Short answer
If your workers’ compensation cancelled after you joined a PEO, the PEO may now provide that coverage as part of its payroll and employment arrangement. The cancellation can be appropriate. You should still confirm that the new coverage started before the old policy ended, and never ignore the notice.
What is a PEO and how does it affect workers’ compensation?
What a PEO does
A professional employer organization, or PEO, handles payroll, HR, and often employee benefits for your business. Many PEOs also include workers’ compensation in their service.
Why your standalone policy may be cancelled
Some businesses carry their own workers’ compensation policy. Others get coverage through a PEO. When you join one, the standalone policy is often cancelled because the PEO’s coverage replaces it. Arrangements vary by PEO, so read the agreement.
What to confirm when workers’ compensation is cancelled after a PEO
No gap between policies
Check that the PEO coverage took effect on or before the date the old policy ended. A gap of even a day can leave employees uncovered.
Entities, employees, and states
Confirm which legal entities, employees, and states the PEO coverage includes. Multi-state firms should pay close attention to where employees actually work.
What happens to the old policy and the old carrier?
The old carrier may still conduct a final payroll audit after cancellation. That audit can produce an additional premium or a return premium, so expect it.
If you leave the PEO later, you may need your own workers’ compensation policy again. Start that process well before you leave.
Real-world example
A 10-person engineering firm carries its own workers’ compensation policy. The firm moves payroll and HR to a PEO that includes workers’ compensation, and the old policy is cancelled.
That may be completely appropriate. The firm should verify that the PEO coverage began before the old policy ended and that every employee and state is included.
What to check after a cancellation notice
- The cancellation effective date on the notice
- The PEO coverage start date
- Which entities, employees, and states the PEO covers
- Whether you can obtain certificates of insurance through the PEO
- Whether the old carrier has scheduled a final audit
Common mistakes
- Ignoring the notice because a PEO is involved
- Assuming coverage transferred automatically
- Overlooking employees who work in other states
- Forgetting the final audit from the old carrier
Related questions
Do I need my own workers’ comp policy if I use a PEO?
Often not, if the PEO provides coverage for your employees. Confirm this in writing.
Who actually provides workers’ comp when I use a PEO?
The PEO typically provides it under its own program. The agreement should say how.
What happens to my old policy when I join a PEO?
It is often cancelled once the PEO coverage starts. Check the effective dates.
Will my old workers’ comp carrier still audit me?
It may. Final audits commonly follow a cancellation.
What happens when I leave the PEO?
You may need to buy your own policy again. Plan ahead to avoid a gap.
Can I get a certificate of insurance if my workers’ comp is through a PEO?
Usually yes, through the PEO. Ask how it handles certificate requests.
Are employees in every state automatically covered?
Not necessarily. Confirm the states listed in the PEO coverage.