COVID-19’s Impact on the PEO Industry: Flash Survey by LL Roberts Group

PEOs Dealing with the Coronavirus

This PEO Flash Survey regarding how PEOs are dealing with the Coronavirus outbreak involved several interviews with PEO owners and executives, PEO brokers, Insurance brokers serving PEOs, bank representatives that work with PEOs and other vendors associated with the PEO Industry.  This confidential survey was conducted by LJ Roberts of the LL Roberts Group in a conversational or interview manner.  All parties interviewed in conjunction with this survey have been assured that their opinions, observations and comments will be kept confidential.  However, what I can share is that the PEOs, companies, agencies, and organizations interviewed are located and operate from coast-to-coast.  As a result, these observations and opinions are representative of a national perspective concerning the Coronavirus and its impact on PEOs and business in general.

The comments, opinions, insights, plans, and observations of those interviewed are presented as bullet points below:

  • “As a longtime veteran of the PEO Industry, I’ve never seen anything like this and believe that we are a long way from seeing the worst of it” was a comment made by one mid-sized PEO executive.  This observation was echoed by several of those interviewed.  This observation indicated that those interviewed are in uncharted waters and are now making difficult decisions on challenges not previously experienced by their organizations.

 

  • “I expect this to last for 6 months” was a comment made by one PEO owner and was consistent with many of the remarks made by the survey’s interviewees.

 

  • “We are preparing for worst case scenarios” shared one PEO owner as he is having daily meetings with his senior staffers.

 

  • “This is the most overblown event that I have ever witnessed in my life” stated one PEO owner.  He went on to speculate that the Media was using this as a draw for viewers and readers.  He also feels that there are political factors at play (why the Coronavirus outbreak is so overblown in his opinion).

 

  • “We are reaching out to the state unemployment commission so that we can properly instruct clients on how their employees can get unemployment benefits quickly. While we are always thinking about fighting unemployment claims, this situation is different” shared one PEO owner.

 

  • “This Coronavirus situation will impact how we do business after it’s all over” was a comment made by one PEO representative.  Other interviewees expressed similar observations.

 

  • One PEO owner stated that “most of our client companies cannot go weeks without operating, so we are expecting several clients to simply go out of business”.  Clients going out of business was a possibility that several interviewees shared.

 

  • “This is going to be much worse that the 2008 economic crash” and “this will be the worst SUTA crash the PEO Industry has ever seen” were the comments from one PEO owner.  He also mentioned reports that he attributed to federal government representatives on TV that predicted a possible 20% unemployment rate on the other side of this crisis. He went on to say that he’s grateful that a lot of his clients are priced on client-based SUTA.

 

  • An expectation that the Millennials will be the most impacted from a psychological standpoint. Comments to the effect that the Millennials have never been “economically tested” were shared as a concern.

 

  • A big concern for most interviewees was “communication”, both internally and with their clients. “we need to double-down on our communication processes and initiatives” was one comment made.  Daily phone meetings with work at home employees will be crucial, shared one PEO executive.

 

  • “I can foresee us needing to call upon our rarely used credit line at our banks” was one PEO owner’s expressed expectation.

 

  • “We better be concerned with and thinking about our technology” stated one PEO owner who just placed an order for 6 laptops for possible assignment to work from home staffers.

 

  • “This is a time when leaders show what they are made of and new leaders or key players emerge” was a wise statement or insight

 

  • It was reported that numerous client companies of the PEOs represented in this survey have totally suspended operations or dramatically limited such.  The client company industries that seem to have been mostly impacted are restaurants and the hospitality industry at large, transportation companies and retailers.

 

  • Already, according to a couple the PEO owners interviewed, clients are requesting PEO rate reductions due to the crisis.  One PEO owner expressed concern with this becoming a growing request or expectation of his client base.

 

  • One PEO with an overweighed hospitality industries book of business was especially concerned.  Already mandated closures of restaurants and bars has impacted that PEO’s business, but how long will it be before people are comfortable going out to eat or to go to bars after the crisis is dealt with?—that was the concern expressed.

 

  • “Rotating staff” was a common initiative referenced by the PEO representatives interviewed.  Cutting their internal staffs at the office in half (or more) by having a rotation of having employees work one day at home and the next at the offices.  This was seen as a effort to support “social distancing” and to minimize the number of employees working at the office at one time.

