In 2021, a reported 57% of non-elderly people were covered by employer health insurance.¹ While a small business isn’t required to provide health insurance to its employees, as it grows and scales, this changes. In many cases, once a company employs 50 people, U.S. federal law requires employee health coverage. Many small companies offer the benefit before they hit this threshold to attract and retain talent.
To provide these health benefits, employers can work with either a PEO or an insurance broker. But when it comes down to PEO vs. insurance broker, which is the best option? Let’s examine them more closely to help you decide.
What is a PEO?
PEO stands for professional employer organization. It’s a company with which small and midsize employers can partner to outsource payroll administration, employee benefits, and additional HR services. PEO providers enter into a co-employment agreement with the employer and take responsibility for any number of human resources functions. Among them, there’s also a difference between a standard PEO and a certified PEO.
What is an insurance broker?
An insurance broker is somewhat of a middle-man between insurers and employers. They are typically knowledgeable about different types of insurance and can help small businesses land good coverage and affordable premiums.
Differences between PEOs and insurance brokers
While PEOs and insurance brokers can both help employers attain group health insurance, the 2 entities differ greatly on several fronts. There are 6 distinct differences between PEOs and insurance brokers.
Scope of services offered
PEOs provide a much broader array of services than insurance brokers do. They can process payroll, calculate tax contributions, manage other employee benefits, and handle workers’ compensation, risk management, and additional services.
An insurance broker’s service offering is much more narrow. They handle finding an insurance carrier with a plan that fits the employer’s needs.
Cost
Insurance brokers earn a commission for signing employers with an insurance plan, so they don’t cost much, if anything, upfront. However, this pay structure gives them a strong incentive to close the deal, even if it’s not in an employer’s best interest.
Conversely, PEO costs may involve steep setup and monthly fees, which can be taxing on small business owners. It’s also common for employers to pay PEOs either a percentage of the total payroll or a flat dollar amount per employee. Over time, however, PEO insurance premiums may be lower, resulting in eventual cost savings for the employer.
Help with legal compliance
Insurance brokers focus their attention on the front end of the process. They have little to do with the requirements once the employer chooses the health insurance plan they want. By contrast, a PEO plays an active role in making sure the company remains compliant with local, state, and federal regulations. This is, at least in part, because of the co-employment arrangement.
Risk management
Once hired, a PEO handles some of the business’s risk management and is usually involved in risk evaluation and reduction activities. They can also be held responsible for mistakes or oversights, whereas an insurance broker cannot.
Flexibility
Shopping for employee health benefits quickly reveals a wide variety of plans and costs. PEOs usually have limited coverage options for health insurance. Brokers, however, can work with an infinite number of carriers and offer more tailored insurance options.
Nature of the relationship
As the previous 5 points have touched on, the employer-broker, and employer-PEO relationships differ greatly. Companies working with PEOs will experience a longer-term, deeper partnership. The right PEO for a small business can be a tremendous asset over time. The employer-insurance broker relationship is usually a one-time transactional exchange.
PEO vs. insurance broker: How to choose
Companies weighing the choice between PEO and insurance broker must consider a few important questions. Ask yourself and your team:
- Do we need multiple HR services beyond employee health insurance, or just an insurance provider? What about other employee benefits and additional services like recruiting, payroll, and talent management?
- Is our budget better equipped to handle costs of a PEO on the front end or the cost of an insurance broker in the form of higher premiums?
- How important is a wide array of flexible, affordable health insurance options to me and my employees?
- Would it be helpful to outsource HR assistance, or does my small company have the resources to handle these tasks in-house?
Think carefully about whether a PEO or insurance broker will serve your company better
A business owner knows the company better than anyone else. Use this knowledge to map out where the company’s heading and which type of plan will help you meet these goals. The choice depends on your company’s specific needs, employees, and budget. Weigh things like lower premiums vs. recurring fees and how short-term expenses stack up against long-term strategies and value. For those who would benefit from a PEO, a PEO broker can help find the ideal fit for the company’s needs and goals.
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1 Health Insurance Coverage of Non-Elderly 0-64, KFF
