Is a PEO a MEWA?

Simple answer: No it’s not. They are totally separate things.

A MEWA – Multiple Employer Welfare Arrangement – is a pooling of employees from multiple employers into one group.

A PEO – a Professional Employer Organization – is an agreement between two organizations: a business and the PEO. A business enters into an arrangement where the PEO provides a service with the business for a fee.

What’s the Point?

The purpose of a MEWA is get better rates and coverage options for group health insurance. A bigger group of lives to insure typically results in a lower price, and a MEWA can accomplish this. How? Economies of Scale. When you buy in bulk, you save money. Likewise, when you have a large group of employees, you get better rates and more options per employee.

The purpose of a PEO is multi-faceted, although getting better rates on health insurance is one thing they have in common. A PEO is an organization your business enters into contract with that offers services for a fee. The types of services it provides are payroll, taxes, and HR in addition to offering various types of insurance. So the grand purpose of a PEO is to simplify, streamlines, save time & money, and increase efficiencies in a business.

The Services a PEO Provides

Typically, at a minimum, a PEO will process your payroll and handle your payroll taxes. It can also do HR management such as creating employee applications and employee handbooks, writing up and issuing written warnings, issuing disciplinary notices and termination assistance, A PEO also processes government and compliance forms like I-9s, W-4s, Unemployment, ADA, and DOL.

The Insurance a PEO Offers

A PEO can also handle insurance: group health insurance, workers comp, and often employment practices liability insurance as well.

Like a MEWA, Economies of Scale apply to the PEO. With a PEO, a small business can get the same lower rates that a large group health gets. Most, if not all, PEOs also offer workers comp insurance. For many classes of businesses – particularly the higher-risk classes such as construction, trucking, manufacturing, and agribusiness – their rates are almost always better than what you can get as a standalone product. In fact, saving money in workers comp has historically been the primary motivating factor for a business considering joining a PEO.

Another couple benefits of a PEO when it handles your workers comp is that you will never have a Final Audit again. And for businesses that deal with job cost estimating like contractors, the PEO makes your estimates easier to do and more accurate because of the net rate that includes all your costs – taxes and workers comp.

In conclusion, a MEWA and a PEO are very different things, although they do share a common purpose – getting large group health insurance rates – and this probably why the two often get conflated.

In this agency, we work with a wide variety of PEOs and can help you find the best solution for your business. Please reach out if you want to find out if a PEO is right for you.