¶ Intro / Opening
For professional employer organizations, otherwise known as P E OHS can help relieve some of the admin burdens for small to mid sized business. However, there is some risks to consider for your clients that are utilizing a P OE. Today we talked with Mike Edmonds, who was an assistant vice president with CRC group's Seattle office. He specializes in cyber and technology II know health care and management liability as part of the Seattle
exec protein. Mike has done the legwork and will help us understand the insurance risks surrounding PEOs. Next, welcome to the placing you first podcast from CRC group. I'm your host Dan Wentz. And this podcast features news and insights from CRC group's vast knowledge base of 4300 plus associates who right in excess of $23.5 billion of premium annually, and we're giving you insider access to what's happening in our company and the types of insurance we place. This is the placing you
first podcast. So we're joined by Mike admins, Seattle exec pro team. Mike, thank you so much for being on the podcast today. How are things going out there in Seattle right now?
Doing well, Dan, thanks for having me in life, we've been on this a little bit of sun poking through out here in the Great Northwest, but we've had a pretty wet spring, end of the winter. So excited to get some are rolling around here.
¶ What are some of the reasons clients seek out a PEO and how does the partnership work with insurance?
Well, we're talking about PEOs today, and that is an acronym for something else. professional employment organization, you want to give us a little background on exactly what they are and how a how a client's would typically partner with a PEO for insurance and how that all works.
Absolutely. And I think there is a fair amount of confusion when people mentioned a PEO or you know, outsourcing some of their recruiting and hiring of new employees. So, as you stated, a professional employer organization or PEO basically enters into a joint employment contract with an outside organization being the employer and they lease, the PEO leases their employees to this employer. And so it basically takes a lot of the burden that
HR would have. Or if they don't have an HR department at the employer, they basically outsourced that to the PEO and the PEO takes over all the administration of the benefits the payroll and I know we'll expand on it a bit. But that's really it in a nutshell. It's just a joint employment agreement or contract. Between the PEO and their client, the employer,
¶ What are the pros and cons of working with a PEO when it comes to EPL?
basically just outsourcing your HR is that's what it comes down to. Right. That's Krav. And so I would assume clients are typically partnering with them to, you know, solve HR problems, right? Like, if you don't have a good HR staff, or you don't, maybe you're a small business, and you can't afford to do it in house are afraid of not doing it correctly in house. What are some of the pros and cons with working with one of these PEOs?
If you're, if you're a business, and especially when it comes to insurance, right, so how you're going to get your EPL and that kind of insurance?
Yeah, no, it's a great question. Like I mentioned it, when I was defining a PEO, you know, just outsourcing the Benefit Administration, the payroll administration, unemployment matters. So when you have Cobra and those types of things that have to go into place, or even just doing reviews, and the hiring and firing of staff and employment employees, that brings a whole nother level of liability to the
employer. So by putting that with an expert PEO firm that has the expertise, you know, has the relationships with if they don't have an in house attorney, you know, with reputable law firms in their particular field. I know here in Washington, we've had the Family Medical Leave Act, and you know, there's been some confusion, it's a pretty complex matter. So by having a PEO take that off your plate and running with it, it reduces your
liability as an employer. And then it also potentially reduces your expenses by not having a full time built out HR team. Now,
I would assume there's, you know, there's some risk associated with that too, because you are basically handing over one of the most important functions of your company to a third party, things could go wrong. You know,
yeah, there's the real, measurable things like you're losing control over the process of hiring, and bringing people on the onboarding, so maybe they don't get quite the same level of exposure to your company culture. By working with a PEO there could be lack of control or loss of control or data security. When you're outsourcing to PEO. If you have an HR team or department, did they lose their perceived value by having another outside entity or PEO working on their behalf?
But again, it there's outside influence, right that could potentially pollute your specific culture. You lose a lot of the control that you would have if you had all these resources in house that you lose when you when you bring a PEO on. But frankly, I think that for a lot of companies that deal with PEOs, it makes a lot more sense to work with them than it doesn't. So the pros certainly outweigh the cons, in my
¶ Will the PEO's insurance cover my client?
opinion,
how does how does the insurance normally work with a PEO if I'm a business, and I'm going to contract and with a PEO is their insurance going to cover me?
Yeah, so it's imperative out of the gate to ensure that they do, in fact, carry their own Employment Practices Liability. And, you know, there's other lines of coverage as well need to be contemplated, but EPL, because that's our topic here. Ensuring that the PEO does in fact have coverage in place, and that it's adequate to cover you for your year exposure. But also, you know, they've obviously have
other clients. So they need to make sure that they have a limit of liability that can provide enough capacity to cover all those organizations. And also, you want to ensure that you're endorsed on to the policy, and you have a dedicated limit for the employees that you are leasing from the PEO. So lots of different things at play there. But I think at the end of the day, it's going to reduce your
costs as well. But making sure that this is all covered in the contract, the joint employer contract, and then getting a copy of their declaration page or something to confirm that they do in fact have the coverage the state they say they have in place. And that's going to extend to you
¶ What are the common gaps?
what common gaps could exists, you know, when you just say, okay, the PEO has got me covered? What are some things that you should look for that, you know, could not be covered via their insurance, because obviously that policy is written for them and not specifically for you.
That's exactly right. So if you have, you know, an executive management team, for example, or you have, let me just back up, I'll use a real estate agent or brokerage, for example, and they oftentimes have a broker that's employed by the franchise. And then they have, you know, independent contractors that work worked for them, and administrative folks that worked for them that would
be hired by the PEO. And so ensuring that you have a separate EPL policy for your own company that's going to cover your liability associated with your executive team that's employed by you, and any administrative staff that you have employed. So if you just relied on the PEOs coverage, you'd have an immediate gap. If one of these executives alleged discrimination or harassment or there was a wage and hour type situation, the PEO is not going to provide any coverage for that.
