Learn more about PEO bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are PEO Bonds?
A PEO bond guarantees that a PEO operates according to the state’s rules and regulations. Whenever there is financial responsibility, there is also the potential for fraud and financial malfeasance. PEOs are a relatively recent innovation. Most states have recognized the potential for unlawful or unethical behavior and have established tighter governance over them with licensing and bonding requirements. The bond is meant to protect hiring companies from potential harm due to unlawful or unethical behavior on the part of a PEO.
Who Needs Them?
“PEO” stands for “professional employment organization,” which is essentially a firm that companies can outsource some or all of their Human Resources function to. PEOs offer services such as managing employee benefits, payroll processing, and employee training in exchange for a service fee. As you can imagine, companies that outsource such tasks are entrusting the company with a great deal of financial responsibility.
States that require PEOs to become licensed typically also require them to obtain a PEO bond and renew it periodically to maintain a valid license. Consequently, these bonds are classified as a type of license and permit bond.
How Do They Work?
By purchasing the bond, the firm’s owners are pledging to conduct business ethically and honesty, in compliance with all applicable state rules and regulations. The terms of these bonds usually specify maintaining collateral for the employer’s workers’ compensation policies, guaranteeing payment of fees owed by employers to service providers, and properly executing all tasks and responsibilities outsourced to them by the employer.
A PEO’s failure to live up to any of these terms can result in a claim against the bond. The surety company will investigate each claim to make sure that it is valid before paying it. The PEO must then reimburse the surety for the amount paid out to the claimant.
What Do They Cost?
The required amount of a PEO bond is determined by the state. It most often falls in the range of $50,000 to $100,000. PEOs pay a certain percentage of the state’s mandated bond amount as the annual bond premium. That percentage is determined by the surety company on a case by case basis, taking into consideration each applicant’s personal credit score, financial statements, and other factors.
The applicant’s credit score is the most significant factor, and those with good credit typically pay no more than 3% of the bond amount as the annual premium. Those with poor credit will pay a significantly higher premium rate.
Do you need a PEO bond? Use our convenient online system to apply today!