 

  • “Certain job functions cannot or should not be performed by staffers from home” was a comment from one PEO representative.

 

  • “We expect that some of our clients and even our PEO will be taken advantage of by some workers that simply see this crisis as a opportunity to take time off from work” stated one PEO representative.

 

  • One crucial factor to consider when determining if PEO staffers will be allowed or instructed to work from home is the quality of their internet connectivity and computers.  Some employees lack either or both internet connectivity and/or a home computer or laptop. A few of the PEO representatives stated that they were assigning laptops to some staffers and a couple had recently bought extra laptops for this very purpose.

 

  • A PEO representative stated that they were having their staffers working from home use their office voiceover IP phones at home.  This was allowing them to receive and initiate calls from their office phone lines while working at home. Another PEO was having the office phones and extensions for staffers working at home forwarded to the employee’s cell phone while they are working from home.

 

  • “Core crews” will be needed at the PEO’s base of operations were consistent responses with all the interviewees. When pressed for what team members at the PEO would be classified as “core” the common response was “our leaders” and those associated with getting printed checks and reports out to the clients. Payroll, IT, HR, and accounting were the types of personnel that would be called upon most during the Coronavirus outbreak according to most interviewees.

 

  • “Hyper-hygiene” was another practice that was referenced by several survey interviewees.  Emails, bulletins, texts, posters, handouts are all being utilized with the PEO’s internal staff and with their clients. Handwashing, using disinfectant cleansers, covering your mouth and nose when coughing or sneezing, etc… are all tips and practices being promoted.

 

  • Most of the PEO owners and executives interviewed stated that they have internal (PEO) planned staff reductions. Some have already implemented reductions and are considering more. The common observations is that revenues are dropping rapidly due to client company payroll reductions or total suspensions. “It’s easy math” said one PEO owner referencing that the PEO’s staff size and payroll are a factor of the revenue generated, which is based on client companies processing payrolls through the PEO.

 

  • “I’m focused on assessing the probable economic impact on our PEO and what I need to do now to prepare for a dramatic reduction in revenue” was shared by one PEO owner, however other interviewees expressed the same concern.

 

  • At least two of the PEO owners interviewed stated that they have not yet considered internal PEO staff layoffs but acknowledged that that would be a possibility.

 

  • A few of those interviewed said that they have already heard of PEOs that were contemplating closure.  Others predicted that there will be PEOs that “go out of business” as a result of the Coronavirus crisis.  At least one of the PEO owners interviewed said that he will be looking for a “fire sale of PEOs prior to them going under”.

 

  • After speaking with PEO bank representatives and the PEO representatives that work with treasury management, there does not seem to be any concern with banking.  Bank representatives confirmed that they are implementing their own “work from home” initiatives, reducing operating hours, and utilizing minimal branch staffs during this Coronavirus outbreak. The bankers feel like they are a crucial and required facet of not just serving the PEO Industry, but in supporting the worldwide economy and society—as a whole. No changes in how PEOs are served are planned at this time by the bank representatives interviewed.

 

  • An optimist PEO owner said that this is “SARS 2.0”.  He went on to state that his PEO had done very well since the last declared virus outbreak.

 

  • Increasing “cloud-based file share processes” was another initiative that some of the PEO representatives shared.  Those respondents stated that they already had such practices in place but would add staff members to that access and expand capacity to utilize this type of resource.

 

  • Some of the PEO owners expressed pride in how their key employees were stepping up and declaring their commitment to the PEO and the clients.  Volunteers for staying at the office (as part of the aforementioned “core crew”) were noted. At the same time, one PEO owner stated that this situation has been “enlightening” to him as it pertains to various staff members.

 

  • A question that asked (or fear expressed) was that WSEs that become infected with the Coronavirus will be eligible for workers’ compensation benefits.  This was a particular concern for those PEOs with large deductibles associated with the PEOs’ workers’ comp polices. One workers’ comp broker expressed that he expects that to end-up being the case (i.e. that Coronavirus claims will be compensable under workers’ comp). While SUTA rate increase were commonly fears and expected as a result of this crisis, might experience modifiers for the PEOs to be impacted as well, was at lease one PEO owner’s concern.

