Updated: Jan 5
A PEO audit ensures your company is maximizing the benefits promised by your PEO provider, and is the first step when assessing alternative solutions.
By auditing your PEO, you create transparency and foster communication internally to better express the needs of your company externally.
With a solid PEO audit process, your team will know exactly which PEO, HRIS, or payroll provider is right for you.
Your HR team deserves a better way to shop for PEO services, here’s a few steps to transform your PEO buying experience today.
The goal of the discovery phase is to define the scope of the PEO audit by setting clear expectations on the outcomes through the iron triangle: quality, time, and budget.
Time has two crucial components to understand prior to starting the PEO audit. First, what is the expected benefits effective date if we are evaluating to switch PEO vendors? Your entire project hinges on this date and should be the first decision you make during the Kickoff meeting.
Second, is the time it takes to complete the tasks associated with the process of a PEO Audit. During the kickoff, you will want to list the tasks and dependencies. Be sure to assign the tasks to a specific person and allow that person to estimate the time needed to complete their tasks.
From start to finish, we find evaluating 3 PEOs takes approximately 60 to 75 hours from start to full implementation of a new PEO vendor. We believe quality for a PEO solution derives from the technology platform, customer service, and employee benefit options.
This is why it is so important to understand what is important to your team. Each additional PEO vendor adds approximately 10 hours of additional hours of time with their sales team.
Budget starts at the top of the company and it is important to involve your finance team early in the process. We recommend they attend the first kickoff meeting.
The main drivers when looking at a PEO depend on your specific industry. Technology clients with low risk workers comp class codes should look at administrative fees and health insurance.
Blue collar companies may need a more comprehensive look at the workers compensation, as certain PEOs will offer “safety incentives” that pay back up to 20% of the annual premium if there’s no claims.
Speak with your finance team to understand what financial assets would be ideal to leverage, as many PEOs require a credit check and up to 125% of gross wages for a pay period to be in the bank.
Wrap the initial kickoff meeting by assigning a project manager to oversee the PEO audit and evaluation. Their next action item should be to memorialize the conversation with a PEO Audit action plan via email.
This email will include the key project drivers, iron triangle, and any additional discovery questions that must be answered before a final decision is made on which PEO provider to move forward with.
The RFP Process
Now that your internal resources are aligned, you are ready to begin a RFP (request for proposal) process. It would help to gather the necessary information that each PEO sales team will require to provide a complete financial analysis.
Each PEO will want to assess the company’s risk profile and employee demographics, which may seem invasive but a requirement of the insurance carriers they work with.
The amount of detail you put into your submission will drastically reduce the back and forth between you and each PEO’s sales person assigned to your account.
5 to 10 business days is typically the period of time it takes for the sales team to receive a complete quote from their internal pricing teams.
Time Saving Tip: Hold off on technology demos until your account has received approval from the pricing team as they may decline to quote you. Product demos last from 60 to 90 minutes and if you are shopping for 3 PEO vendors you can easily lose a day or 2 of work!
When each of your PEO sales people has satisfied their pricing committee, there may be a 10 day lull in the action; however, be prepared to make some decisions when the numbers come back as these quotes have expiration dates!
PEOs are amazing for companies that want to offer Fortune 500 benefits to their employees and reduce the risk involved with the administration.
The beauty of the PEO is seeing 100 products wrapped into a single invoice with the peace of mind that they are partially liable through the co-employment model.
While vetting multiple proposals, it is important to normalize the variables as best you can. How PEO A bills could be per employee per month, and PEO B could bill as a percentage of payroll.
How do you compare? We have found the best way to accurately compare is arriving at a grand total that is inclusive of the following: gross payroll, payroll taxes, workers comp, benefits, administration, and any additional ancillary services included.
PEOs are not in the business of saving you money; however, it can certainly be a side effect and we’ve seen our clients save over $300k annually by switching PEO providers.
We highly recommend you review the benefit plan designs and make insurance decisions with a licensed professional or trusted advisor, many of the sales people are not trained nor legally qualified to provide advice on which benefits your company should choose.
Once you have gathered all the proposals and transposed the data into a comparable format, you are ready to see the financial impact of what you have to day compared to what’s on the market.
Decide + Implement
By this time you could be 30 to 45 days removed from the initial kickoff meeting you had. As a best practice, it’s time for a second internal alignment meeting and review your PEO audit action plan to see how the data you gathered compares to your iron triangle: time, budget, and quality.
If you’ve done a great job at the front end of this process, you will enjoy an easy decision making process. It’s important to review the terms and conditions of the PEO provider your committee has selected.
If you are unsure of the right decision, seek professional consultation from an expert in the PEO space. It’s best to work with someone who has specific product knowledge of a PEO as it has specific criteria on how the employer liability is shared and exposes the company to unnecessary risk when not properly accounted for.
In conclusion, auditing your PEO can help you identify areas where your PEO may be underperforming and make the necessary changes to get back on track. Services may be switched out or changed completely.
Additionally, a PEO audit can help determine if you are getting the most for your money. You want to be certain that you are in the best possible position all things considered. Regular audits will ensure that this is the case.
If you want to start your PEO audit or would like to have one performed by our team, schedule an insurance review and please provide detailed answers as best you can. We want to help you find the perfect policy.