How to Pick a PEO: Expert Tips & Tricks
Updated: October 1st, 2023
Choosing a Professional Employer Organization (PEO) for outsourcing services can be an overwhelming decision, and it shouldn't be a blind one either. Your business deserves a PEO company that will live up to its reputation and exceed your expectations with the services it promises to provide. According to data from the United States Chamber of Commerce, around 15% of employers with 10 to 99 employees are presently utilizing a PEO. What's more, the Chamber of Commerce reports that the adoption of PEO services is growing at a rate that's 14 times faster than the overall national economy.
The right PEO company will be critical to your business's growth and survival in the market. Once you’ve found one or more that can provide the services your business needs, you should consider a few factors that will help you narrow down your options and find the best one. These factors include gathering information about the company, studying their financial background, vetting their reputation, and more. In this blog post, we have gathered all the tips and tricks that will help you make a better decision.
Key Factors to Consider When Selecting a PEO
Assessing industry accreditation and certifications
With over 980 PEOs in the US, how can small business owners choose the best one? An easy way is to research your PEO company's credentials before hiring them. There are some certifications you should look for that ensure a PEO's level of service and trust. Such certifications include the Employer Services Assurance Corporation (ESAC) accreditation, which is the gold standard for PEO best practices and financial reliability. Only nine percent of the countless PEO companies have earned their ESAC accreditation.
Another stamp of trust is being a member of the National Association of Professional Employer Organizations (NAPEO). NAPEO members have access to the best regulatory compliance database in the industry and can justify their credentials through generally accepted accounting principles (GAAP).
Last but not least, confirm that the International Revenue Service (IRS) has approved the PEO. This certification confirms the PEO's ability to pay federal employment taxes under its Employer Identification Number (EIN). The certification is voluntary and requires the Certified Professional Employer Organization (CPEO) to pass annual IRS audits and get quarterly confirmations from a CPA that they are paying taxes on time. Plus, the CPEO personnel handling the tax payments need to go through thorough background checks. The certification process is exhaustive, and not all PEOs qualify for a certificate from the IRS. To give you an idea, of all the PEOs in the United States, less than 10% have achieved certification. Working with a CPEO, you are assured more financial protection than you would have when working with a non-certified PEO. The best PEOs will have earned all the above certifications.
Another set of certifications to look for is the qualifications of the staff they have on board. Certifications from the Human Resources Certification Institute (HRCI) and the Society for Human Resources Management (SHRM) show their deep dedication to the industry and their wide range of knowledge of the services they provide, which means they are committed to helping their client companies achieve a healthy, happy, and effective workplace environment.
A high rating and accreditation from the Better Business Bureau (BBB) will help you determine if the PEO you are considering is right for you. Having BBB accreditation is a solid stamp of trust and credibility in the eyes of customers; a business that meets their standards is dedicated to making an effort to resolve any consumer complaints.
Reviewing the service offerings and pricing structure
When selecting a PEO, it’s important to understand the specific services provided by them and assess if they align with your company’s needs. Start by identifying your specific HR and employee needs, including payroll services, benefits administration, compliance management, worker’s compensation, and more. Make a list of all the services you need. Then, evaluate the range and quality of services offered by each PEO, ensuring that they offer all that's on the list.
Ask for detailed pricing information from each company you are considering. Pay attention to how they structure their fees. Some PEOs charge a percentage of your total payroll as their fee; others charge a fixed fee per employee; and some use a combination of percentage and per-employee fees. Look for transparency in their pricing; make sure they spell out all their fees and costs for their services in a clear way. Pay close attention to any extra charges or costs that might not be immediately obvious. Find out if there are any possible extra fees for certain services or circumstances. Ask all the questions you have to the salesperson before you sign an agreement with them to avoid future disappointments.
How much does working with a PEO cost?
You can ask for a quote from the potential candidates you want to work with, which is not the exact price you will be paying. Generally, most companies will also collect some information, like your business's goals and size, to get more accurate quotes to compare against each other.
