PEO and Temp Staffing

Transcription

1 PEO and Temp Staffing What to look for when auditing A more in depth discussion What is the difference between PEOs and Temp Staffing? PEO s Do not supply labor to worksites, PEOs supply services and benefits to a small business client and its existing workforce. PEOs enter into a co-employment arrangement typically involving all of the client's existing worksite employees in a long-term relationship, and sponsor benefit plans for the workers and provide human resources services to the worksite employer. If a PEO relationship is terminated, the workers coemployment arrangement with the PEO ceases, but they will continue as employees of the client. Temp Staffing Do supply labor to the client s worksite. Do not typically provide health or 401K benefits to leased employees. No co-employment agreement is signed. The Temp employee is often terminated or returned to the temp agency when the project is done. Policy Types 1. Traditional Workers Compensation policy in the named insured: Bill s Hardware 2. Master Policy under the PEO name with many clients payroll contemplated. (May or may not list each client covered individually). 3. Multiple Coordinated Policies (MCP) Basis many policies typically in the name of the PEO listing the individual client as the covered entity. 4. Stand Alone (Carve Out) policy issued most frequently in the name of the client company on behalf of the PEO. 1

2 CL Construction Example Policy is written under the name: CL Construction, located in Springfield, IL. Class codes scheduled are: 5645, 5606, 8810 Entity is Corporation with 3 officers, Pres, VP, and Sect/Treas. Subcontractors are used, some have COI s, but 2 do not Bob s Electric and Joe s HVAC. They hired a temp admin employee from T-Temps. Stand Alone versus the MCP policy method. Stand Alone named insured is CL Construction. MCP Name is ABC PEO (LCF) CL Construction Let s look at this from both the Stand Alone and the MCP policy method. The PEO runs the payroll and provides the auditor with a payroll report. The report lists the employees by name and the WC wages. No 941 reports or state UC reports are available in most cases. If they provide these, they are likely a system document that is not filed but provided simply as a report to the client. Why no 941 s and State UC s? Since the client s operations are rolled up into the larger PEO group of clients, and the PEO is responsible for payroll and tax reporting, all wages paid by the PEO are recorded by the PEO on their 941 reports and State Unemployment reports. Employee names will be listed on the state UC s but the client company names are not listed in any way. The FEIN#s recorded are the PEO s. Some PEO s will produce a report that looks like a 941 report they provide to the client company to demonstrate what their payroll tax reporting was. This is not a legal or official

3 PEO vs. Direct Written ABC PEO (LCF) CL Construction 5 employees under coemployment agreement. Officers not under coemployment agreement Subcontractors not under coemployment agreement so any employees of uninsured subs can t be charged as exposure to the policy. Would not pick up exposure for any other employees not under co-employment agreement. CL Construction 5 employees under coemployment but no WC coverage through the PEO. Officers included at WC Min/Max subject to Excl. Endorsement. Subcontractors -2 without COI s and with employees deemed exposure to the policy. Could develop exposure for employees not under coemployment agreement. What are WC wages? WC wages are the Net wages deemed to be chargeable by the PEO. These often have deductions for OT, expense reimbursement, etc. Ask if they can provide a report of the excluded wages. The report may show Total Wages. Run a comparison of the Total Wages to the WC wages to determine how much is being excluded. Is this a reasonable %? Does Total Wage include pretax wages sometimes they don t? What to watch for in the payroll reports provided. Look at the run data on the payroll report. It should show the client # from the PEO group, the dates the report was run for, and the employee # s captured in the report. Confirm how many employees client company had during the policy year. Did the report drop terminated employees? Were all employees under a co-employment agreement? Did the PEO have more than one client # for this client? This sometimes happens when they want to separate out different labor groups. 3

4 CL Construction - Officers Are the officers listed on the payroll run? Did they sign co-employment agreements? Did they receive payroll through the PEO? What is the named insured on the policy? How do you treat officers as a result of the name on the policy and the agreements in place. CL Construction Employee Classification Wages are broken down as follows: 5645 Residential Carpentry -$68, Executive Supervisor -$75, Clerical -$38,000 Does this look like a reasonable breakdown? Does the payroll report show class codes with the wages? Are employees classed in more than one code? What are the duties of the officers and are they included in these wages/classes? What about the Temp admin employee? CL Construction Subcontractors How is the policy set up? Is it in the named insured or PEO name? In the named insured subcontractors are subject to the policy just as in any other WC policy. In the name of the PEO subcontractors are not under co-employment agreements and are not subject to the policy exposures. Did the Temp agency provide a COI? 4

5 Why would a client keep their Direct Written policy after signing up for PEO services? A client company has no obligation to cancel their own WC policy. They may have officers or employees who did not sign a co-employment agreement. They may choose to only put their higher risk employees (say only the manufacturing employees) on a co-employment agreement. They may want to keep a policy to cover any risk of uninsured subcontractor liability that could come on the business. Master Policy ABC Peo policy Some Carriers list strictly the name of the PEO in the named insured schedule. Other Carriers list the PEO in the named insured and also a list of the clients covered under the policy with their add/term dates. Any MCP or Carve Out policies may or may not have the same effective date of coverage as the Master policy. Where do you start? First and most important is to identify what the payroll report captures. Is there Total Wages provided and is this really True Gross wages. OFTEN PEO reports do not capture true gross wages. Is there breakdown for the excluded wages? Does the wage report tie out to the 941 s? How many FEIN# s are contemplated? Do you have a claims run to check for missing clients? 5

6 Identify clients not covered Are there clients on the payroll run that are ASO meaning they did not select WC services through the PEO but payroll is run? Are there any clients covered by Stand Alone policies included in the payroll run? Are there any MCP client s wages included? Are there specific states only covered by this policy? How do you approach Class Review? Each carrier has different approaches to the class code review. In general, the payroll will be reviewed by client, state, and operations. Some carriers will call a random sample of clients directly to review operation and classifications. Some carriers will work with the PEO to review loss control reports and file information. Some will perform an actual on site audit for each client company operation. Often by bundling clients into one large policy, it is more difficult to identify classification errors. Premium Loss The largest areas of premium loss are: Classifications incorrectly splitting wages between multiple classes; placing supervisors in 8810 when they don t qualify; incorrectly classifying the overall client operations. Payroll Exclusions bonus is often hidden in the excluded wages; OCIP or CCIP not approved for exclusion by the Underwriter; car allowance without confirmation that it meets the terms for exclusion; officer excess wages from client companies who are not eligible to have wages capped. Missing client wages inadvertent omission of a client s payroll on the payroll run due to how they are paid or state they are covered in. 6

7 Temp Staffing One policy is typically issued. This policy could contemplate multiple FEIN# s. There is no list of client companies on the Temp Staffing policy. All wages paid are subject to the WC policy, other than the Executive Officers of the Temp Staffing company, if they elect exclusion per state requirements. Payroll Reports Wage Report is usually by employee. Temp Staffing companies seem to be very protective of their client lists. Temp Staffing payroll reports often show total wages, OT, and WC chargeable wages. 941 reports and State UC reports are available to verify the wages by FEIN# and State. Client information is often more difficult to obtain in the payroll report run. Temp Staffing Premium Loss Classification is the largest area of premium loss in a temp staffing audit. Employees should be tested to ensure they are being classified correctly to the clients they are assigned to during the policy year. Clerical is often incorrectly utilized as is warehouse. Most employees fall as miscellaneous employees and temp agencies often classify to the type of work they are doing rather than the governing class of the client s business. 7

8 Example Notes 8