Benefits of Utilizing Post-Offer Medical Questionnaires in Your Hiring Practices

Prescient National produced this thought provoking look at how to effectively use Post-Offer Medical Questionnaires as a part of your hiring practices. The original post can be found by clicking here.

When companies think of managing their Workers’ Compensation costs, several key programs may come to mind. For example, Early Return to Work, Post-Accident Drug Testing, and establishing a network of medical providers have become second nature in the course of doing business.  While these post-claim activities will reduce costs after a claim has been filed, preventing a loss starts with strong hiring practices.

A comprehensive hiring program contains several standard components, such as pre-employment drug screening, criminal background checks, and reference checks. But perhaps none are more important than the Post-Offer Medical Questionnaire (POMQ). As health conditions, such as obesity, diabetes, and previous surgeries continue to contribute to Workers’ Compensation costs, employers who incorporate the POMQ can rest easy knowing they’ve taken every step necessary to ensure that employees can perform the essential functions of the job, without endangering themselves or others.

What is a POMQ and How Does it Mitigate Potential Injuries?

The POMQ is a document with questions about a prospective employee’s prior medical history.  The POMQ helps an employer understand if the individual will be able to complete the essential functions of the job with or without a reasonable accommodation. Its goal is to help match the candidate to the physical requirements of the job and prevent putting an employee in a job that could be unsafe for him or her, other employees, and the company. It’s good stewardship. 

Let’s use an example to illustrate:  An employer in the home healthcare industry employs nurses who travel from one home to another to provide care. The company conducts pre-employment drug screening, motor vehicle record checks, as well as criminal background checks and reference checks, but it does not use a POMQ as part of its hiring practices.  One day, while making a sandwich for a client, an employee bends over to pick up a piece of silverware that has fallen off the counter. When he stands up, he feels pain in his lower back and decides to file a Workers’ Compensation claim. When the claim is received by the insurance carrier, it is determined that the employee has had two prior back surgeries and that picking up the piece of silverware has aggravated his pre-existing back condition. After a doctor’s assessment, the employee is scheduled for a third back surgery, which will cost approximately $100,000. It is estimated that this claim alone will increase the employer’s experience modification rate from a 1.00 to a 1.50, which will cost the firm $500,000 in additional Workers’ Compensation premiums over the next three years. The employer was shocked to learn of the employee’s prior health condition and is frustrated that the employee cannot return to a “light duty” job, because the employee has been written completely out of work.  Additionally, the employer is worried that the employee was placed in a position that required lifting and walking assistance for an elderly client, and wonder about future lawsuits from “negligent hiring” practices.

In the example above, the employer could benefit greatly from the effective use of a POMQ.  Uncovering the prospective employee’s prior back surgeries would have allowed the employer to make a well-informed hiring decision, which would protect both the employee and its client population from injuries. For the POMQ to be “effective”, an employer must follow the rules of its use.

How to Use the POMQ

Under the Americans with Disabilities Act (ADA), employers are allowed to conduct medical inquiries of prospective employees as long as certain rules are followed. First, the document can only be used after a job offer has been made (i.e., “post-offer”), but before the employee is placed into the job. This means, for example, an employer cannot ask an applicant to complete a POMQ while filling out an application. Just as with background checks and drug tests, POMQs can also be part of the contingent post-offer process, but only if all new employees in the same job category are required to complete a POMQ.  All information on the POMQ is protected health information and must be handled responsibly (typically by HR), kept confidential, and secured separately. 

An applicant must be provided with a copy of the written job description that outlines the physical requirements of the job. The questions on the POMQ must be “job-related and consistent with business necessity.” This means that the job must contain physical exertion that has been documented and is essential. It also means that employers cannot inquire about any family medical history. The job description in our home healthcare scenario, for example, may require employees in the position to be able to lift 50 lbs. The POMQ will include a question related to the amount of weight an individual can comfortably lift unassisted. If the candidate is unable to meet this requirement, the employer will solicit a medical opinion and provide the doctor with a copy of the written job description. The candidate can meet with his or her own physician or with the company physician to determine if the job requirement can be met and what, if any, accommodations can be made to meet those requirements.  

