There are two distinct types of PEO’s.

The First is the Deductible structure and the common structure for PEO’s.

The PEO has a large deductible plan with an Insurance Carrier. The PEO is the Insured.

Your employees are assigned to the FEIN of the PEO and they report payroll and pay a premium to the Insurance Carrier for the Workers’ Compensation Insurance to cover them under the PEO’s deductible policy.

The larger the deductible the PEO carries, the less premium they charge you.

The initial premium is based on your Experience Modifier when you enroll. The Client Company will not have an Experience Modifier calculated while they are under the Co-Employment Agreement with the PEO.

If the Client Company leaves the PEO, they will have to negotiate to have their Experience Modifier Promulgated and there is no fixed rule. The PEO may suggest the Client Company can use the Rule from the Uniform Statistical Reporting Plan, Section 5, Paragraph 4. But, that rule applies to Employee Leasing Companies and may not be applied to the PEO losses. Certain characteristics of the relationship with the Client Company and the PEO must take place for that rule to be used. Basically, the PEO’s insuring Company must provide a separate unique policy number for each Client Company. SCIF is appealing a ruling from the CA DOI regarding this at the time of this compilation. I will update as the decision announced.

They pay all claims up to the deductible just as you would with a large deductible policy. The Insurance Carrier then pays the balance on large claims.

The PEO renews their policy annually and you receive coverage only for the remaining period of the PEO’s policy when you enroll. ie. The Policy period is 1-1-03 to 1-1-04 and you enroll on 6-1-03, you would only be covered for 6-1-03 to 1-1-04. If their coverage is not renewed they cannot continue coverage.

*A Health Care Organization (HCO) is a characteristic you should look for in a PEO. This gives the Client Company who offers Non-Occupational Health Insurance advantages to help lower the cost of claims.

Regulation of non self-insured PEO’s is relatively non-existent. It would behoove the Client Company to ask for a Financial Statement from the PEO before signing a Co-Employment Agreement.