PEO/Employee Leasing FAQs

Posted Date: Current

Industry Information Professional Employer Organizations (PEO)

Click on the questions below for details

Q1: What is a Professional Employer Organization (PEO)?

Q2: What are other names for a PEO?

Q3: What types of workers compensation policies are issued for PEO arrangements?

Q4: Who is the employer under a PEO?

Q5: What makes a temporary arrangement different than a PEO?

Q6: Are there different laws/rules for a state’s voluntary and residual markets?

Q7: Where is information about PEO arrangements located in NCCI’s Manuals?

Q1: What is a Professional Employer Organization(PEO)?

NCCI generally defines a Professional Employer Organization (PEO) as an entity or group of entities that provides the services of its workers to its client(s) through a PEO arrangement for a fee pursuant to an agreement, written or otherwise.

Generally, if an entity provides the services of its workers, by contract and for a fee, to a client and any such services are not provided on a temporary basis, that entity will be considered a PEO.

Note: Many state laws and/or NCCI state specific rules define PEO, labor contractor, employee leasing company, lessor, or other similarly administered arrangement slightly different than typically defined by NCCI above. Where state law (including but not limited to statutes, regulations, and administrative laws or rules) conflicts with NCCI’s definition (as stated above or state-specific), state law applies.

Q2: What are other names for a PEO?

Without limitation, a PEO may also be referred to as a labor contractor, employee leasing company, or lessor.

^ top

Q3: What types of workers compensation policies are issued for PEO arrangements?

The policy issuance types for PEO arrangements vary by state and whether the coverage is written through the voluntary market or the residual market. Generally, there are four types of policy issuance:

Master Policy— A standard workers compensation and employers liability policy written in the name of the PEO covering the leased workers of multiple client companies and direct workers of the PEO required to be covered pursuant to the workers compensation laws of the state of coverage.
Multiple Coordinated Policy (MCP) — A form of policy issuance used to provide workers compensation and employers liability insurance for the leased workers of a PEO. Policy issuance is as follows:
1. The PEO has its own standard policy covering only its direct workers. Generally, if there are no direct workers, the policy is issued on an “if any” basis.
2. Each client company has its own standard policy covering its leased workers in the name and under the FEIN of each client individually.
3. Endorsements are used to coordinate coverage between the Client Company and PEO.
Note: In some state laws and/or NCCI rules, the insurer may extend coverage to the client company's direct workers under the client company policy, or issue a separate policy.
Multiple PEO Policies— A form of policy issuance used to provide workers compensation and employers liability insurance for the leased workers of a PEO. Policy issuance is as follows:
1. Each client company of the PEO has its own standard policy covering its leased workers and that policy must contain the name of the PEO as the primary named insured with reference to the name of the client company. For example, the named insured typically reads, “ABC Employee Leasing Company, for leased workers to XYZ Client.”
2. The separate client company policy must be endorsed with the client's name and address.
Client secures coverage for leased and direct workers— A separate workers compensation insurance policy obtained by the client for the client’s leased workers and the client’s direct workers.

^ top

Q4: Who is the employer under a PEO?

State laws and regulations that designate who is the employer of leased workers, for workers compensation purposes, vary.

^ top

Q5: What makes a temporary arrangement different than a PEO?

NCCI generally defines a temporary arrangement as when an organization hires its own employees and such workers are provided to work for a client on a temporary basis. A temporary basis is considered to exist when there is a written contract or agreement that states the finite period of time the service will be provided and/or the service is provided under one or more of the following work situations, including but not limited to:

Replace an absent worker who will return, such as during an authorized leave of absence, vacation, jury duty, or illness
Fill a short-term or temporary professional skill shortage
Staff a seasonal workload
Staff a special assignment or project where the worker will be terminated or assigned to another temporary project upon completion
Satisfy the requirements of the employer’s overall employment program, such as a probationary period before new workers are granted permanent employee status

Note: Many state laws and/or NCCI state specific rules define temporary arrangements slightly different than typically defined by NCCI above. Where state law (including but not limited to statutes, regulations, and administrative laws or rules) conflicts with NCCI’s definition (as stated above or state-specific), state law applies.

Q6: Are there different laws/rules for a state’s voluntary and residual markets?

Some NCCI states have differing PEO policy issuance rules for PEOs written in the voluntary and residual markets. Some statutes, rules, and/or regulations differentiate how PEO coverage is applied across markets.

^ top

Q7: Where is information about PEO arrangements located in NCCI’s Manuals?

For states with policy issuance rules for PEO arrangements, the rules are located in NCCI’s Basic Manual. Generally, the rules are located in Rule 3-D on the individual state pages or Rule 4-B, which is applicable to residual market policies.

The experience rating rules for PEO arrangements are located in NCCI’s Experience Rating Plan.

Additionally, PEO endorsements can be found in NCCI’s Forms Manual.

^ top

We use cookies on this site to enhance your user experience. By continuing to use this site you are giving us your consent to place cookies on your device.

Continue Give me more information