The PEO Quote: 5 Things You Need to Know
Choosing a Professional Employer Organization can seem intimidating. Since you will be placing your business in the hands of the provider, you need to be confident that you will get the services you need at a price you can afford, and that you won’t be facing hidden fees or contract problems later on. As you begin to gather quotes, you will quickly realize that not all providers list their fees and services the same way. Before you make your choice, make sure you understand the fine print of the quote in order to compare apples to apples.
PEO companies differ in terms of how they present their fees and service charges. Before you begin seriously considering a PEO contract, make sure you understand the quote in full so that you can accurately compare it to the quotes of other providers. Let’s take a look at five keys to successfully understanding and evaluating the PEO quote:
1. Is the quote bundled or unbundled?
Some companies will bundle all fees and charges into one all-inclusive percentage or per paycheck fee, making it difficult to identify the exact charges for setup fees, admin fees, and other line items. If you receive a bundled quote, ask the company to break the prices out line by line so that you can see what you will pay for each service.
Transparency is key as you compare quotes. In order to determine who can offer the services you need for the best price, you will need to see an unbundled quote that implements line item pricing. The unbundled quote should include all extra costs such as setup fees, deductibles on the worker’s comp policy, any additional fees for delivery of payroll, lost check fees, and reporting fees. Make sure you ask the company about any additional or hidden costs that aren’t listed in the quote.
2. Are services offered a la carte?
If you want to handle certain HR tasks yourself, you will need to find a company that allows you to pick and choose the services you want. For example, some providers will do payroll only, but most prefer a larger package deal. Some providers require you to use their benefits; most do not. As you compare quotes, make sure you know which companies will allow you to choose the services you want. This is also a good time to consider whether outsourcing your entire HR package to the PEO might be a better option than handling certain functions yourself.
3. Does the PEO honor FUTA and SUTA tax caps?
FUTA and SUTA both impose caps on taxable wages. If you have employees whose wages exceed the FUTA or SUTA tax cap, does the PEO continue to charge you the same percentage for these employees? Look for a provider that will adjust the fee once the cap on taxable income has been reached.
4. Does the PEO require you to use their benefits package?
Most PEOs will provide a separate quote for medical benefits and will not require you to use their benefits package. However, some providers do stipulate this requirement. If you do get a benefits quote from the PEO, make sure that it includes all the benefits offered, clearly articulates eligibility rules, and lists the client company responsibilities such as monitoring enrollment and making sure COBRA is administrated properly. Look closely at plan offerings in order to determine what the actual cost will be. You may be able to get better premiums and renewal rates by talking with an insurance broker and doing some additional investigation on your own. Even if you do choose to use the PEO benefits package, you may wish to reevaluate on a yearly basis to make sure you are still receiving the best rates.
5. What are the terms of the contract?
Most PEOs require a long-term contract and reserve the right to evaluate the business relationship after the first year. The contract may also include a 30-day termination clause or other stipulations. Some providers may work only in certain industries or may require a specified average annual employee salary. Make sure you understand all terms and conditions as you determine which PEO can best meet the needs of your company.
Choosing the Right PEO for Your Business
As you evaluate the quotes you receive, consider keeping a spreadsheet with all services and fees listed for each company. When you receive the quote, fill in the cost for each line item so that you can compare efficiently across multiple companies. If the quote you receive doesn’t specify costs for certain items, make sure you find out what those costs are before you make a decision. The PEO should list all applicable fees and hidden costs so that you won’t receive any surprises after you have signed the contract.
As with any business decision, pricing is only one aspect of choosing a PEO. As you speak with various providers, you will also want to evaluate their customer service, support options, responsiveness to inquiries, number of years in the industry, compliance training options, and availability of on-site instructors. You may also want to ask how many of their clients renew on a yearly basis. This will give you an idea of whether most companies are pleased with their services.
Choosing a PEO to handle a portion of your business operations is a pivotal decision for the future of your company. By investing time and research into the evaluation process, you can increase your probability of partnering with the right provider from the start.
