focus on insuring their clients and ignore their own needs. One dissatisfied customer could put your company out of business. For this reason you must carry Professional
Liability Insurance (PLI).
This policy covers the legal fees, settlement costs, and/or judgements in the event that you are sued by a client. There are usually three types of coverage under these policies that specifically address PEO services.
• Placement. This address the failure to provide workers, providing the wrong or inappropriate workers, failure to screen or improper screening, and failure to test or improper testing procedures. While these issues are more common with temporary staffing agencies, they can occur in a PEO setting, especially if you prescreen or direct hire employees.
• Work Performed. This protects you if your company is sued because mistakes made by your employee resulted in financial loss to your client. Even though the client has direct control of the employee’s actions, it doesn’t preclude them from suing you in the event of a problem. You can have language in the contract to protect you to some degree, but this policy will cover any loop holes.
• Services Provided. This is the critical component of the PLI. As a PEO, you are making insurance decisions, providing compliance services and advice, and more. This coverage protects you if you are sued for a mistake, failure to act or advise, dissemination of improper information, and other issues that can arise in normal day-to-day operations.
As a PEO you provide a hybrid of consulting and employment services, and you need PLI to protect your company from client lawsuits.
Alliance Can Help
Staying competitive in Florida’s intense PEO market means managing costs for both you and your clients, which supports everyone’s success. Of all the services you provide, insurance is the highest cost item but one that can be managed. Finding the best insurance policies for one company is daunting, but for a PEO this challenge is multiplied tenfold.
Reviewing your current policies, acquiring quotes from other carriers, and comparing rates and coverages is difficult. As a PEO, you have several different types of policies to manage, and to do this job well requires a significant amount of time. Although you may find that one carrier can address all of your needs, unless you look closely this often results in paying for things you don’t need in some policies while not having enough coverage in others.
Alliance can help, providing you with multiple quotes from top-rated insurance companies, as well as helping you select the best coverage to meet the needs of you and your customers. We work with PEOs to find the right carriers, including niche insurance providers, to meet their needs. Visit us online to get initial quotes, or call as at 866-771-4715 to speak with our experts. Let us serve you the way you take care of your clients, by saving you time, money and hassle.
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