Professional Employer Organizations (PEO) are a very compelling story for small businesses looking to eliminate their administrative burdens, control health care costs, reduce employer risk and gain a Fortune 500 HR service and support team.
With over 700+ in the United States, it’s important to know what to look for when considering a PEO because as with anything the right fit always matters. Here is a comprehensive list of what to look for in a PEO and what to ask them.
1- What areas do they cover geographically? It’s important to know if they have a presence in every area you have employees and locations and if not is that a deal breaker for you.
2- Are their fees transparent? If so what are they? Every PEO charges an administrative fee monthly per employee, it’s vital to know what that fee is and whether it’s a percentage of payroll (POP) or a fixed per employee per month fee (PEPM). All of the fees charged should be clearly disclosed to you and additional fees if they apply.
3- Who are their medical carrier/s? Most companies join a PEO because of the cost effective, benefit rich medical plans, however not all PEOs are created equal, so you need to ensure who their medical carrier is and what the coverage is in your area and your employees. Some PEOs have regional and others have national carriers, it should be noted that as well some have both.
4- Who is the PEOs Workers’ Compensation carrier? Each PEO offers workers’ compensation to their clients, you should inquire who their carrier is and make sure they are an A rated carrier, while WC is often not a main topic of discussion it can shut a company down very quickly.
5- Who is the PEO’s 401-k provider and what do they offer? A 401-k is a great way to incentivize employees, reduce turnover while attracting & retaining talent. PEOs offer their clients a 401-k platform to their clients, generally it is outsourced to a 401-k vendor. Once the 401-k provider is identified then check to see what funds and programs they offer along with any fees that are charged.
6- Are they offering a Human Resource Management System (HRMS)? PEOs offer a unified platform called an HRMS system to tie all of their services together including Payroll, Benefits, HR and general information relevant to your company. We can’t recommend enough that you demo the system, it’s imperative because you will be the one using this system day in and day out. All PEOs offer a demo of their system and you should take full advantage.
7- Are you comparing more than one PEO provider? Just like you wouldn’t go to buy a car and buy the first one you saw. Well, the same goes for a PEO, there are over 700+ in the US, so comparing multiple vendors only makes sense. It also gives you the ability to create a competitive bidding environment and ability to see what the material differences are between the various vendors.
8- What services does the PEO/s offer and do they align with what your organization needs? PEOs offer plenty of services designed to make your company retain employees and attract prospective employees. They reduce administrative tasks and free up your staff’s ability to focus on revenue producing activities, however it’s important to know what services the PEOs offer and to identify which ones are most important to you. The administrative fee you pay per employee every month covers the majority of the PEOs services, so you should take advantage of what you’re paying for. PEOs will provide you with a list of their standard services, so make sure you request this.
As with anything, it’s important to weigh all your options and PEO is no exception. This guide should give you the ability to get the most advantageous outcome for your organization.