Temporary staffing agencies establish multiple entities for various reasons. One purpose is to achieve greater freedom in making a diverse range of industry placements. By utilizing different entities insured separately, agencies can entertain more insurance carrier options, decrease overall costs, and reduce administrative burdens. As part of this strategy, agencies may choose to work with a Professional Employer Organization (PEO).
The Benefits of Establishing Separate Entities
The primary reasons for staffing firms utilize separate entities in their insurance program is to achieve more flexibility and lower costs. When agencies operate in multiple industries, it can be a challenge to find one insurance carrier that is comfortable with a broad range of roles and work environments, which can lead to higher premiums. If an agency has substantial payroll in varied industries such as light industrial, healthcare and construction, they may be a candidate for this approach. Their broker can then market each entity to different carriers that are well suited to each industry. As insurance carriers are most competitive when quoting business, they are comfortable with and specialize in, the overall insurance program for all entities is usually less expensive.
The Benefits of Placing an Entity with a PEO
For some higher hazard or specialized placements, it may still be a challenge to find an insurance carrier to quote the business, especially if the staffing firm does not have enough payroll to hit minimum premium for that carrier. While the assigned risk fund is an option, a better, more cost-effective solution can be to work with a PEO. A PEO may have more flexibility in their insurance program based on their payroll volume and/or the deductible they assume. They generally do not have a minimum premium, so they can be a solution for more challenging classes of business, such as construction. Additionally, by working with a PEO, the staffing firm gains a proactive partner in claims and safety management, as well as a support in HR and processing payroll.
In conclusion, separating entities and/or utilizing a PEO program can be a strategy to obtain better insurance options. If an agency’s structure is suitable for either practice, it can facilitate steady growth. Contact a Marsh McLennan Agency (MMA) advisor to learn more about these processes and additional risk management solutions.
