Are PEOs a Good Idea for Small Businesses?
Small businesses are the lifeblood of America. They represent the grit, determination, and drive we associate with living the American Dream. But as every small business owner knows, no one achieves success without support from a tribe of colleagues, employees, investors, and third-party providers. That often means getting help with the parts of the business that aren’t your strong suit so you can shine in the areas that matter most.
That’s why many businesses consider outsourcing part or all of their HR function to a PEO.
Sound like you? If so, then we’re willing to bet there’s a question lurking in the back of your mind: Is this really a good idea?
Let’s talk about that.
Are You Heading for a PEO Nightmare?
Okay, stop right there. Let’s face this monster right now. If you’re worried about a PEO relationship turning into a nightmare, you’ve probably got thoughts like these running through your head:
- Will I lose control of my business?
- Is this a good investment?
- Will the PEO pay my taxes on time?
- What if they go out of business and leave me hanging?
- What if they alter the terms of the agreement and won’t return my calls?
These concerns are understandable. The future of your business is at stake, and you need to know exactly what the relationship will look like. You also need to know you can trust the PEO to do what they said they would do.
So let’s address those fears one at a time.
Putting Your PEO Fears to Rest
Before you make any business decision, it’s wise to consider all the ways it could go wrong. Assessing pros and cons is part of building a strong business case. That’s why the questions above deserve honest answers. Here’s what you need to know to put your PEO fears to rest.
Will I lose control of my business?
No. This is a common concern, but the truth is that the PEO is your partner, not your boss. As the employer of record, they assume responsibility for payroll, benefits, taxes, and administrative functions, but you retain control of hiring and firing decisions, employee management, worksite culture and safety, and business decisions.
Is this a good investment?
This one’s a little trickier, and the best answer is: it depends. PEOs are usually a great fit for small to medium size businesses, but that’s not necessarily the whole story. You’ll want to ask more questions such as:
- What is the PEO’s specific area of expertise?
- Do they have other clients in my industry?
- Can they give me a better insurance rate than I could get on my own?
- Are they transparent about fees?What is the pricing structure?
Learn as much about the PEO as possible and make sure you get an itemized, unbundled quote so that you can see all parts of the fee before you make your decision.
Will the PEO pay my taxes on time?
This is where you need to do your homework. Established, reputable PEOs can be relied on to take care of your taxes like clockwork; however, if you feel uncertain about the PEO, do a little digging to find out how long they have been in business, whether they have positive reviews, and whether there are any protections (such as CPEO certification) built into the contract. If possible, talk to other clients of the PEO to hear their experiences.
What if they go out of business and leave me hanging?
Again, do some research ahead of time and find out how long the company has been in business and what their financial status is. This will go a long way towards giving you peace of mind about your decision.
What if they alter the terms of the agreement and won’t return my calls?
Sometimes things don’t go as planned. But don’t let a worst-case scenario like this one reported by Forbes scare you too much. Any time you enter into a professional agreement, you should spend a lot of time on the front end researching the company, talking with representatives, asking questions, and making sure you understand the process. In the vast majority of cases, the relationship you establish during the research phase is a good indicator of what you can expect down the road.
Back to our original question: Are PEOs a good idea for small businesses? Answer: In most instances, yes. It’s true that sometimes the relationship doesn’t work out. If that’s the case, make sure you understand the terms of the agreement so you’re not stuck with something that isn’t working for you.
