Brian Smith has spent over 25 years as a commercial insurance broker, and for a large chunk of that career he's worked almost exclusively with government defense contractors. I asked him to walk through what's different about insurance — and PEO fit — for a business that does work under a government contract.
The Insurance Requirements Are Actually Simpler
Here's a surprise: government contracts typically only require three types of insurance — general liability, automobile liability, and workers' compensation. Compare that to commercial clients, who often also demand cyber liability or professional liability coverage. "It's a little easier, actually, for a government contracting company," Brian told me.
Co-Employment Doesn't Disqualify You From Bidding
One misconception I hear constantly: business owners think being in a PEO's co-employment model will hurt their ability to bid on or win government work. It won't. As long as you can provide a certificate of insurance showing your workers are covered, the government doesn't care about your underlying employment structure.
When a High E-Mod Kills Your Competitiveness
Brian shared a case that illustrates exactly why this matters. A janitorial services client's experience modification factor climbed to 2.14 after a string of losses — meaning they were paying $2.14 for every $1 their competitors paid in workers' comp. They couldn't compete on government bids at that rate. Moving into a PEO reset their mod to the PEO's pooled rate of 1.0, and they were able to compete again immediately, rather than waiting years for their own claims history to age out.
Standalone Workers' Comp Is Still an Option
Not every business needs to bundle workers' comp inside a PEO. If your mod is healthy but you want the HR and payroll support a PEO offers, many PEOs will let you carve workers' comp out and keep it standalone — you'll have more say over your own classification codes, and you won't pay the PEO's administrative fee on that line. The tradeoff: you lose the pay-as-you-go, audit-free structure that comes bundled with PEO workers' comp.
The One Coverage a PEO Can't Give You
If your business has anyone working near navigable water, you'll need USL&H (Longshore and Harbor Workers') coverage from outside the PEO relationship — that's not something PEOs typically carry.
Owners Should Carry Workers' Comp Too
Brian's strongest opinion, and one I share: business owners should carry workers' comp coverage on themselves, full stop. Health insurance policies cap out — often around a million dollars — and a serious on-the-job injury with long-term care needs can blow past that fast. Workers' comp, by contrast, provides unlimited medical coverage in every state. "I've never had anybody say they paid me way too much for that claim," he said.
Watch What Your Website Says About You
One practical tip Brian shared: underwriters review your company website before quoting your policy. If your site shows work you no longer do, or makes your operations look riskier than they are, that mismatch between your website and your insurance application can get you declined before a human ever picks up the phone.
If your business is navigating government contracts and you're not sure how your current PEO or insurance setup holds up, let's take a look together.
Suzanna Martinez, President | PEO For The CEO