Today, many companies outsource sections of their business to save money and ensure the work is done correctly. One way that companies outsource work is through a professional employer organization (PEO).

PEOs typically work with companies to offer human resources services through a co-employment arrangement. By working as a co-employer, PEOs “hire” a company’s employer, becoming the employer for tax purposes. Many companies’ employees can then file under a single Federal Employer Identification Number (FEIN) to achieve the same tax benefits as a larger employer.

When PEOs handle human resources duties, they may take care of a company’s employee benefits, payroll or compliance issues. Another large responsibility for PEOs will be to handle a company’s unemployment insurance claims.

Though a PEO can use a single FEIN for taxes, each state has different rules for how a PEO’s clients pay unemployment taxes. Some states allow all clients to share a single UI Account, while others require individual account for each company. Other states even allow PEOs to move companies around in several pools so that each company can get the best UI tax rates possible, called a common rating.

In these states, using a PEO has obvious cost-saving benefits. Still, even in states that require individual accounts, PEOs often have considerable unemployment insurance management experience, which can lower UI tax rates. In order for PEOs to reduce UI costs for all their clients, they need to follow some best practices.

Best Practices for PEO UI Management

Each industry can have its own specific set of laws and best practices for unemployment insurance management. To provide the best service, a PEO needs to understand each of its client’s industries and the unique unemployment laws that apply to them.

Since staffing agencies have unique unemployment laws and employment circumstances, they provide a great example of how PEOs need to understand each of their client’s industries.

In Illinois, unemployed workers that worked at a staffing company have to check in weekly with the company to inquire about open positions in order to qualify for unemployment benefit. PEOs who have staffing agency clients in Illinois should understand this law and ensure that all employees are indeed checking in to help cut down on unnecessary costs.

Staffing agencies also like to get potential UI liability off the books quickly by placing workers who are receiving UI benefits back into new assignments. PEOs can provide great service to their staffing agency clients by running weekly claims reports that show which claimants need to get back to work as quickly as possible. This helps the staffing agency prioritize assignments and reduce their UI costs.

By providing this outstanding service individualized for each industry, PEOs can gain a competitive edge. These PEOs can demonstrate how they offer UI cost savings to their clients, giving the client a better overall rate and justifying a more robust administrative fee that leads to higher profitability.  

For more information on how PEOs can use industry-specific knowledge to control UI costs, please visit us on the web at unemploymenttracker.com.