Evaluating the technological capabilities
A PEO service should not be limited to only personal guidance and professionals; it should also include technological solutions that its clients would not be able to acquire otherwise. The best companies usually add user-friendly software solutions to their services, and such software can include payroll, HR, accounting, time and attendance, and benefits administration software. This provides your employees with self-service solutions to take some tasks off your back. A good company hides nothing and presents its potential clients with everything it offers. So be sure to request a live demo of their offered software to see for yourself how it all functions.
Check compliance with regulatory standards
Inquire about the PEO's track record in compliance and risk management. They should have a strong understanding of employment laws and regulations to keep your business compliant. When you partner with a PEO, they become a co-employer for all your employees, which means they take on the duty and accountability for handling and reporting employee payroll and unemployment taxes. They also shoulder a significant portion of the responsibility for making sure your employees are covered and safeguarded under the various state and federal labor laws that apply.
What employee benefits and training does the PEO provide?
PEOs offer benefits services and administration, which can provide you with better insurance plans, like life, health insurance, and retirement plans. The best PEOs in the industry are partnered with the top insurance carriers, which helps them provide small to medium-sized business benefit plans at relatively lower costs. Be sure to know whether the potential company changes carriers frequently if they change their plans frequently, and how well they administer benefits enrollment.
When it comes to the training they provide, meet the people who will be serving you and assess their capabilities and qualifications. Set up meetings with the folks who will be in charge of your account, like the account manager and the HR experts, and make sure they can meet your goals effectively. They should be able to provide you with professional development and employee training that meets industry standards.
Check customer experience and references
To really understand how a PEO performs, the best thing to do is ask for references. Get in touch with businesses that are currently or used to be clients of the PEO and ask them about their experience. You can also ask professionals in the same industry who have worked with them for their feedback on the company you are considering. Also, there are platforms where you can read client companies' reviews, like the BBB and Trustpilot, to get a better insight into the company before making your final decision.
How do you assess the financial stability of a PEO?
When considering a partnership with a PEO, it's crucial to review their financial statements. Take a close look at their past financial records to assess their financial health. Check for signs like declining income or significant debts that could indicate trouble. Ensure they are transparent about their financial status and consistently meet their financial obligations, such as paying bills and employees, promptly. Think of it as conducting a financial background check to ensure they are a suitable match for your business.
Red Flags to Watch Out for When Choosing a PEO
Reasons to be wary of a PEO with a short history
Teaming up with a PEO that has a short history could bring risks to your business. These newer companies might not have the experience or know-how to handle tricky HR and payroll duties. They may also lack established connections with trusted insurance providers and other service partners. The financial stability of a new PEO can be uncertain, which might jeopardize your business. Before you make a choice, carefully assess the abilities and resources of a new company to make sure your partnership goes smoothly.
The risks of a non-IRS-certified PEO
Your company runs the risk of facing fines and other legal repercussions if it partners with a PEO that is not IRS-certified. Certification from the IRS ensures that the company adheres to federal employment tax requirements and has undergone thorough testing and auditing. Choosing an IRS-certified PEO gives you peace of mind, knowing that your payroll taxes will be handled accurately and efficiently. To mitigate the risks associated with non-compliance, verify the certification status of any PEO you consider partnering with.
The Perks of Choosing a Local PEO
Opting for a local PEO offers many advantages; they know the local job market and regulations inside out, which means they can offer personalized service and solutions that fit your unique needs. You'll also benefit from better communication and quicker responses. They often have strong local networks and partnerships with service providers like insurance brokers, making things even smoother for your business. This knowledge aids in attracting and retaining top talent, customizing benefit packages to suit employee needs, and maintaining competitiveness within the market.
Picking the right PEO is a big deal for your business. You should look at things like their reputation, what services they offer, whether they follow the rules, and the benefits they provide to employees. Make sure to do a thorough search, get references from others who have used them, and check if they're financially stable. Be on the lookout for warning signs like a brief history, data security issues, or not having an official IRS certification. Consider going with a local company if you can because they'll give you more personalized service, know the local laws, and understand the local job market. Also, we recommend visiting our PEO comparison pages to make a better decision.