Professional Employment
Organizations & Leased Employees
What they are
Professional Employment
Organizations, often referred to
as PEO’s, are formal Human
Resources outsourcing firms
which offer small businesses
outsourced payroll, HR, employee
benefits, and insurance.
Why use a Professional
Employment Organization Outsourcing
employees to a third party
Employment company is done to
reduce payroll, human resources,
employee benefits, and workers
compensation insurance. The
Employer Organization then
leases the employees back to the
company in a co-employment
agreement.
Can I qualify for
coverage with my leased
employees?
Qualifying for coverage if your
employees are leased to you can
be very tricky. More often than
not, the health insurance
carrier will decline to offer
health insurance coverage to the
leased employees because they
are w2 payroll employees of the
leasing employment organization.
Qualification for coverage is
covered in greater detail
through our California health
insurance Small
Business qualification section.
What if I terminate my
relationship with my
Professional Leasing
Organization? Can I qualify for
coverage on my own then?
Yes, once a relationship
with a Professional Employment
Organization is legally severed,
the health carrier will allow
you often to include the prior
length of time on the employment
contract as previous employment
so you don’t have to face
startup company requirements for
approval. Typically you can
submit a copy of the contract
termination letter and copy of
the w2 payroll from the agency
reflecting the sub-set of
employees at your location as
evidence for California Small
Group health insurance.
Which California health
insurance carriers will accept a
Professional Employment
Organization employees?
Leading California health
insurance carriers such as
CaliforniaChoice and Anthem Blue
Cross of California will allow
both the employees of the
Professional Employment
Organization and the employees
leased out to work onsite to be
reflected as eligible. This can
be a non-guaranteed issue
submission as we discussed in
our
qualifying for coverage
section, or a ‘guaranteed issue’
situation given the company,
circumstances and underwriting
guidelines. Leased employees
are not considered eligible at
the company who is leasing the
employees as they are not w2
payroll employees reflecting on
the business tax id number.
What are other
ineligible categories of
organizations?
There are many other types of
business classifications which
are considered ineligible for
inclusion on California Small
Group health insurance
coverage. This can include, but
not always, organizations such
as unions, industry
associations, multiple employer
trusts, fraternal orders, Taft
Hartley welfare funds and
several other categories.
Human Resources
Depending on specific expertise
Professional Employment Organ
izations can also provide
outsourced human resources as a
value added benefit. Such
services can include hiring and
recruiting, DOL regulation
monitoring and compliance,
employee file maintenance, drug
testing, liability reduction,
vacation tracking and reporting,
and many other facets
potentially of desired human
resource outsourcing.
Why would a California
health insurance carrier not be
interested in insuring employees
from a Professional Employment
Organization?
California Small Group health
insurance carriers are
interested in avoiding adverse
selection across the membership
pool. The possibility of
insurance fraud could arise if
an unscrupulous organization
existed solely for the purpose
of providing health insurance to
individuals without a bonafide
employer/employee relationship.
Other
important
resources:
California
Small Group
health quote
California
Small Group
online
doctor
listing
California
Group
Enrollment
and
Eligibility
Center