Depending on the physician’s medical assessment, the employer (assisted by feedback from the candidate), must determine if the recommended “reasonable accommodation(s)” can be made to enable the candidate to meet the essential requirements of the job. This may involve modifying the job, if possible, or purchasing additional equipment to help with the task, depending on whether this is a reasonable expectation for the business to undertake. If no reasonable accommodation is available, an employer can withdraw the offer. 

POMQ Red Flags

There are certain red flags to look for in a POMQ. Ensure that every question on the POMQ is answered. Often, we see a candidate forget to complete a question or perhaps even refuse to answer a question. All questions should be addressed to avoid potential issues down the road. Look carefully to see if the candidate documents something that doesn’t match with the requirements of the job to address any discrepancies or potential problems. Also, make sure the document is signed by the candidate. 

Note: If a candidate is untruthful on the POMQ and aggravates a pre-existing injury on the job, in many states the claim may be denied. In most cases, the injury/aggravation must be to the same body part where he or she suffered a prior injury which was not disclosed. Typically, it must also be established that the employer would not have hired the employee if he or she had indeed disclosed the prior injury and the injury would not have allowed him or her to safely perform the essential functions of the job, with or without a reasonable accommodation.

At Prescient National, we believe that well-informed hiring decisions drive down costs and improve employers’ profitability. Used correctly, a POMQ is a good tool to optimize employee safety and to help mitigate potential claims. Hiring employees fit for duty is productive for the staff, insulates an employer from legal liability, and enhances safety throughout the organization.

Moody’s Says COVID Impact on Insurance was ‘Moderate’

Moody’s opinion echos that of NCCI regarding the impact of COVID on the Workers’ Compensation system. More rate decreases to come???

Neither COVID-19 nor legislation enacted because of it has seriously harmed the creditworthiness of the property and casualty insurance sector, according to a report released by Moody’s Investors Service on Friday.

Businesses have filed about 1,700 business-interruption claims because of COVID-19 shutdowns, but those cases are largely being decided in favor of insurers, Moody’s said.

“US property policies typically require direct physical loss or damage to the property for business interruption losses to be compensated,” Moody’s said. “Moreover, most policies specifically exclude coverage for losses caused by a virus or communicable disease.”

But the battle for coverage, of course, is far from over. Only 20% of the cases filed have been resolved so far.

“A handful of courts have recently ruled in favor of insured parties despite standard policy wordings,” the report says. “Additionally, court decisions are subject to appeal, a process that could take years to resolve.”

Moody’s says it believes that ultimately, policy provisions will limit insurers’ business-interruption losses is the United States.

Photo by Nick Fewings on Unsplash

“Nevertheless, we expect the ongoing litigation will lead to inconsistent outcomes, appeals to higher courts, elevated legal costs, and some uncertainty on this matter for the next couple of years,” the report says.

For workers’ compensation, which makes up 14% of commercial line P&C premiums, the coronavirus pandemic has had only a “moderate” impact on claim costs, the report says. Moody’s echoed a report by the National Council on Compensation Insurance released earlier this month that said total COVID-19 workers’ comp losses amounted to $260 million in the US.

“The severity of these claims was generally low with 95% of the claims less than $10,000,” Moody’s said. “With more states enacting presumption laws in 2021, insurers will see additional claims but we expect them to be moderate.”

While the passage of presumption laws led to more claims for work comp, state lawmakers also enacted laws that limit exposure for commercial liability. Moody’s said the coronavirus liability protection for businesses that was adopted by most states is a “credit positive” for insurers.

The report says eventually, government might step in to create a public-private risk sharing agreement to cover business interruptions caused by future pandemics. Moody’s said bills were introduced in a number of states last year that would have required insurers to pay COVID-19 business-interruption claims, but none passed.

“With an eye toward future pandemics, some insurers and US legislators are considering public-private risk sharing arrangements to compensate small and large businesses for business interruption caused by pandemics,” the report says. “Common elements of these proposals are that P&C insurers would administer the coverage and assume a limited portion of the risk, while the US government would assume the bulk of the risk.”

