You've heard from friends and other business professionals about Employee Leasing/ PEO services. Maybe you were called or received some information about it. While there are many factors that go into to the decision of whether a PEO company can benefit your business, understanding the raw numbers is a good start.
As a business with employees (assuming you are required to carry workers' compensation insurance), you have five cost factors you'll want to take a close look at:
1. FICA - A combination of Social Security and Medicare
2. FUTA - Federal Unemployment Tax
3. SUTA - State Unemployment Tax
4. Workers' Compensation Costs
5. Administrative Costs
The five cost factors are the same five used in any PEO company proposal. In fact, no matter who handles your payroll or workers' compensation insurance, these will exist. So from a numbers perspective alone, how can you see if they add up in your favor?
The first two numbers you can easily compare would be FICA - 7.65%, and FUTA - .80%. These are charges that everyone, no matter how big or small the company, pays at the same rate.
That leaves us with three variables to dissect, so let's take a look at each one.
Your SUTA rate can vary based on unemployment claims against your business. The more money you pay into your company's SUTA fund and the fewer claims that are being withdrawn against it, the more your rate will drop over time. For example, as a new business in the state of Florida, your SUTA rate starts at 2.70%. The amount of payroll you have (which affects how much you're contributing to the fund) and how many people are awarded unemployment against your company are the deciding factors in whether your rates increase or decrease.
Workers' compensation insurance premiums are adjusted using the same principles as unemployment. Workers' comp rates also vary based on the risk of the work that is being performed. In other words, a secretary is less likely to be injured performing his or her everyday duties than a roofer, therefore the secretary's rate will be significantly less. Again, the amount of payroll you report (which affects your contributions to the workers' compensation policy) and the claims made against your policy are the keys to whether a business' workers' comp rates will increase or decrease.
That leaves us with the administrative issue. When you have employees, you consistently have tasks that someone has to deal with. These include payroll and timely reporting, deposits, child supports or other garnishments. Also to be dealt with are unemployment claims, overtime, bonuses and vacation pay. Workers' compensation paperwork and audits can be extremely frustrating and time consuming, as well. If your business provides employee benefits, someone in the organization has to dedicate time to answer regular questions, help file paperwork, make phone calls, etc.
With over 60 business regulations an employer must comply with, the U.S. Chamber of Commerce reports the cost of a company's administrative work ranges between 4%-12%. This varies based on employee count, office locations, whether a company provides benefits or not and many other factors.
Remember, there can be a number of reasons outside of the five factors that make choosing a PEO company beneficial. Understanding the core costs, though, will help you at the starting line.
ELQ was created to help businesses choose a PEO that fits their unique needs. Please call if you're interested in seeing what advantages a PEO company can do for your business. We can be reached by calling 1-888-582-8388 between the hours of 8:00-5:30 EST.
