There are a lot of acronyms in the business world, and PEO is one that HR experts and business owners may not be familiar with. A PEO stands for Professional Employer Organization, and is a service provider focused on companies between 1 and 200 US based employees. These services can include access to Fortune 500 benefits, payroll processing, HR administration, and worker's compensation coverage.
PEOs have become increasingly popular in recent years, as scaling businesses have realized the many benefits of the co-employment model. Some of the advantages of partnering with a PEO include reduced costs, increased efficiency, and shared employer liability.
PEOs can help businesses save money on crucial components including: payroll processing, performance management, DEI policies, and health insurance premiums. They can also help businesses stay compliant with complex labor laws, which can be difficult for small businesses to do on their own in today’s environment.
Factors to Consider When Choosing a PEO
Choosing the right PEO for your business can be difficult. There are many factors to consider, and each business is different. Consider the following insights when choosing a PEO:
Typically the PEO is most cost-effective when the health insurance offerings allow your “small group” access to “large group” plans at more affordable rates. Factor in the type of dependents, salary levels, and locations when assessing the health insurance needs of your employees before making a decision.
Not all PEOs are created equal. Some specialize in certain industries like technology or financial services, while others use a general approach. Make sure you find one that is familiar with your industry in which your company operates and review any case-studies provided.
Do you want a PEO to offer a complete employee experience through an app, or is technology not important to your employees? Think about how your employees want to access their pay stubs and benefits before making a decision.
What to Expect From a PEO Relationship
When it comes to finding the right partner to help manage your business, PEOs can provide a number of services that can help businesses run more smoothly and efficiently. Here are some things you can expect from a PEO relationship.
A PEO helps you streamline your HR processes. This includes onboarding new employees to handling payroll tax and benefits administration. A PEO ideally will have experience dealing with employment laws in your state(s) and shares in employer liability, so you can be confident that you’re in compliance with regulations.
PEOs are not in the business of saving you money on health insurance premiums. Although in many cases, businesses under 100 employees benefit from PEOs and may see their premiums decrease by as much as 25% when going from age-banded to four tier composite rates with different carriers.
PEOs often offer additional benefits, including access to training, discounts on office equipment and insurance, and other perks.
PEOs can automate the day-to-day HR tasks that you don't have time for, giving you more time to focus on your strategic business goals.
PEOs can help you manage your employees more effectively through technology. Because they are uniquely incentivized to foster growth, PEOs often invest in technology that allows their clients to onboard new hires and increase retention through data and analytics. They can also help you find specific industry KPIs to help you benchmark your total compensation strategy.
The Cost of PEO Services
PEO services can be a great resource for businesses, but they also come with a cost. In order to decide if PEO services are the right fit for your business, it's important to understand how to evaluate what those costs are. Typical PEO services fees include a setup fee, an administrative fee, and a separate fee schedule for ancillary services. There are additional costs for health insurance and workers' compensation premiums as well as federal and state taxes to keep in mind.
Before signing up for new PEO services, make sure you understand all of the fees involved. Ask the PEO representative to break down each cost and show where in the Service Agreement it explains what each fee covers. This will help you make an informed decision on which PEO services are the right fit for your business and budget.
As you can see, many factors will determine which PEO will work best for your company. You want the best service for the best possible price from a reliable provider. Get clear on what you want by first completing a Strategic Workforce Plan, then talk to as many providers as it takes to find the right fit. It will be a lot of work and we find it takes approximately 70 hours to complete the selection and implementation of a new vendor. However, finding the right partner will drastically impact your business in a positive way for years to come!
You can drastically shorten the process and achieve better results with a PEO Audit. Having a third party professional who understands the PEO industry and fully understands how to align your Strategic Workforce Plan to the right PEO is ideal, yet a rare find.
If you have any questions about finding the best PEO for your business please contact us.