Week in Rewind <<

If you haven’t noticed our focus has been heavily weighted in the area of cyber risk! Too many of our friends and clients have been impacted lately by cyber thieves. Yes, we sell insurance, but we are passionate about the benefits of insurance. We are all about Mitigating Risk and Loss Exposure!

So How Does Cyber Insurance Actually Help?

What Does It Cover?

First thing to know here is, in most cases you can design a plan to cover your business’ specific needs. As a generalization Cyber Coverage includes the following:

  • Defense and Settlement – civil proceeding or investigation
  • Regulatory fines and penalties including forensic examination
  • Re-certification services
  • Cyber extortion
  • Ransomware
  • Website media
  • Business interruption
  • Data recovery
  • Crisis management and fraud response
    • notification to breach parties
    • call center operations
    • design and implementation of website for advising breach parties
    • credit monitoring
    • public relations
    • associated legal expenses

What It Does Not Typically Covered

  • Potential future lost profits
  • Loss of value due to theft of intellectual property
  • Improvement costs to internal systems after cyber evet
    • Your other policies may be “activated” in the event of a cyber incident, but there are likely gaps in coverage for what damages are actually covered. The industry term, “Silent Cyber” refers to cyber loss exposure not covered under traditional, non-cyber insurance policies; namely the exposure is silent.

IT Risk Management

In an effort to further educate our audience we are providing links to our previously published articles on creating a better infrastructure to avoid successful attempts.

The Wall Street Journal reported that Colonial Pipeline authorized ransom payment of $4.4 million as a result of the company not being able to quantify the magnitude of the cyberattack breach to their system and the length of time to get things up and running again. Feet held to the fire for resolve and the decryption tool provided for ransom payment did not bring full restore back to Colonial. We can all feel the impact of the Colonial hack.

CNN reports that the Justice Department indicated that 2020 was the worst year for cyber attacks with ransomware demands, on average, exceeding $100,000 but as high as tens of millions of dollars. “….A key lesson here is that while technology and automation is good, we must also have the ability to efficiently operate manually as well. Attacks will happen, but how quick can you recover and restore critical services?”, Brian Harrel, former assistant secretary for infrastructure protection at the Department of Homeland Security, as reported by CNN. Having the support of insurance coverage through a Cyber policy is definitely one way to mitigate recovery exposure, should you fall victim.

NAPEO has pre-recorded webinars and information available on Cybersecurity. For non-members, follow this link to join.

Libertate Insurance Services has access to a variety of programs for Cyber Risk Coverage. Contact us, let us help you identify your Company’s Cyber Risk and find the best placement for your needs.

5 Ways Cyber Business Interruptions Differ from Traditional Interruptions


Content taken from Andrew G. Simpson’s May 2021 article in the Insurance Journal and is a reformatted post

While a typical business interruption can often be a confusing insurance situation, the picture gets even muddier when it involves cyber coverage.

According to Chris Mortifoglio, who is a Certified Public Accountant and a Certified Fraud Examiner (CFE), understanding the “nuances and differences” of a cyber insurance business interruption exposure or claim compared to a traditional one is more important now than ever.

“I will tell you that in my experience business interruption is often the most misunderstood part of property coverage. Part of that has to do with the fact that it can be very subjective. If you have 10 accounts looking at the same set of financial data, you’ll oftentimes receive 10 different calculations or estimates of what a business interruption loss might be,” said Mortifoglio, who has been dealing with business interruption exposure assessments and claims for more than a decade as the director of forensic accounting at Procor Solutions and Consulting in New York.

A cyber business interruption risk can be difficult to estimate and manage. To further the understanding of cyber BI, Mortifoglio identified five areas where cyber BI differs from traditional BI: period of measurement; period of restoration; personnel involved; geographic constraints, and reputational risk.