 

  • “Our leaders need to work hard to keep spirits up (referring to the PEO’s internal staff)” was a PEO owner’s comment.

 

  • A push to promote pay cards and direct deposits to those client companies that still issue paper checks is underway at some of the PEOs interviewed. A mild concern that FedEx might suspend operations was expressed by a couple of PEO representatives.

 

  • PEO representatives shared they are keeping a close eye on what the federal government is doing in the way of any “economic relief package”.

 

  • Asking PEO sales reps to stay away from the office was a precaution one PEO reported.  This is due to the salespeople moving amongst different locations (prospects and clients) stated the interviewee.

 

  • “During and after this crisis, we will be considering our expanded use of outsourcing non-client facing functions for our PEO (back office functions like reconciliations and payroll processing were mentioned)” was shared by one PEO owner.  He said that he thinks that this type of outsourcing (to India) could reduce the costs associated with those functions by as much as 50%.

 

  • “We are looking at every cost cutting measure that we can take in order to deal with lost revenue” stated a PEO owner.  He mentioned staff reductions, elimination of travel and entertainment expenses, and reduced hours for part time workers.

 

  • Interestingly, a couple of the PEO owners are planning “sales promotions” such as “no admin fees” for one, two and even three months for new accounts that come onboard during this crisis.  Also, sales promotions are being implemented by some PEOs in the form of bonuses on new business to be paid to the agents or brokers.

 

  • The PEO brokers seem to be the most stunned as they feel that they have no control and are dependent on the PEOs to tell them what is happening and what will happen moving forward.  Of course, PEO commissions to brokers are based on payrolls processed and typically do not involve any form of “base salary”.

 

  • Some PEO vendors and insurance brokers expressed that the adverse impact on them will likely be somewhat delayed as reported workers’ comp premium collections are not immediate and PEO failures are not yet identified or reported. They seem to feel a bit “powerless” in assisting their PEO clientele.

We will continue to communicate with our survey respondents and will look to provide an update later during this Coronavirus crisis in order to keep our PEO friends and affiliates aware of Industry veterans’ experiences, observations, and opinions.  Please let us know if you have any questions or additional comments that you want to share.

LL Roberts Group

 

Department of Labor Issues Final Rule to Allow Associations and PEOs to Sponsor Retirement Plans

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Final rule defines a PEO as an employer under ERISA and clarifies rules for PEOs to offer retirement benefits

On July 29, 2019, the Department of Labor (the “Department”) issued a final rule to facilitate and expand the availability of multiple employer defined contribution plans (“MEPs”). The final rule provides clarity regarding the types of “bona fide” groups or associations of employers as well as professional employer organizations (“PEOs”) that are permitted to sponsor retirement plans.

NAPEO supports the rule, as it is another step in in formalizing the legal framework for PEOs to provide benefits for their client’s shared employees. This action, along with the passage of the Small Business Efficiency Act contained in the Tax Increase Prevention Act (H.R. 5771, Public Law 113‐295) which created the voluntary IRS PEO Certification Program, demonstrates the federal government’s recognition of the PEO industry and the important role it plays in supporting our nation’s small businesses.

With respect to PEOs, the final rule does two things. First, it states that a “bona fide” PEO is capable of establishing a MEP. The rule then creates a safe harbor criteria for determining whether a PEO that sponsors a MEP is performing essential employment functions.

A copy of the final rule can be found here.

A summary of the final rule can be found here.

A detailed analysis on this issue from the Groom Law Group can be found here.

A recording of a NAPEO-sponsored webinar on this issue can be found here.

A copy of NAPEO’s comments on the proposed rule can be found here.
NAPEO Article can be found:

https://www.napeo.org/advocacy/what-we-advocate/federal-government-affairs/peos-retirement-regulation/dol-meps-finalrule

 

 

California Rating Beaurau looks to Lower Rating Thresholds, Classification Changes & More

Please see the attached article about the proposed workers compensation rule changes in California.

https://www.wcexec.com/flash-report/compline-to-provide-2020-x-mods-daily-plus-lower-rating-thresholds-classification-changes-more/

Since 1982 Compline has proven to be a reliable, responsible and reasonable resource in California.  Their ongoing responsiveness to legislative changes in the state speaks to their continuing value.  Libertate is a proud subscriber to Compline.  We access and utilize their portal for a number of great resources, such as Modwatch, Lead Generation, Pure Premium Behavior Metrics, Strategic Rate Comparisons, Carrier XMOD Comparisons , Carrier Territory Rate Mapper and much more.

