How to Choose a Professional Employer Organization (PEO)
Small business owners can benefit from a professional employer organization (PEO). PEOs employ a co-employment model that gives small businesses access to Fortune 500-level benefits such as workers’ compensation, health and dental insurance, and risk management assistance. PEOs can help small businesses create standard HR policies and practices and offer training and development resources for their employees.
While many PEOs offer the same features, there are many things to take into consideration when comparing providers. This includes pricing and the features available, as well as the minimum number of employees that the PEO needs. Some services may also be customizable. This guide will cover all you need to know and how to choose a PEO. To find the best PEO service providers for your business, or if you know what you are looking for, please visit our best PEO provider reviews.
What is a Professional Executive Officer (PEO)?
Under a co-employment model, A PEO can “own”, hundreds of thousands of employees in thousands of U.S. businesses. This reduces healthcare costs and makes making HR standardization an easy process.
These are the essential human resources that PEOs manage.
- Administration of benefits
- Compliance by the government
- Human Resources Administration
- Insurance plans
- Payroll administration & processing
- Outplacement and recruiting support
- Safety programs (OSHA compliance).
- Section 125 Plans
- State unemployment insurance
- Compliance with tax
- Courses for training and development
- Workers’ compensation
- 401K retirement plans
A PEO should have a dedicated team of specialists to manage your payroll, HR, and risk management needs. This ensures that you will receive one-on-one support whenever you need it and that you have the ability to work with specialists to make sure you get the best out of your service.
What Does a Professional Executive Officer Cost?
The cost of a PEO will vary depending on what features you require, how many employees you have, and the pricing structure that you choose.
PEOs can use one of two pricing models. One is to charge businesses per employee; the other is to charge businesses based upon a percentage of their total monthly payroll. The average per-employee fee ranged between $40 and $160 per month. However, under the other model, the average rate was 3% to 12 percent of a company’s monthly payroll. Many PEOs offer only one pricing model, but some allow you to choose the best option for your business.
Pricing is also affected by the PEO’s plan structure. Many PEOs offer bundles of features. A set fee is charged for a certain number of services or features. Some PEOs offer the ability to customize a plan and select the features you need. While customized plans are great for businesses that have specific HR requirements, most businesses can still benefit from the HR features included in the bundled plans.
Before you start researching PEO services, it is important to understand that most have minimum employee numbers (typically five employees) as well as contract obligations (typically one year). PEOs offer the ability to cancel your services with a minimum of 30 days’ notice.
What are the pros and cons of using a PEO over In-House Services
The PEO model offers small businesses unique options for accessing services that are not available to larger companies. However, it does have its drawbacks. Learn about the advantages, drawbacks, and limitations of PEOs.You should be able to find the right organization for your business with few drawbacks.
- Less administrative tasks: When you partner with a PEO, all of the mundane administrative tasks associated with managing your business are taken care of. This allows you to spend more time on your day-to-day business operations.
- More benefits: The PEO model gives small businesses the chance to enroll in benefits normally only available to large companies. Many times, employees have access to health plans at a lower cost than if they were to go directly to insurance companies. This can mean better coverage for both your employees and your company in terms of healthcare, retirement, and workers’ compensation.
- Legal compliance: PEOs are trained professionals who ensure that your business is compliant with federal and state regulations. This covers tax structures, changes in HR law, worker safety compliance, and other compliance issues. You can have peace of mind knowing that your business is compliant with all applicable industry, state, and federal regulations.
- Recruitment of top talent: With better benefits and more stringent HR policies, it is possible to attract the best in your industry. PEO services are available to assist you in hiring, onboarding, and terminating employees. PEO services also offer other resources to help you post job openings online, manage the interview process, and provide support for your HR department.
- Legal protections: Most PEOs offer civil defense and employment insurance for former employees who sue your company for discrimination, wrongful termination, or other reasons.
- Giving up responsibility: PEOs can help you lift some of the burdens of running a business. A PEO partner may be a good option for small business owners who are involved in every aspect of their company.
- Health insurance: While you have access to more health benefits, your small business is still at the mercy of the PEO’s decisions. Your insurance provider may change depending on where you live. PEOs seek out the best deals which can have a negative impact on your company and the coverage your employees get.
- Impersonal: You want to be able to trust that the PEO you choose will give your employees and company personalized attention. Although this sounds great in theory, it is not the case for many PEOs that are large corporations that service thousands of small businesses. Your business and employees could get lost in the shuffle. When you are looking for a PEO to help you find the right company for you, consider how committed they are and how responsive they can be in providing you and your employees with the services you need. If you give the right notice, you can cancel your services almost always.
- Setup and transition: Some of the company’s operations may change when you hire a PEO. You and your employees may need to take some time to adapt to the new methods and processes.
Also read: Reskilling: What Is It, Benefits, Challenges
What to look for in a POE
There are several PEOs available – some good, some not so much. We recommend doing your research if you are convinced that your business requires a PEO. Your first step in the research process should be to identify your needs. This will allow you to know exactly what features you need before you begin talking to companies.
Look beyond the big players to consider the smaller ones. However, it is important to look at regional PEOs as well. Just because a PEO doesn’t belong in a particular country doesn’t mean that they can’t offer the services you require. The National Association of Professional Employer Organizations is a good place to start. Here you can search for PEOs in your state and see if they are accredited.
Here are 10 questions to ask yourself if you have already made this decision and are looking at several companies.
- Are they an industry-accredited PEO Two types of accreditation are used to prove that a PEO is financially sound and can offer good service? These are IRS Certification and Employer Services Assurance Corporation Accreditation.
- Will the PEO service grow along with your business? What services are you able to add as your business grows?
- What are the cancellation policies and contract structure? Is the PEO required to sign a long-term agreement or can you cancel at any time?
- Is the PEO equipped with a team that is familiar with federal, state, and local labor laws?
- What type of access does the PEO provide? Are there online payroll portals or mobile apps?
- What cost structure do they have? Is it per employee or a percentage of your total payroll?
- What can the PEO do to tailor its services to your business’s requirements?
- What type of customer service does it offer? Do you have access to a skilled team? Is there an IT support number you can call if you have technical issues after hours?
- What support channels does it provide? Many companies offer support via live chat, as well as email and telephone. What communication method would you prefer for your business?
- Does the PEO have any positive referrals? Talking to other business owners and looking at online reviews can help you determine if the PEO follows the sales team’s lead.
When you are considering PEOs, it is important to concentrate on the facts and not the interactions with sales representatives. A good place to start is an organization that has received good customer reviews and is accredited by the ESAC or IRS. We have listed the PEO’s accreditation and who it is accredited by (ESAC, IRS – we also indicated if the business is Better Business Bureau-accredited). We have also researched the PEO’s services and pricing structure.