1. PERIOD OF MEASUREMENT

The differences between traditional and cyber business interruption begin with the period of measurement or evaluation of lost business income, a period that typically runs shorter for cyber. The timing of a cyber incident can have a major effect on the amount of a potential loss. “Traditionally, when you have a property loss, you’re usually valuing the disruption for a period of weeks or months or years as it takes time to physically repair the property damage that was occurring,” he said. In a cyber incident, the loss may last for just a few hours or a few days. This much shorter time period requires detailed or as Mortifoglio refers to it “granular” on the impact and the disruption on a company. “This means that in order to properly evaluate cyber business interruption, you need much more granular levels of data, maybe even hourly revenue data, or certainly daily sales data, as opposed to a traditional business structure loss where, in some cases, monthly profit and loss statements are enough to evaluate the impacts of the loss,” he said. The granular data is particularly important, for example, when the business operates 24 hours a day, 7 days a week making online sales. “There may be much more greater impacts, and there may be more of a need to really drill down into the disruptions that happen at different times of the day. What happened at midnight versus what happened at 8:00 am?” he explained. When comparing traditional versus cyber BI coverage, the waiting periods following an event before coverage begins are usually different as well. The waiting period for a cyber policy is often denoted in hours, whereas a traditional policy is typically for at least a few days, although it may be written as 48 hours or 72 hours, as opposed to perhaps a 12 hour waiting period for a cyber business interruption loss.

2. PERIOD OF RESTORATION

Another difference is the period of restoration. Defining the period of restoration is very important because that drives the ultimate value of a cyber business interruption loss. The period of restoration is defined as starting on the date of loss, which is the date of physical damage, and ending on the date “when the repairs should have been completed if the insured had utilized due diligence and dispatch.” That period of time is the period of time that an insurance policy will provide coverage for any loss of business income. But determining when this period starts or ends is not always easy. “When it comes to property losses, there’s usually a very clearly defined start to that business interruption period, known as the date of loss. We can define very easily what that period of indemnity is and what a potential extended period of indemnity is because it all depends on the physical damage,” he said. If a fire, earthquake or hurricane impacts an organization, it’s not hard to define when that physical damage occurred. That is the starting point for the period of restoration. However, when it comes to cyber, “there is much less certainty, not only to when a cyber event has started, but also when a cyber event ended” including when the system was repaired and there no longer is a breach. These dates are critical to figuring out the period of time that’s going to be evaluated for a cyber business interruption loss. Mortifoglio recited some questions that come up when evaluating cyber business interruption: “When did the loss start? How do we know that it started at this point in time? Was there a full disruption for an organization or just partial. For example, was it a specific system that was impacted, an email system or an accounting system that went down? And then when did this loss end?”

3. PERSONNEL INVOLVED

So in addition to requiring more and different types of data, and presenting complexities around the period of restoration, cyber business interruption also typically calls for more personnel to become involved from an organization. Mortifoglio cited a need for personnel from the risk manager and legal counsel to financial, technology and operations officers as well as others to contribute to the assessment. First and foremost is the risk manager, the “quarterback of the insurance recovery process” who is helping to manage the actual claims process once something happens, not to mention being the purchaser of the insurance on the front end. After a loss has happened, somebody from the accounting or finance department — perhaps the CFO or the controller—should be called upon to provide the financial data required to quantify any business interruption loss. In addition, it’s important to have someone from operations to assure that the full impacts of the loss are being documented and also connected to the actual financial calculation. And there’s more. “You now have to bring in more folks from your organization to help really provide the picture in the story of what happened and help to properly and accurately quantify cyber business interruption,” Mortifoglio added. This means calling in folks from the IT team to help to identify the status of the cyber incident and define the period of indemnity and the period of restoration. “That’s going to help narrow down the exact period of time that we need to evaluate from a financial perspective to quantify the loss,” he said. Also, the chief systems or technology officer may be needed to oversee data privacy and records issues that may come up in a cyber incident. The legal department may also deal with privacy issues, general legal ramifications and coverage issues, as well as interface with outside counsel brought in to help deal with a cyber breach. “The addition to these extra personnel can add to the complexity of the process,” the Procor executive said.

