A business’s goal is to run a profitable operation, but there is an administrative maze that can keep it from reaching that goal. Smaller businesses often don’t have the support structure to navigate that maze. Professional Employer Organizations (PEO) exist to take on a company’s administrative services to eliminate those distractions.
Smart Business spoke with Brian J. Davis, regional sales manager at Spooner Inc., who offers tips on choosing a PEO — when it makes sense, and when it doesn’t.
What is a PEO?
A PEO provides HR services to businesses, more often those with 50 or fewer employees, but they can have a role with larger companies. Typical services include payroll management, taxes, compliance with state and federal employment laws, and workers’ compensation management. They also provide workers at small businesses with access to robust 401(k) and benefit plans normally afforded to large businesses.
Why do employers work with a PEO?
Primarily, businesses turn to a PEO for its experience because the HR knowledge that many smaller companies have is limited. It’s a draw for companies to partner with a trusted source for advice and empowering to work with an adviser that has the most qualified people to solve HR problems.
Questions frequently arise because federal laws and regulations are always changing. The support needs to be there to get clarity. Having one point of contact to understand new laws and what they mean for a business can not only be reassuring, but may save a company money by helping it avoid penalties that come with noncompliance.
What are some factors companies should consider when choosing a PEO?
Like most decisions, choosing a PEO is driven primarily by costs. The first cost to consider is the employer’s workers’ compensation rating, which is a measure of risk used to calculate premium payments. When a business joins a PEO, that action alone could lower its premium payment because its piggybacking on the PEO’s workers’ compensation rating.
A PEO’s integrated HR and payroll service can streamline those functions for a business. It also brings workers’ compensation, HR and payroll functions together in one source.
A business should ask what a PEO is doing to manage claims and keep costs controlled. A PEO can solve temporary and long-term issues, such as helping a company during a growth period or dealing with new regulations that complicate HR functions.
Sometimes there are reasons a company has trouble letting go of a certain function and outsourcing it to a PEO. For instance, the owner of a small business may have his or her in-law doing payroll and can’t take it away. If that’s the case, look for a PEO that offers administrative services only so you can select just one of the many available services.
Talk to the PEO about its business philosophy and make sure it matches yours. For instance, do you just want assistance or do you need expert guidance and advice? Compare services and costs to find the PEO that makes the most sense.
How can a company determine which PEO is right for it?
The decision of which provider to choose should be made over several meetings. Get to know the PEO before making a commitment.
A factor to consider is level of service. When you have an issue, regardless of the time of day, do you want a person or an automated service line when you call?
Follow up should be timely and consistent If that doesn’t exist during the discovery stage, think of how it might play out when there are time-sensitive issues.
Get references and ask them about specific issues you’re facing that caused you to seek out a PEO. Ask how it was handled and if it was to their liking.
Choosing a PEO is a decision that shouldn’t be taken lightly. And in some cases, it’s not a solution that will provide profitability forever — it might be the solution today, but not tomorrow. Will your PEO tell you that your workers’ compensation savings are better without the PEO? Are you paying more for bundled administrative services than if they were unbundled? Make sure you assess annually whether it makes sense to remain with a PEO.
Insights Workplace Health & Safety is brought to you by Spooner Inc.