We will continue to keep our eye on the changes occurring in this state and are committed to keep you informed.

If you feel your PEO could benefit from an analytical analysis, in CA or elsewhere, please don’t hesitate to reach me at 321-436-8214.

Libertate/RiskMD Merge with Ballator Group

ORLANDO, December 18, 2018 / PRNewswire / —

IMMEDIATE RELEASE:  RiskMD and Libertate Insurance merge with Ballator Insurance Group

Ballator Insurance Group (“BIG”) and Libertate Insurance/RiskMD have merged to combine forces in support of insurance placements and data management for Professional Employer Organizations (“PEO’s”).  BIG and its senior management team have created multiple risk-bearing entities with specialization in “governmental entities”, “not for profits” and “automotive dealers”.  Libertate is a general agency focused on the property and casualty insurance needs of the PEO industry and RiskMD manages data based on a recently patented process.

“The combination of these entities is truly accretive” according to the head of Libertate, Paul Hughes.  “I have known the management team of Ballator for many years and we share common values, beliefs and vision.  They are going to be a tremendous influence in the next chapter of supplying best of class capacity, data management and professional consultation to our PEO clientele.  Our combined capabilities allow us to go very deep in what we are able to offer whether as an insurance agent, a due diligence/data consultant or overall trusted advisor.  Our resources are now greater  than ever before.”

According to Ballator CEO Shane Caldwell, “We are very excited about the the addition of Libertate to the Ballator group of companies. Libertate’s specialty focus and RiskMd’s innovative technology will prove to be a great enhancement for our team members and clients.” 

The combination of Libertate’s premiums with that of B.I.G. brings overall property and casualty premiums under management to close to $200m.

Subsidiary or Affiliate? Don’t Wait For a D&O Claim to Find Out.

From contributor Lisa Burbage, director and professional broker with CRC’s Seattle, WA office.

http://crcgroupins.com/Tools-Intel/post/subsidiary-or-affiliate

When insureds own multiple companies, they may assume that all the entities in their portfolio are covered by their corporate management liability policy. That can be an expensive mistake. The reality is that it comes down to the actual wording on their policy.

UNDERSTANDING THE DIFFERENCE

Confusion often arises over whether a company is a covered subsidiary or a potentially non-covered affiliate. This is particularly true for industries such as real estate, restaurants and healthcare that frequently create single-purpose entities to manage the liability risks of separate ventures. Newly created corporations or limited liability companies (LLCs) may be owned in whole or in part by the same owners of the first Named Insured whose name is on the insurance policy, but not by the named insured itself. That distinction is crucial.

STAYING ON TOP OF CHANGES

Because companies are not static, gaps in coverage may arise when an Insured assumes their newly created affiliates are covered under their policies. Over the course of a year, it’s quite possible that insureds have created or invested in new LLCs or corporations. Further heightening the risk, more and more carriers send out automatic renewal quotes, putting the burden on the insured to update their organizational structure with the underwriter.

To avoid finding out that the policy doesn’t provide coverage after a claim is made, it’s important to explain the difference and the potential consequences to clients. This can help clients understand the distinction and to provide more detailed information. Clients should be asked to list every company they want covered along with its ownership structure at every renewal. Uncovered affiliates can usually be added to the policy by endorsement for no charge as long as the rating exposures are included on the application. Not knowing when an entity is an affiliate means that affirmative coverage can’t be granted by endorsement.

BOTTOM LINE

It pays to know your clients’ businesses. Don’t wait for a claim to be denied to discover that a client’s affiliate company isn’t covered by the corporate D&O or EPL policy. Brokers should educate clients on the difference, make sure they properly identify all of the subsidiaries and affiliates they want covered at every renewal, and add them to the policy. Taking a proactive approach now can prevent an expensive claim denial later.

 

Workers Compensation & PEO; Not all States are Created Equal

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WORKERS COMPENSATION | PEO

According to RiskMD, a proprietary, patented, PEO focused data management and analytics firm, some states consistently outperform others regardless of industry or NCCI hazard code; others may surprise you!

