How a PEO can help you lower employee benefit costs
Employee benefits are incredibly important for attracting and retaining top talent. When skilled candidates compare offers from different employers, a comprehensive benefits package can be the deciding factor. In fact, a Forbes Advisor survey found that 40% of American workers would leave their jobs for one that offers better employee benefits, and one in ten workers would take a pay cut to have access to better benefits.
But here’s the catch for employers: Benefits are the second highest employee-related expense after wages, and healthcare costs are set to surge in 2024 due to inflation, rising wages, and other costs. This will mark the largest increase in healthcare costs in a decade.
To retain their competitive edge—and even stay afloat—US companies need to find ways to save money on benefits. Enter professional employer organizations (PEOs). A PEO like Rippling co-employs your workforce for administrative HR services like paying employees and filing payroll taxes. A PEO can also help you offer better benefits—for less.
Let’s examine how PEOs work and their advantages for both companies and employees regarding benefits.
How does a PEO work?
PEOs enable small to midsize businesses to access big-company benefits and streamline administrative HR tasks, including payroll, employee benefits enrollment, and HR compliance. While PEO services and pricing vary, they all handle manual HR functions so you can focus on higher-value strategic work, like growing your business.
Think of partnering with a PEO as expanding your HR team without hiring more employees directly. PEOs co-employ your workforce for tax purposes—workers will be employed both by your business (the ‘worksite employer’) and the PEO (the ‘administrative employer’). In this co-employment model, you maintain full authority over strategic and operational HR decisions, like hiring, determining employees’ responsibilities, choosing benefit options, and building company culture.
PEO
Your employees
Your company
Gives your employees access to big-company benefits at a lower cost
Enroll in the PEO large-group health plans, including medical, dental, vision, life, and disability
Defines employees’ roles, responsibilities, and compensation
Pays your employees (after you run payroll) and takes care of benefits administration and tax filing with both federal and state agencies
Receive pay stubs directly through the PEO
Manages day-to-day people operations, such as recruitment, termination, performance reviews, and building company culture
Ensures your compliance with state-specific employment regulations wherever your employees are based
Access the PEO’s workers’ compensation policy
Maintains worksite safety, disciplines employees, and manages employee feedback
How does a PEO reduce employee benefit costs?
Here’s how PEOs can help you prioritize employee health and well-being while keeping your benefit costs low.
PEOs have access to better quality plans at a lower price point
Large-group healthcare plans are typically more cost-effective than small-group plans, but are only available to businesses with over 50 or 100 employees, depending on the state. The more employees companies have, the better rates they get, leaving small companies paying big bucks for limited offerings.
However, since PEOs “co-employ” workers across many small businesses, they can combine the purchasing power of all their clients to access premium health plans for small business employees at discounted rates. PEOs not only give your employees access to big-company benefits, but they also negotiate lower costs on your behalf by leveraging their economies of scale—it’s a win-win.
PEOs can also get access to better rates for benefits like wellness programs and mental health support, which are becoming increasingly important with the rise of burnout. There’s currently a gap to fill when it comes to offering benefits that address employee wellness and mental health care—only 54% of small-business employees report having access to mental health coverage. Additionally, employees facing burnout report lower job satisfaction and a higher likelihood of seeking another job in the next year.
Plus, PEO clients have significantly higher employee satisfaction along with lower rates of employee turnover, according to a McBassi & Company study. They also see higher employee and revenue growth rates and enhanced employee benefit offerings.
PEOs can keep renewal rates low
With healthcare costs always on the rise, you need to ensure your health insurance renewal rates don’t go up too much year to year. Many companies fall into the trap of receiving what looks like a great health insurance rate, only to have it go up substantially the following year.
When evaluating different PEOs, consider how their health coverage rates evolve over time, and choose one that has kept low renewal rates year after year. For example, Rippling PEO has consistently delivered a renewal rate of under 5.5% for 85% of Rippling users—compared to the standard 6-9% and even 10-25% increases.
PEOs can offer personalized guidance
Researching different health plans and benefit options on your own can be time-consuming. And if you have a remote workforce, ensuring you’re compliant and paying taxes correctly in each state can be a huge headache—especially if you lack the in-house knowledge of each state’s and city’s unique regulations.
Working with a PEO that offers personalized support can take this burden off your shoulders—all while saving you money on benefits. A dedicated team of PEO HR experts can help you access an employee benefits plan that makes the most of your budget and keeps your workforce happy.
By taking the time to understand your unique situation, your budget, and your employees’ needs, a PEO will make your benefits management process much smoother. And if you have any complex employment questions, they can help you find the solutions.
Rippling PEO gives companies access to Rippling HR Advisors who can advise on navigating challenging personnel issues and assist with claims management.
Rippling PEO: Get better benefits, for less
If you can’t offer top-tier benefits, you’ll struggle to recruit and retain top talent. But with Rippling PEO, you’ll be able to access big-company benefits at a lower cost, and you can manage all your employee benefits in one place—from health benefits to 401(k).
Unlike traditional PEOs that use software built in the 80s, Rippling PEO runs on modern software that allows you to automate administrative tasks while keeping your most important information in-house.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