4. GEOGRAPHIC CONSTRAINTS

Whereas a traditional business interruption claim may be geographically constrained, the same is not always true for cyber exposure. In a traditional scenario, the property damage is contained to either a single location or region that has been hit by a widespread catastrophe. “Think of a hurricane that hit the state of Florida, and if you’re an organization that has multiple locations there, you may have multiple instances of damage. You may have multiple locations that are being impacted,” he noted. When it comes to a cyber loss, these geographic constraints do not exist and an entire organization could be impacted around the globe at the same time. “If you are an organization with a global presence and you have systems that are connecting all of your physical locations around the globe, then a cyber incident may impact you around the globe without any sort of restraints as far as geographic regions. With traditional business interruption, organizations can mitigate their risk by spreading out their operations geographically to avoid a catastrophe, really hampering the entire organization. When it comes to a cyber loss, those types of geographic constraints no longer apply,” he said. For risk mitigation purposes, Mortifoglio stressed the importance of understanding that if a global organization is running systems used by the entire workforce, all operations around the globe can be impacted immediately. “It can make it more complex because you can’t just look at a single isolated location. You have to look at the interconnectivity of your systems to see if something were to happen to them, what would the operational impacts be on your organization? And that’s what’s going to help you evaluate the potential cyber business interruption,” he said. In short, there are no geographic constraints with cyber business interruption and therefore it is harder to mitigate.

5. REPUTATIONAL RISK

Finally, cyber BI carries with it a reputational risk that traditional property business interruption does not. When there is a traditional BI loss such as a fire at a factory, customers and the general public usually do not to have any sort of reaction. Most of the time, the general public is not even aware of the fire and here is no effect on the company’s reputation. However, if a company is hacked and customer records are stolen, Mortifoglio said this can result in a “breach of trust in the public’s eye” and the reputation of an organization can be significantly harmed, often resulting in extended financial losses. In the case of a data breach, even though the system has been repaired and the breach fixed quickly, customers may be hesitant to return to do business with the organization “until they have absolute confidence that it won’t happen again. It’s hard to determine how long that might go on.” However, the forensic specialist noted, cyber business interruption policies are building in coverage to help recover any losses tied to the transitional risks, in a way that is similar to the extended period of indemnity coverage in traditional property policies. “The thought is that once a cyber incident is repaired and a breach is fixed, there may be lingering impacts due to some reputational risk” and there should be coverage there to help capture those losses, Mortifoglio said.

“The notion of implied meaning is the root of misunderstanding.”

— Eric Parslow

PEO Compass brings insight to your PEO related business through real-time reporting, application of innovative technologies, and expert opinions on the industry’s most turbulent topics.  Learn about the latest trends in healthcare, risk management, workers’ compensation, and many other topics that affect the PEO community. To register and start receiving breaking industry news, legislative updates, small business, risk management, safety, property casualty, and all things relevant to the industry of professional employment organizations (PEO) click on the link below to register for free.


The Risk with Search Engines

It’s no secret that your technology company depends on the capabilities of your computer systems to function. You should be aware that simple actions your employees take could be putting your company’s equipment and networks at risk of cyber-crime, including cyber-attacks, cyber theft and other computer security incidents. The average cost of a single cyber-attack is incalculable—cyber-attacks can directly target finances and ruin a business’ reputation. Your business is at stake, and you should do everything you can to protect yourself.


The Risks of Web Searches

As an employer, you should educate your employees about searching for certain topics on the internet due to the risk of coming across websites encrypted with viruses or malware that could be detrimental to your computer systems. Stress that the potential for cybercrime could affect employees individually as well as the business as a whole. More than 90 percent of companies surveyed by the DOJ incurred either monetary loss, system downtime loss or both because of cybercrime, so take it upon yourself to put search engine guidelines in place.


