The Perils of PEO's and Similar Organizations

Frank Huljev of Palm Medical Group sent me an interesting article on the health and safety risks of using a contingent workforce to perform dangerous jobs.  The article is based on a study conducted by the Center for Progressive Reform.  In spite of the dubious name of this organization, it raised some very valid points.

Employers hire contingent workers in order to obtain perceived financial benefits.  They believe that by hiring contingent workers they can reduce workers' compensation premiums, and avoid liability for certain claims.  The study found that employers will exploit contingent workers with law wages, long hours and unsafe working conditions.

The study and its findings merit further consideration.

I am not an advocate for PEOs or professional employee organizations.  These are entities that can supply banks of employees as the need requires.  They can also hire your employees and lease them back to you.  You then pay an hourly amount for workers.  The PEO takes care of everything else and promises, among other things, lower work comp premiums.

I don't understand how a PEO can do this assuming it is candid with all of the facts.  If a PEO hires the workers of a particular factory or workplace, the work comp history of the facility goes with it.  Thus, the premiums should not reduce unless the rates are pooled with other workplaces with lower work comp rates.  But if that is the case, the rates of the companies with better work comp histories will rise.  And if the other companies have better work comp rates, why join a PEO anyway?  You see why I think there is some slight of hand?

And an employer won't eliminate liability for other workplace laws.  For example, the company will be a joint employer for claims of unlawful discrimination and harassment.  The company might also increase its liability in the event of a workplace injury.

If you contract with a PEO, I urge you to consider carefully the benefits of the arrangement.  Hiring a contingent workforce may not be the cure for your workplace hassles.  I am not saying that staffing agencies  do not provide a valuable and legitimate service.  Rather, I am suggesting that the promises from a PEO may be illusory.