¶ What about workers comp?
What about workers comp? Is that a common gap?
Yeah, I don't know that I call it a gap. It's just a potential pitfall for a lot of companies that are using the PEO. Because obviously, in certain states, Washington, for example, is monopolistic. So all of that is done through Labor and Industries, and taken right out of the payroll processing. So all of that liability goes to the PEO at that point. And it's been really interesting the last couple of years with with COVID.
And people relocating as they're working remote, it's imperative to, to make sure you know where all your people are, because you could run into a real situation with, with the government, if you're not collecting payroll taxes, or paying payroll taxes, excuse me, for a particular state that somebody's been working in for for longer than a grace period, that's often allowed. I know that's come up a lot more than people probably
anticipated. Jim's actually in Alaska, you know, he was here in Seattle, and he relocated with his family, and they're permanently going to be up in up in Sitka Alaska. So, you know, that's, that's a big potential issue on the work comp and work comp, obviously, depends on each state has its own rating modifiers, and you're experiencing that each individual state's going to, you know, work itself through with
your premiums. So yeah, a lot of factors to keep in mind is you have staff moving around.
¶ ...and third party claims?
So Mike, what about third party claims? That could be an issue as well, right? Because you don't get to pick your insurance company, if you're working with a PEO and covered by their policy.
That's exactly right, Dan. So, again, it's imperative to you know, build a very strong contract your co employment contract with the PEO. And make sure that defines you know, how the relationship between you and the PEO is going to pick up these potential third party claims. There should be some protection in that agreement for both the employer and then inversely to the PEO because, you know, everything shouldn't be one way there should be some responsibilities
going both ways as well. But you can sometimes extend the coverage to the third party, right? So if you have this least employees going somewhere else, they're typically covered by the PEOs policy. You You can extend coverage to if they're going to be working for a third company, third layer there. So that also is helpful as well. You know, there's there are certain portions of the Employment Practices Liability coverage, that aren't going to be as broad as you would with a first party
coverage. So for example, you might only have defense costs for alleging harassment or discrimination by the PEO. So there's another thing to be mindful of as you're reviewing contracts and, and what coverage makes the most most sense for your particular insured. So yeah, again, it's just checking that contract to make sure that you've covered all these very important pieces of the puzzle, the indemnification, how that third party is going to extend.
And whether or not the PEO can extend coverage to that other party.
So it sounds like this, this really comes down to one of the main points you've been you've been making over and over again, is making sure that contract is bulletproof. And you have the right information to go into contract negotiations with that PEO to make sure that all the insurance ends are tied up. And you've got everything covered. Does that sound about right?
Yeah, that's in a nutshell. And it's easier said than done. Obviously, if you're working with a well known PEO, for example, I've referenced a real estate brokerage earlier. There's one in particular here that has a large presence presence, and they use one PEO. And I know that there's other
brokerages that use that one. So you know that particular PEO certainly has very tight contracts they've been through before they kind of understand all the pitfalls that we've discussed today and how to appropriately respond to those. So a lot of it's going to come down to you understanding the PEO that you're working with, what their level of expertise is. And if they have the resources that are going to support what you're trying to accomplish.
¶ How important is the contract with a PEO?
What about if I if I start with a PEO, I've got a small business and my business explodes gets huge. Should I be you know, we're still using the same PEO throughout the process? Should I be reexamining my EPL policy and the coverage that's offered by the PEO as well?
Yeah, like with anything as you grow, you know, from us, we'll say the startup to a mature company that's, you know, growing from a revenue standpoint, adding new employees, yeah, you certainly need to be paying attention to all of your, your potential liabilities and making sure you write size, your coverage and your your business relationships. So for example, I might be starting a business and I get a small business loan from
a credit union here in town. But then three years down the road, we have over a billion dollars in revenue, that credit union might not be the best vehicle to support us in our growth in the future. So yeah, just taking a look at that relationship with the PEO to make sure that they can support your growth, everything you're trying to
accomplish. And then they can, you know, balance both the liabilities that they're bringing on and also have a budget to where they can fund buying the appropriate limits of liability and those types of things that come along with it.
If you have a question specifically related to the EPL on a PEO, or, you know, one of these contracts or something, I'm sure that our brokers throughout the country, anybody in the exec pro practice, could take a look at it and help you understand and you know, provide you some some guidance there. On which direction you should be going. I mean, that's, you'd feel comfortable doing that, right?
Absolutely. We have a lot of smart, very talented folks across the country. So test them out, test them with a question if you have one.
Well, thank you so much, Mike. I appreciate it. Did we miss anything today? You think?
I don't think so. Dan, I would just say again, keep keep your eyes on on these contracts. EPLS what we're discussing today, but cyber, it wouldn't be a insurance call or liability call if I didn't mention cyber. So that's something to certainly keep in mind as well, as you're working as a PEO to make sure that they're protecting your information and the employee ease that are going to be leased to you because that's obviously
a hot button issue. That's not going to get, you know, not going to be cooled down anytime soon.
No, it's a huge issue. Everybody's getting hacked and personal information getting leaked, and people getting sued left and right over that. And especially if you're outsourcing your HR, all those records. That could that could be a challenge for sure. I'm glad you brought that up. Our people do that day in and day out. They're experts on this cyber and things. So if you have any questions there, please reach out to anybody and exec pro practice
very fluid. So yes, try to stay on top of that as best you can or contact a professional that's knee deep in it every day
for sure. Okay, well, thanks for your time, Mike. We appreciate it. Hopefully we get to talk to you again soon.
Thanks a lot, Dan. Have a great day.