The Web’s Most Dangerous Search Terms

Common term searches conducted online one can expose your business to the risk of cyber-crime. Encourage employees to avoid following suspicious results in search engines. Any result that promises free products or materials is suspect. The least risky search terms are usually health-related topics and searches about economic news. It is essential to remember that the number of dangerous search terms is ever changing. Hackers want to impact

the highest amount of people with the least amount of effort, so they aim for popular search terms most. Ill-intentioned hackers also adapt quickly to the fast-paced nature of the internet and the public circle, so oftentimes social or celebrity events popular at a given moment climb quickly to the top of the internet’s most dangerous search terms and are a high risk for infecting your company’s computers. According to the DOJ, industries considered a part of critical infrastructure businesses account for a


Simple actions your employees take could put your company’s equipment and networks at risk of cyber-crime, including cyber-attack, cyber theft and other computer security incidents.


disproportionate amount of computer security incidents. If your company is in any of these industries, be especially careful about internet searches to ensure computer safety and protect against potentially devastating loss, both monetary and in down time:

  • Agriculture
  • Chemical and drug manufacturing
  • Computer system design
  • Finance
  • Health care
  • Internet service providers
  • Petroleum mining and manufacturing
  • Publications/broadcasting
  • Real estate
  • Telecommunications
  • Transportation and pipelines

Take Precautions to Protect Your Business


There are examples of companies and organizations around the globe that had to shut down operations to address a large-scale virus or other malware issue. These problems can affect both large and small businesses and can cost hundreds of thousands of dollars to fix. Avoid putting yourself at risk by doing the following:

  • Enact a stricter internet use policy
  • Put more strict website blockers or filters in place
  • Educate employees about the hazards that risky search engine exploration can present

Some of these solutions may cost you in the short run but lowering your risk will ultimately save your company in potential identity fraud, monetary cyber theft or informational cyber theft in the future.

CDC Says Masks Are No Longer Required in Most Settings for Fully Vaccinated Individuals

The Centers for Disease Control and Prevention (CDC) has released new guidance for people who have been fully vaccinated for COVID-19. This long-awaited guidance loosens the CDC’s recommendations for fully vaccinated individuals, allowing them to stop wearing a mask in most settings. In addition, the agency says that those who are fully vaccinated can safely resume activities they had participated in pre-pandemic.

CDC Guidance for Fully Vaccinated People

According to the agency, people are considered fully vaccinated two weeks after their second dose in a two-dose vaccine series, like the Pfizer or Moderna vaccines. They are also considered fully vaccinated two weeks after a single-dose vaccine, like the Johnson & Johnson vaccine.

The most notable update from the CDC’s new recommendations is that those who are fully vaccinated can resume indoor and outdoor activities without wearing masks or physically distancing, except where required by federal, state, local, tribal or territorial laws, rules and regulations, including local business and workplace guidance. In addition, this new CDC guidance says fully vaccinated people can:

  • Resume domestic travel and refrain from testing before or after travel, or self-quarantine after travel
  • Refrain from testing before leaving the United States for international travel (unless required by the destination) and refrain from self-quarantine after arriving back in the United States
  • Refrain from testing following a known exposure, if asymptomatic, with some exceptions for specific settings
  • Refrain from quarantine following a known exposure if asymptomatic
  • Refrain from routine screening testing if feasible

For now, the CDC recommends that fully vaccinated people continue to get tested if they are experiencing COVID-19 symptoms.

CDC Guidance for Unvaccinated People

According to the CDC, unvaccinated people should continue to take preventive steps, such as wearing a mask and practicing social distancing. However, according to the agency, it’s safe for those unvaccinated people to walk, run or bike outdoors with members of their household without wearing a mask. In addition, the agency says it is safe to take off the mask when attending a small, outdoor gathering with fully vaccinated family and friends.

Next Steps

As the CDC learns more, it will continue to update its recommendations for vaccinated and unvaccinated people. To learn more, the agency offers resources for choosing safer activities for both fully vaccinated and unvaccinated people.

Libertate will continue to keep you updated on changes to the rules and regulations surrounding Covid-19.

Friday, May 14th, 2021

Happy Friday Everyone!

As the 19th week of 2021 draws to a close, we would like to remind you of a few great posts from this week – in case you missed them!

Paul Hughes provided us with an excellent update on the PEO footprint across the country at this time.  As Economy and Industry both seek to find firm footing in this new (almost) post-pandemic reality, PEOs will continue to emerge as an intelligent and refreshing solution for employers of mobile, diverse and complex workforces.  Enjoy his piece discussing 10-99 Employee Firms and PEOs via the following link.

