9 Criteria to Assess when Considering a PEO
Are all PEOs created equal? Are PEOs right for every business? Hmm. Both are good questions. Let’s look at 9 benchmarks that may mean a PEO makes sense for your business.
Professional Employer Organizations (PEOs) co-employ workers for businesses throughout the United States. As the employer-of-record for business owners looking for relief from the burdens of personnel administration, payroll, record keeping, risk management, and the high costs of group medical benefits and workers’ compensation, the PEO concept is a legal, regulated, professional, and growing solution.
But, you do not want to enter into an agreement without running through these 9 criteria.
1. State-approved: Professional employer organizations must comply with individual state rules on payroll, payroll taxation, and more. Most states oversee the PEO position on workers’ comp. And, the National Council of Compensation Insurance (NCCI) advocates working toward a national standard on related issues.
2. Self-insurance: Any worthwhile professional employer organization will be forthcoming about its depth. Self-insurance can present waters that are difficult to navigate. It takes considerable financial security and experience for any company to self-insure at length with any comfort. At the same time, the PEO should be able to provide ample proof of broad and deep liability insurance to protect you and yours well into the future.
3. Follow-up: A professional employer organization is a service organization. As the customer, you want evidence of exemplary customer service, intelligent response, and constructive resolution. Current and former customers should provide enthusiastic testimonials.
4. Risk-assessment: Workplace safety takes more than a few posters and pamphlets. If a PEO is vested in its own interest and yours, it will be pro-active in discerning, correcting, and reducing risk to employee welfare.
5. Legal-compliance: A quality PEO offers an employment law resource. It will recruit, assess, and terminate employees according to the complexities of state/federal workplace law. It will advise on issues of hostile workplace environment, employee leave, anti-discrimination, and compliance with Americans with Disabilities Act, HIPPA, Patient Protection and the Affordable Care Act.
6. Cost-savings: A prime attraction lies in the savings on group benefits and worker’s comp resulting from the volume discounts from the PEO’s larger employee base. This requires you to be on top of current and future pricing for businesses of your size and sector. You must know enough to deal with a PEO vendor on a level playing field. You want to calculate the savings in the context of the added cost and lost cash flow control.
7. Administrative-control: The big plus is the shift in administrative work from the business human resources desk. The reduction in work, detail, and time presents an irresistible attraction. Still, you do not want that relief to cost you a significant loss of control. You want to locate the professional employer organization willing and able to truly partner with you in terms of employee oversight, supervision, and management.
8. Benefits-menu: With group benefits cost lowered through a larger labor pool, you will want to confirm they are quality programs. It is nice to provide medical, health, dental, vision, retirement, and more, but employees will not value plans that lack quality and reputation.
9. Financial-proof: Forming a PEO connection puts your business through financial hoops. You should expect the vendor to do the same. You need to know the PEO’s financial performance, security, experience, and promise. Looking into the PEO’s FICA, SUTA, and FUTA position needs advice and expertise. Similarly, you want to see evidence of the organization’s experience in workers’ comp, risk management, and commercial liability. Membership in the National Association of Professional Employer Organizations (NAPEO) offers resources and research, and the PEO Matching Tool from PEOcompare.com offers additional support in your search.
Any reputable professional employer organization will reach an agreement only following a mutual approval process, such as these 9 conditions that mean a PEO makes sense for you. Their success depends on yours, and they do not jump into bed with every small business. But, if the PEO approaches you, you are likely close to meeting a profile that makes sense for both parties.
