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: How is experience rating handled for the various types of workers compensation policies issued for PEO arrangements?
Q5: How is policy data reported under the various types of workers compensation policies issued for PEO arrangements?
Q6: Who is the employer under a PEO?
Q7: What makes a temporary arrangement different than a PEO?
Q8: Are there different laws/rules for a state’s voluntary and residual markets?
Q9: 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.
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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:
Q4:
How is experience rating handled for the various types of workers compensation policies issued for PEO arrangements?
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Master Policy- If eligible for experience rating, a single experience rating modification of the PEO applies to the master policy. Typically, when a client leaves a PEO arrangement written under a master policy, the PEO's insurer reports the client's payroll and loss data developed during the PEO arrangement to NCCI. The NC2745 Form—Workers Compensation Experience Rating for Former Clients of Labor Contractors, or any equivalent filed and approved state exception to this form, is the only acceptable format for reporting this data.
Note: Complete payroll and properly valued losses for all years in the rating experience period must be resubmitted on the appropriately designated form prior to each renewal rating effective date.
Upon receipt of the client’s data, NCCI will determine if the client is eligible for experience rating and produce an experience rating modification for the client, if appropriate. For most states that allow master policies, the client’s data reported to NCCI will be removed from the master policy experience rating modification. For other states, the client’s data reported to NCCI remains in the master policy experience rating modification. (Refer to NCCI’s
Experience Rating Plan Manual for state-specific rules.)
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Multiple Coordinated Policy (MCP), Multiple PEO Policies, and Client secures coverage for leased and direct workers- No special reporting requirement is necessary to develop an experience rating modification for a PEO or a client written under an these arrangements. This is because separate policies are written for the PEO and each client and the payroll and loss data is submitted to NCCI for each policy in accordance with NCCI’s
Statistical Plan. As a result, NCCI will produce an experience rating modification for each eligible client and PEO and these experience rating modifications will be calculated and applied to the policies in accordance with NCCI’s
Experience Rating Plan Manual.
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Q5:
How is policy data reported under the various types of workers compensation policies issued for PEO arrangements?
The Employee Leasing Policy Type Code is the one-digit code reported in the Header Record that identifies the type of PEO policy being reported when reporting policy data.
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Master Policy- Policy Type Code 2 is used to represent a policy where the PEO is the primary named insured, and coverage is provided to the leased workers of multiple client companies as well as coverage being provided for the direct workers of the PEO
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Multiple Coordinated Policy (MCP)-Policy Type Code 3 is used to represent a policy where the PEO is the primary named insured, and coverage is provided to the non-leased workers of the PEO,
andPolicy Type Code 4 is used to represent a policy where the client company is the primary named insured, and coverage is provided to the leased workers of the client company.
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Multiple PEO Policies- Policy Type Code 5 is used to represent a policy where the PEO is the primary named insured and coverage is provided to leased workers of a single client company only.
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Client secures coverage for leased and direct workers- Policy Type Code 7 is used to represent a policy where the client company is the primary named insured, and coverage is provided for leased and non-leased workers of the client company.
Q6:
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.
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Q7:
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.
Q8:
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.
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Q9:
Where is information about PEO arrangements located in NCCI’s manuals?
For states with policy issuance rules for PEO arrangements, refer to NCCI’s Basic Manual rule, Employee leasing arrangements, or NCCI’s Residual Market Manual rule, Professional employer organization (PEO) arrangements, in the associated state(s).
The experience rating rules for PEO arrangements are located in Rule 5-A of NCCI’s Experience Rating Plan.
Additionally, PEO endorsements can be found in NCCI’s
Forms Manual.
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