Angela Slaney reminded us of the ever present threat of cyber exposures in this tech savvy modern age.  Her piece provided us with some great recommendations on how to be proactive in protecting your organization by implementing some of the latest technology in cyber protection.  Check out her post at the following link.

Stay safe, stay health, and be happy this weekend!! 

15.3% of 10-99 Employee Firms Coemployed; The “PEO” Footprint – 2021

In an effort to further the understanding of the benefits that a PEO provides on an empirical basis, the National Association of Professional Employer Organizations contracted with Laurie Bassi and Dan McMurrer and their firm, The McBassi Group to conduct a series of PEO-specific White Papers. Starting in 2013, the McBassi Group has prepared a White Paper of significance regarding the PEO industry each year. An overall overview of the White Paper project can be found here…

https://www.napeo.org/what-is-a-peo/about-the-peo-industry/napeo-white-papers/overview

Ms. Bassi is an internationally renowned human resources analytics expert and runs a think-tank research group with the co-founder and lead analyst Dan McMurrer https://mcbassi.com . The firm is extremely credible at the process of evaluating economic impact.

McBassi and company has now produced a series of nine white papers addressing the core functionality and value proposition of PEO. They are incredibly written and on point to the value PEO brings the business owner in terms of growth, retention, profitability and other macro key economic indicators. This is now the ninth white paper on PEO that Ms. Bassi and Mr. McMurrer have collaborated on to benefit the holistic understanding of an often misunderstood value proposition called coemployment. It is hard to not refer to them as the most expert group in understanding the macroeconomic impact of the PEO model on American employment.

NEW! White Paper 9 (May 2021):  The 2021 PEO Industry Footprint

All of the historical White Papers can be found below:

White Papers – PEO White Papers that are available on napeo.org

White Paper 1 (September 2013):  Professional Employer Organizations: Fueling Small Business Growth

White Paper 2 (September 2014):  Professional Employer Organizations: Keeping Turnover Low and Survival High

White Paper 3 (September 2015):  An Economic Analysis: The PEO Industry Footprint

White Paper 4 (September 2016):  The State of the PEO Industry 2016: Markets, Value, and Trends

White Paper 5 (September 2017):  PEOs: Good for Businesses and Their Employees

White Paper 6 (September 2018):  An Economic Analysis: The PEO Industry Footprint in 2018

White Paper 7 (September 2019):  The ROI of Using a PEO

White Paper 8 (September 2020): How PEO Clients Fared in the First Months of the COVID-19 Pandemic: A Comparative Analysis

As you will note, there is a wide range of data and findings found in the nine White Papers now written. The focus of this post is the comparison of the three reports that evaluate the “PEO Footprint”. This analysis is meant to bring to light what I deem to be the key performance indicators most relevant in explanation of its overall economic impact. This is interpretation of NAPEO’s findings.

The biggest difference in the three is the calculation used in measuring the size of the industry, from a gross revenue, client and employee count basis. As the report in 2015 was the first report of any credibility on the PEO space with the exception of the three reports done by the National Council of Compensation Insurance (“The NCCI”) a few years earlier, at the onset of this exercise, it was understood that there was going to be some element of estimation and assumption in part based on the following:

  • Confusion of difference between PEO (coemployment) and staffing (sole employment)
  • Lack of consistent definition of PEO/coemployment on a federal level
  • Lack of mandatory registration/licensure on a federal level
  • Confusion of difference between PEO and payroll/HR companies
  • Multiple PEOs part of same control group with different names
  • Steady M and A volume
  • Non-NAPEO members and others “off the grid”

The below table highlights key differences in the three studies and the methodologies used to forecast the results. The most important difference in the studies was how the number of PEOs was calculated. As a result of the change in methodology (which makes sense), the estimated amount of PEO’s in the country in 2021 was 487, a steep 54% drop from the 907 estimated in 2018. That said, payrolls went up 18%, worksite employees 9% (even with COVID) and the most important statistic of all; 15.3% of all civilian, private employees employed by businesses from 10-99 employees are coemployed by a PEO. This up from 12.1%, or a nice 21% uptick.

