Matthew LovenduskyPart of building a startup includes determining how you’re going to provide benefits to your early employees. Which solution you select will depend on where your company is in your growth trajectory and what you need.
As a VP at USI Insurance, I advise CFOs and Senior HR Leaders on capital-efficient benefit planning. Companies of different shapes and sizes need different solutions, so let’s take a look at the two most common options for choosing benefits.
PEOs
PEOs can be a good option for early stage startups. Here’s how it works: The PEO assumes responsibility for employee management, taking over the functions of HR. The PEO becomes the legal employer of your employees.
PEOs work well for early-stage startups because you most likely do not have the resources to hire a full Human Resources team. The PEO takes over benefit administration, payroll, and HR consulting.
From a benefits perspective, PEOs can be advantageous for small companies because they can offer benefits that are less expensive and of better value compared to what you’d find entering the marketplace independently as an SMB. This includes not just health insurance, but also workers’ compensation and EPLI (Employment Practices Liability Insurance).
In New York, I tend to recommend PEOs to early-stage companies with fewer than 100 employees. This is not a hard and fast rule—many companies with more than 100 employees can benefit from a PEO. Similarly companies with less than 100 employees can benefit from the traditional brokerage model.
Insurance Brokers
Once you have a good understanding of the growth trajectory of your company, start thinking about using an insurance broker. As mentioned earlier, this is typically around the 100 employee threshold, but every situation calls for a different solution. While PEOs provide benefits in a bundled package, insurance brokers work with you to find best in class services that meet your company’s needs. Think of it as the difference between a catered dinner and a la carte service.
Brokers offer HR and benefits expertise. A good brokerage should have in-house specialists in the areas of Employee Benefits, Underwriting & Analytics, Compliance, Wellness, HR Consulting and HR Technology. A broker can help you determine which services and solutions are the best fit for your company’s needs.
When you decide to do a PEO “lift out”, you can typically expect cost savings when you have over 100 employees in New York. One of the main factors for this is that you are no longer paying the PEO their administration fee when you are working with a broker. If your company plans to scale quickly, you should start to think about working with an insurance broker before reaching 100 employees.
Best practices for working effectively with a broker
To get the most out of your broker relationship you need to proactive. Here’s a few tips to how to most effectively work with a broker:
1. Don’t jump in the water before you know how to swim in it.
Entering into a relationship with a broker is a major decision. I see a lot of companies sign up with brokers before they fully understand what they need from one and what to look for in one. Depending on your priorities, different brokers may be a better fit. Speak with a few different brokers to get a sense of their company. It is imperative that you do not try to work with multiple brokers simultaneously to try to save on price, you will only hurt yourself in the end, the reason as to why is a much longer conversation for another time that I’d love to explain.
2. Select a broker that meets your needs.
Think about your current situation and where your business will be 3-5 years. If you are pulling out of a PEO, select a broker experienced in the process.
To find a high-quality broker, talk to other businesses about their experiences with brokers. When speaking to a potential broker, ask good questions about their solutions and services.
3. Begin the process of working with a broker at least six months prior to the transition.
When switching from a PEO to a broker, you need to be extremely proactive in this process for many different reasons. Remember, you will have to deal not just with the Medical insurance, but also ancillary benefits such as Dental, Vision, Life Insurance, etc.
PEOs and brokers both offer vital services to startups. Choose the best option for your business based on your current stage and growth trajectory.
Feel free to email me if you have any questions about choosing a benefits consultant or a PEO.
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