Best industry practices back PEO certification

The $51 billion U.S. professional employer organization industry has worked hard to develop independent performance certification and accreditation programs to provide greater assurance to the marketplace, including insurance companies, business clients and regulators.

With leadership from the National Assn. of Professional Employer Organizations, the industry developed the PEO Workers Compensation Risk Management Certification Program (IF, March 2005) based on best performance practices determined by insurance carriers.

Certified PEOs are monitored by the Certification Institute (www.certificationinstitute.org), an independent nonprofit promoting professionalism and best practices. The CI certification is based on the PEO's ongoing performance.

The industry also developed a PEO accreditation program based on the highest performance standards. The program is administered by the Employer Services Assurance Corp., an independent nonprofit governed by a board that includes six former state and federal regulators. ESAC accreditation provides an unprecedented level of assurance to businesses working with PEOs to cost-effectively outsource management of human resources, employee benefits, payroll and workers compensation.

ESAC administers a multifaceted accreditation and monitoring process to ensure ongoing compliance with important ethical, financial and operational standards by accredited PEOs. Each PEO undergoes rigorous examination by ESAC's outside experts, who continue to monitor the company's compliance with the program's standards to maintain its accreditation.

Stakes are high

Today's accredited PEOs serve clients and employees representing more than $17 billion in annual wages.

ESAC is the only bonded, independent and qualified assurance organization for the PEO industry. Its approach is similar to assurances offered by the Federal Deposit Insurance Corp. for the banking industry, the Security Investor Protection Corp. for the securities industry and state insurance guaranty associations for the insurance industry.

ESAC backs the performance of its accredited PEOs with $6 million in surety bonds held by the Employer Services Trust. Surety carriers have backed the financial performance of each accredited PEO because of ESAC's no-default record and strong compliance monitoring. During ESAC's 11 years, there has never been a default involving an accredited PEO.

Each accredited PEO has a $1 million bond in its name, plus $5 million umbrella coverage for all accredited PEOs. The surety bond coverage provides for reimbursement to clients, worksite employees, taxing authorities and insurers in the unlikely event of a default by the PEO to pay wages, payroll taxes, employee retirement contributions, workers comp premiums, and group life and health premiums or plan contributions.

"Although the financial assurance provided by the bonds is a substantial advantage, the most important protection for clients of accredited PEOs is the ongoing independent oversight and verification that these PEOs are complying with critically important financial, operational and ethical performance standards," said Jane McCoggins, executive director of ESAC. "This provides their clients with a valuable early warning system before a major problem can occur. So the bonding is really just a safety net for the clients. The good news is there has never been a financial default by an ESAC-accredited PEO."

A viable alternative

More states with PEO registration or licensing laws are recognizing ESAC accreditation as an alternative for their compliance requirements. Many state regulators regard ESAC accreditation as an effective, efficient method of performance monitoring and verification.

Nine states have recognized ESAC accreditation as a regulatory compliance alternative. They are Arizona, Arkansas, Indiana, Montana, North Carolina, Ohio, South Carolina, Rhode Island and Vermont. Several other states are considering enacting such authority, and other states soon will follow suit, ESAC officials predict. Three of these states—Arkansas, Ohio and Rhode Island—have approved ESAC accreditation in lieu of state requirements.

"ESAC's accreditation process will increasingly satisfy multiple states' requirements for registration or licensing," said Milan P. Yager, executive vp of NAPEO. "In addition, ESAC's single financial bonding replaces the potential of multiple bonding requirements in differing states. These are significant advantages for PEOs with clients in many states."

NAPEO supports ESAC efforts to promote professional practices that address financial, operational and ethical performance sought by PEO customers. ESAC standards were developed by a broad-based Industry Advisory Council and are attainable by all PEOs, regardless of size.

"NAPEO encourages members to become accredited because this will provide assurance to lenders, capital markets and potential partners as to their stability and long-term viability," Mr. Yager said. "Accredited PEOs are an elite corps because they demonstrate their commitment to the sound growth, dependability and credibility of the PEO industry through independent verification of their compliance with important ethical, financial and operation standards."

Edie Clark is director of public relations at the Alexandria, Va.-based National Assn. of Professional Employer Organizations.