Through the use of the following four footnotes, I tried to address material changes in methodology and data sets that contributed to the overall results by each White Paper with focus only on the findings from the table below.

Year201520182021
# of Professional Employer Organizations (“PEO”)880 (1)907 (2)487 (3)
# of PEO Clients168,000175,000173,000
# of PEO Worksite Employees3,050,0003,700,0004,000,000
Annual PEO Gross Worksite Employee Wages $      147,000,000,000 $ 176,000,000,000 $ 216,000,000,000
% of Private, Civilian Population – Overall Business 2.4%2.7%
% of Private, Civilian Population – with 10-99 Employees 12.1%15.3%
Average PEO Annual Growth Rate (4) 8.3%7.6%
….excluding COVID-19  8.3%

1) Multiple Data Sources Used
-NAPEO Membership Data
-BLS Data
-NAPEO’s 2014 Financial Ratio and Operating Statistics (FROS) Survey
-Hoovers/Dun and Bradstreet on all companies classified as PEO’s by Hoovers
-Detailed Administrative Data from five selected states

(2) Changes in Data Sources Used in 2018 v 2015
-Based on comparison of PEO WSE’s with US Bureau of Labor Statistics data on an employment level by firm size for 2017
-For the purpose of these calculations, firms with 10-99 employees were used.
-Based on comparison of PEO WSE’s with total employed civilian labor force from the US Bureau of Statistics Current Population Survey, www.bls.gov/cps/cpsaat01.pdf.
-Based on comparison of PEO clients with total number of firms with 10-99 employees from US Bureau of Labor Statistics. Www.bls.gov/web/cewbd/table_g.txt.


For verifying # PEOs

-Employer Services Assurance Corporation (“ESAC”) members
-PRISM HR Client List
-Slavic 401k Client List
-McBassi PEO Benchmarking Survey
-Reduced list by 67 due to reasons deeming the business unlikely to be a PEO


(3) Changes in Data Sources Used in 2021 v 2018
What companies counted as a PEO further refined as defined?
-Company registration as a PEO not an automatic qualifier that a PEO is operational. Change made after it was found that a significant amount of payroll and HR companies that are registered, do not offer PEO services
-Expanded industry partner lists for new data to Stonehenge and McHenry
-Corrected duplicates and “doing business as” entities that were redundant
-Purchased two third-party vendor data lists (Data Axle and Siccode.com) to cross-reference PEO through NAICS and SIC classification codes
-Website verification of “PEO and/or “coemployment” services offered
-Combined initial list was +2,000, cut by 75%


4) Growth Rate Change Methodology
This estimate is based on calculating annually “same-store” PEO growth (i.e. growth for those PEOs for which we had data for both the current year being calculated and the previous year). As a result, the study excludes any specific growth effects of PEOs that were involved in mergers and acquisitions as well as the impact of the formation of new PEOs and the departure of PEOs that went out of business. The growth rate for the PEO industry if not for the pandemic would have held true at 8.3%, but instead came in at 7.6%.

Some other things to reflect on as we understand what the footprint will look like going forward… Let’s hope we can beat even these numbers!

  • It seems like employee count per client company continues to grow and health insurance a greater part of the coemployment decision
  • Workers’ compensation rates will continue to decline in 2022 under current environment
  • Unscientifically, I would estimate that there was some sort of transaction impacting one of every four PEO’s between 2018 and 2021
  • There is a huge increase in start-up PEO and convergence with existing benefits and payroll providers
  • There is still not one State that I know of (would love to be corrected) where statute, insurance regulations and actuarial rules integrate which helps fuel the confusion of what is and is not a PEO
  • Have I mentioned I hate the term employee leasing
  • No barrier of entry to staffing and major confusion between it and coemployment
  • Competition continues to try and legislate the industry into a weakened position; be vigilant
  • It was great to see everyone at PACE !

It is always nice to have empirical evidence to prove out what those in PEO already know; by far, it is the most efficient and effective business model to manage the non-operational tasks of being an employer.

Let us know what you think about the study, what popped out at you and what you’d like to see different in the next one…