Here we looked at undeveloped loss ratios and frequency as a function of claim count per $1M in payroll by NCCI hazard code according to the following groupings;

  • Hazard Groups A & B
  • Hazard Groups C, D & E
  • Hazard Groups F & G

We looked at this data both on national and state specific levels for the past seven years and found that the performance of some states may surprise you. This is based on client company performance aggregated at the state and national levels, regardless of policy structure.

NY and CA, for example, maintained their lowest loss ratios in Hazard Groups F & G and performed most poorly in Hazard Groups A & B over this seven-year period.

NJ, MA, and the National Aggregate performed best by both loss ratio and frequency over the past seven years in Hazard Groups C, D & E.

Performance by loss ratio for TX, FL and IL, increased incrementally as the hazard levels increased, however for these states, the incident of loss (frequency) consistently occurred higher within the Hazard Groups A & B than within the Hazard Groups C, D & D.

Analyzing your historical data is one of the best ways to predict future trends in your book of business and evaluate appropriate pricing of clients.

Find out what truths are hidden in your data.

Speak to a RiskMD representative to learn more.  www.riskmd.com

MMC Poised to Become Reinsurance Goliath

In the move to buy Jardines Lloyds Thompson Group (JLT), MMC (Marsh) is poised to be the biggest global reinsurance intermediary by 40% over Aon.  Both groups have been active in PEO placements and it will be interesting to see the new combined vision.

MMC (re)insurance business to be 40 percent bigger than rival Aon

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MMC’s $5.6bn acquisition of Jardine Lloyd Thompson Group (JLT) will cement the group’s position as the industry’s largest global broker based on (re)insurance revenues and will also create a 40 percent top line differential based on 2017 results.

Last year, MMC’s risk and insurance services division posted revenues of $7630mn vs Aon’s total (re)insurance revenues of $6378mn.

However, JLT’s risk and insurance division posted revenues of £1065.8mn in 2017, the equivalent of $1396mn at today’s exchange rate of £1:$1.31.

MMC-JLT-top-line-40%-higher

On pro-forma terms, this would make the combined group’s top line based on 2017 (re)insurance revenues as high as $9026mn; a significant milestone from Aon’s $6378mn, or 40 percent higher.

Earlier today, re-Insurance revealed that a combined Guy Carp-JLT Re will become the largest reinsurance intermediary, overtaking Aon’s reinsurance arm, Aon Reinsurance Solutions Business.

Aon’s reinsurance arm posted revenues of $1.43bn while a combined Guy Carp-JLT Re will have marginally higher revenues of $1.47bn based on 2017 reported numbers.

While there will inevitably be some fall-out from such a significant M&A, the gap will be the largest between the two firms for over thirty years when they both led a major consolidation drive in the 1990s (see table).

It is also the largest ever acquisition undertaken among (re)insurance intermediaries trumping the $2bn Marsh paid to acquire another UK broking heavyweight, Sedgewick, in 1998 and the $2.1bn that Willis paid in 2008 for US retailer Hilb, Rogal & Hobbs.

Marsh’s focus on building out its US mid-market business in recent years has seen the group regain its number one position after a few years of revenue pre-eminence by Aon followings its 2008 £844mn acquisition of reinsurance intermediary Benfield and also the particular privations endured by MMC at the hands of the near-obsessed former NY attorney-general Eliot Spitzer in 2004-05.

Below is a history of major broking M&A between US and UK broking firms. The big, once again, are set to get bigger.

PEO Super Bowl 2018 – NAPEO

The industry Super Bowl has started in Phoenix, NAPEO 2018!

Right off an awesome WCI 360 in Orlando wci360.com, where the PEO industry was once again given a full day of programming in the largest insurance industry conference countrywide, Phoenix Is now the destination for all things PEO’s from today until Friday.  I am sure Mr. Cleary and team have their game faces on and will throw an awesome event as always.  Beautiful facility to start for sure.

Personally, I am celebrating my 18’th NAPEO and look forward to seeing all of my old friends that also have dedicated their respective careers to PEO.  Can’t wait to rock it out again with you, starting for some of us at the NAPEO Political Action Committee dinner this evening.