PEOs Gain Greater Surety Bond Coverage As $51 Billion Industry Grows
With more and more small businesses embracing the concept of professional employer organizations (PEOs) to manage employees, the fear of default or poor performance grows.
Many firms are unsure as to how to choose the right provider and to guard against default or other problems, particularly if a provider does not fulfill its obligations to these employees. Should that occur, the client is liable for these expenses.
One way of guarding against this problem is to ascertain if the provider has a surety bond.
Clients of PEOs accredited by the Employer Services Assurance Corporation (ESAC) that provide HR services and employee benefits now have a higher surety threshold.
Companies in the association, who represent more than 70 percent of the revenues of the $51 billion PEO industry, each have more than $6 million in bond protection.
$6 Million Surety Coverage
ESAC’s surety bond carrier increased the aggregate coverage for accredited PEOs from $3 million to $5 million in January. The increased surety bond reflects the record of the accreditation program. During ESAC’s 11 years of operation, there has never been a default involving an accredited PEO.
ESAC accreditation provides a level of assurance to businesses working with PEOs to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation.
This new level of security is important for an industry that is one of the fastest growing business services in America.
Accredited PEOs have undergone rigorous examination by ESAC’s outside experts, who continue to monitor the company’s compliance with the program’s standards to maintain its accreditation.
Each accredited PEO also has a $1 million bond in its name, for a total of $6 million. This achievement is possible, the association claims, because accredited PEOs have met the highest standards for firms in the $51 billion PEO industry.
Terms And Conditions
The surety bond coverage provides for reimbursement to clients, worksite employees, taxing authorities and insurers in the unlikely event of a default by the PEO to pay wages, payroll taxes, contributions to employee retirement plans, workers’ compensation premiums and group life and health insurance premiums or plan contributions.
“The most important protection for clients of accredited PEOs is the ongoing independent oversight and verification that these PEOs are complying with critically important financial, operational and ethical performance standards,” said Jane McCoggins, executive director of ESAC. “This provides their clients with a valuable early warning system before a major problem can occur. So the bonding is really just a safety net for the clients in case ESAC’s compliance monitoring misses something. The good news is there has never been a financial default by an ESAC-accredited PEO.”
ESAC is the only bonded, independent and qualified assurance organization for the PEO industry. ESAC’s PEO Client Assurance Program is similar to the assurances offered by the FDIC for the banking industry. ESAC-accredited PEOs serve clients and employees representing over $14 billion in annual wages.
NAPEO Created ESAC to Build Trust
Leaders of the National Association of Professional Employer Organizations (NAPEO) established ESAC 11 years ago to build trust and provide assurance to PEO clients, worksite employees, insurers, taxing authorities, state and federal regulators, insurers and the general public.
“NAPEO encourages members to become accredited because this will provide assurance to lenders, capital markets and potential partners as to their stability and long term viability,” said Milan P. Yager, executive vice president of NAPEO.
“Accredited PEOs are an elite corps because they demonstrate their commitment to the sound growth, dependability and credibility of the PEO industry through independent verification of their compliance with important ethical, financial and operation standards.”
ESAC Accreditation as Compliance Alternative
More and more states with PEO registration or licensing statutes are recognizing ESAC accreditation as an alternative for their compliance requirements. Many state regulators regard ESAC accreditation as an effective, efficient method of performance monitoring and verification. Eight states have legislative authority for recognition of ESAC accreditation as a regulatory compliance alternative: Arizona, Arkansas, Indiana, Montana, North Carolina, South Carolina, Rhode Island, and Vermont, and several other states are considering enacting such authority.
Other states will follow suit soon, ESAC officials predict.
“ESAC’s accreditation process will increasingly satisfy multiple states’ requirements for registration or licensing,” Yager said. “In addition, ESAC’s single financial bonding replaces the potential of multiple bonding requirements in differing states. These are significant advantages for PEOs with clients in many states.”
For more information on the ESAC accreditation program and the PEOs that are accredited, go to www.esacorp.org/main.asp. To learn more about the PEO industry and NAPEO, visit www.napeo.org.
