There are a variety of reasons that organizations look to partner with a PEO. From purely a cost standpoint, benefits are one of the largest drivers of that decision. So, have you ever wondered how a PEO manages to get benefit rates that are traditionally better than you can get on your own even with the help of a broker?
Let's walk through the basics.
A PEO establishes a co-employment relationship with their clients. Essentially this means that your employees are all "pooled" together with employees from other organizations. So instead of you going to market with your 10 - 500 employees, you are going to market with thousands of employees. This creates a situation where you can leverage economies of scale to improve your purchasing power and decrease your risk potential to a benefits carrier.
The best way to I have found to communicate this is to reference Sam's Club or Costco - the membership only warehouse clubs where consumers can buy in bulk to save costs. The same philosophy applies to the PEO value proposition. You are part of a large group that buys in to a benefit offering at a discounted rate. In this scenario, instead of a membership card, you are paying an administrative fee. This gives you access to employee benefits at a discount with the added value of administration on those benefits.
From the carriers' perspective, you are no longer looked at as a small organization that has potential risk that is greater than the premium you pay. You have diluted that risk over a large pool thus driving down your premium costs and (in theory) implementing a cost control strategy. The traditional PEO client sees single digit renewal rates.
If you or your organization is concerned about the rising costs of benefits, a PEO could be a great fit for you!