Ohio Workers’ Comp, Explained: What an AEO Is and Who It’s For

In this conversation, HR Butler President Tom Hedge explains how Ohio’s system got to where it is, where the frustrations come from, and how an Alternative Employer Organization (AEO) gives employers another way to handle workers’ comp. If you’ve never heard of an AEO, or you’re already comparing options, this is a good place to start.

What’s in This Video

Why Ohio Is Different

Ohio is one of a small number of states that run their own workers’ comp system, which means employers can’t simply shop for coverage from a private carrier. Tom walks through how employers have tried to bring costs down over the years, from group pools to plans that reward a good claims history.

Self-Funding and the 500-Employee Barrier

Large employers have long been able to bypass the state fund by self-funding their claims. The catch, as Tom explains, is that it has traditionally required a very large workforce, which puts it out of reach for most businesses. We go deeper on this in how self-insured workers’ comp actually works.

Where the Savings Come From

Tom breaks down why a self-insured structure can run leaner than the state fund, starting with how much of each premium goes to administration, and how the way a claim is managed can affect an employer’s costs for years afterward.

When a PEO Makes Sense

Before AEOs, many employers looked to PEOs, which grew out of employee leasing. Tom explains why a PEO can be a good fit for a very small team and why it tends to lose its value as a company grows. For a side-by-side look, read our PEO vs. AEO comparison.

Enter the AEO

Ohio created the AEO designation in legislation that took effect in 2021. An AEO works a lot like a PEO, except it only affects workers’ comp. Tom covers why the state requires AEOs to work with an approved payroll provider, why a company can’t own both a PEO and an AEO, and why HR Butler sees its role as the alternative to a PEO. You can learn more on our AEO workers’ comp page.

No More Surprise True-Up

This is one of the most practical parts of the conversation. Each July, the state sets next year’s premium based on last year’s payroll and spreads it across scheduled payments. If your payroll grows, you fall behind, and a true-up bill follows. In Tom’s example, a business with a $40,000 premium that grows 10% and gives 5% raises ends up about 15% behind.

With an AEO, premium is collected with every payroll using actual payroll data, so there’s nothing to catch up on in the summer. Tom also explains how HR Butler’s integration works, including what happens if a worker is missing a class code.

Why Claims Move Faster

Tom describes why employers in an AEO don’t have to wonder whether to hire an attorney when a claim gets complicated, and how competition between AEOs keeps them motivated to stay on top of claims. It connects directly to the frustrations we cover in 5 signs your Ohio business has outgrown traditional workers’ comp.

Who It’s For

Construction and manufacturing were the obvious early targets for AEOs, but Tom explains that the goal is to serve almost any employer. Eligibility is based on the size of an employer’s premium, not its headcount, and low-claims employers help keep the whole group strong.

A Real Example

Tom shares a story about a food manufacturer that had a significant claim it couldn’t have avoided, and what it meant to be part of an AEO group when it happened.

Where This Is Headed

Tom closes with his view of where AEOs are going: more of them, more comparison shopping by employers, and a state that wants to see AEOs offer more than cost savings. He also explains how HR Butler plans to keep comparing options on behalf of its clients.

Key Takeaways

• Ohio runs a state-run workers’ comp system, so employers can’t switch to a private carrier.
• Self-insurance has traditionally been out of reach for all but the largest employers.
• A PEO can make sense for a very small team but tends to lose its fit as a company grows.
• An AEO gives employers access to a self-insured program that only affects workers’ comp.
• Premium collected with each payroll means no July true-up.

Frequently Asked Questions

What Is an AEO in Ohio?
An Alternative Employer Organization (AEO) is an Ohio-specific model that lets employers take part in a self-insured workers’ compensation program managed by an experienced partner, instead of relying only on the state fund.

How Is an AEO Different From a PEO?
A PEO co-employs your workers and typically bundles payroll, HR, benefits, and workers’ comp. An AEO focuses only on workers’ comp and doesn’t change the rest of how you run payroll or HR.

What Is a True-Up?
A true-up is the balancing payment due when an employer’s actual payroll turns out higher than the payroll used to set its workers’ comp premium. Under an AEO, premium is collected with each payroll, so there’s no large bill later.

Who Can Join an AEO?
Eligibility is based on the size of an employer’s workers’ comp premium, not the number of employees. HR Butler has worked to open the door to smaller employers, so it’s worth asking where you stand.

Talk to the HR Butler Team

Workers’ comp should protect your business, not create more stress. If something in this conversation sounded familiar, contact the HR Butler team, and we’ll walk through whether an AEO is a better fit for you.