PEO vs. Direct to Carriers: Which is Better for Your Business?

When it comes to providing employee benefits, businesses have two main options: partnering with a Professional Employer Organization (PEO) or purchasing benefits directly from insurance carriers. Both approaches have their advantages and challenges, and the right choice depends on factors such as company size, budget, administrative capacity, and long-term business goals.

In this blog, we’ll explore the benefits of PEOs versus going direct to carriers to help you make an informed decision.

 

What is a PEO?

 

A Professional Employer Organization (PEO) is a firm that enters into a co-employment arrangement with businesses, allowing them to outsource HR functions, including payroll, compliance, and benefits administration. By leveraging economies of scale, PEOs provide businesses access to benefits packages typically reserved for larger companies.

 

What Does It Mean to Go Direct to Carriers?

 

Going direct to carriers means purchasing health insurance and other employee benefits directly from insurance companies, brokers, or third-party administrators. Businesses retain full control over their benefits offerings but must handle administration, compliance, and cost negotiations independently.

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Benefits of Using a PEO

 

1. Access to Competitive Benefits

 

PEOs pool multiple businesses together, allowing them to negotiate better health insurance rates and offer benefits comparable to those of large corporations. This makes it easier for small and mid-sized businesses to attract and retain top talent.

 

2. Reduced Administrative Burden

 

By outsourcing HR, payroll, and benefits administration to a PEO, businesses can focus on core operations instead of navigating the complexities of benefits management.

 

3. Compliance Support

 

PEOs stay up to date with employment laws and ensure compliance with ACA, ERISA, and other regulations, reducing the risk of costly penalties.

 

4. Cost Savings

 

PEOs often provide access to lower insurance premiums, reducing the overall cost of employee benefits and improving cash flow for businesses.

 

5. Streamlined Payroll and HR Services

 

Many PEOs offer integrated payroll and HR software, simplifying processes and ensuring accuracy in tax filings and reporting.

 

6. Employee Support and Resources

 

Employees can access HR support, wellness programs, and financial education through the PEO, enhancing job satisfaction and overall well-being.

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Benefits of Going Direct to Carriers

 

1. Full Control Over Benefits Plans

 

Companies that go direct to carriers can customize their benefits packages based on their unique workforce needs and company goals.

 

2. Flexibility in Provider Selection

 

Businesses have the freedom to choose specific insurance carriers and plan options rather than being limited to the selections provided by a PEO.

 

3. No Co-Employment Relationship

 

Unlike a PEO arrangement, purchasing direct means businesses retain full control over hiring, employee policies, and benefits administration.

 

4. Better for Large Companies

 

Larger businesses may have the negotiating power to secure competitive rates without needing to join a PEO, making direct purchasing a viable option.

 

5. Tailored HR and Compliance Strategies

 

Companies with dedicated HR teams can develop internal expertise in compliance, risk management, and benefits administration.

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Which Option is Best for Your Business?

 

The decision between using a PEO or going direct to carriers depends on the specific needs of your business:

• Small to Mid-Sized Businesses (SMBs): A PEO is often the better choice due to cost savings, compliance support, and reduced administrative burden.
• Larger Businesses: Going direct may be more beneficial if the company has the resources to manage benefits administration and negotiate competitive rates.
• Companies Seeking Customization: If highly tailored benefits are a priority, direct purchasing offers more flexibility.
• Fast-Growing Businesses: A PEO can simplify scaling by handling HR complexities while the business focuses on expansion.

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Conclusion

 

Both PEOs and direct-to-carrier options have their merits, and the best choice will depend on a company’s size, goals, and administrative capabilities. Businesses looking for affordability, compliance assistance, and reduced HR workload may find PEOs to be the optimal solution, whereas those seeking full control and customization may prefer to work directly with carriers.

 

At Benely, we will understand your business needs and help you determine the best strategy for offering competitive employee benefits while maintaining efficiency and compliance.