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5 Things to Consider Before Partnering with a PEO

Many smaller companies work with (PEOs) for human resource services and to give their employees access to health and retirement benefits, essentially “leasing” their workforce to the PEO. While it may sound ideal on the surface, once you dig a little deeper you may find a PEO doesn’t quite offer the HR and payroll solution you envisioned.

Many companies struggle to meet their human resources needs and partner with a Professional Employer Organization (PEO) to help alleviate some of this burden. PEOs can help manage human resources, payroll, benefits, and tax filings. While this may sound good on paper, PEOs tend to disappoint. Between limited options, hidden fees and lack of HR support, we've seen a lot of clients move away from their PEO for a variet of reasons.

Here are 5 things you should consider before partnering with a PEO:

  1. Lack of provider flexibility: When you partner with a PEO, you are limited to the carriers and vendors they contract with. This also means that subsequent changes the PEO makes at the company level, may impact your business. This includes medical, dental, vision, disability, FSA, and COBRA administration.
  2. Pricing confusion: Pricing transparency is often considered a best practice among employee benefits specialists. PEOs typically charge one of two ways: per employee or as a percentage of your payroll. Invoices can be difficult to understand and often presented as a “package.” This can cause confusion, and ultimately employers may be paying for services they do not need.
  3. Large-scale customer service: PEOs service many different companies, and therefore a large number of employees. Because of this large-scale customer service model, oftentimes your group is not assigned a dedicated account manager. This structure can cause delayed response times and frustration to your employees.  
  4. Claims experience: PEOs underwrite their deals. This means that even though your employer becomes part of a larger pool, the PEO will re-rate you upon renewal based on plan usage and claims data. In the open market, small group employers—companies with less than 50 employees—are not rated based on their claims data. If you partner with a PEO as a small group employer, you do not have this option.
  5. Tax credit: When partnering with a PEO, some tax credits and advantages/ability to write things off fall on the PEO, not the client. An example is Section 125 FICA savings whereas PEOs typically recoup these savings.
If you’re having challenges with your PEO, we can walk you through your alternatives to make sure the support model is helping your business expand. Feel free to contact us to learn more!

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