If your company is engaged with a PEO, are they still producing the results you expected? Have they delivered on lowering benefit costs and offloading transactional HR functions? Is your PEO still delivering the value they promised?
Especially for high-growth companies, this is a critical question. Often companies stay too long with a PEO when their HR team can ultimately achieve the intended goal for less money: attracting and retaining a high-quality, diverse workforce.
Initial benefits of a PEO
Companies enter into agreements with PEOs because it looks like a terrific option at the time. If you’re with a PEO, you most likely joined as a smaller company without an HR professional on staff. The PEO agreed to serve as your outsourced human resources function by providing services, including HR technology, HR, payroll, and benefit administration while taking on the responsibility for HR compliance.
You entered into a joint-employment relationship with them and they leased your employees back to you. It sounded like a nice arrangement because the PEO would employ the employees you hire, report the wages under their federal identification number, and take on the employment liability.
Is your PEO still a good fit?
As your company grew, your needs changed. At some point, you will outgrow your PEO. The question is not so much “if” but “when.”
There are a number of reasons you should consider leaving your PEO. Most likely, you have already noticed some of these telltale symptoms.
When our strategic HR consultants perform a PEO analysis, they examine several key areas to find out whether your PEO is still aligned with your business objectives. Let’s take a look at the kinds of questions you should be asking…
1. Are your PEO fees adding up?
PEO pricing varies according to the services you select, the level of support they provide, and numerous other factors. They generally charge for their services in one of two ways: percentage of payroll, or per employee per month fee (PEPM).
Even if your PEO’s pricing model seemed straightforward, you have likely been surprised by the cost of additional administrative costs and special fees on benefits, unemployment, workers comp, and payroll.
2. Are you having trouble figuring out what you’re paying for?
PEO invoices are rarely itemized, which makes it difficult to do an apples-to-apples price comparison. (Our strategic HR consultants can help you find answers and get clarity about the financial impact of a PEO extraction.)
3. Are your benefit rates increasing under a PEO?
Affordable benefits are the number one reason for joining a PEO. PEOs can achieve lower cost benefits than individual companies because they put multiple employers all together in the same risk pool. They then choose a carrier and design benefit plans to take advantage of this higher volume.
Even if your PEO delivered great savings on benefits initially, your rates may have increased upon renewal. This happens because when the PEO takes on more employers, more employees enter the pool, each with their own health risks. If claims increase for some employers, the rates increase for all the members in that pool. If you have a healthy population, you are essentially penalized for other employers’ risk — not your own. Higher premiums increase your overall costs.
4. Do you want to offer more customizable benefits?
PEOs are effective at creating cookie cutter benefits packages, but their one-size-fits all approach generally isn’t conducive as companies scale and require more tailored programs to compete for and retain talent. With a PEO, you’re limited to the carriers and coverages the PEO provides.
5. Do you want more HR control?
While you may have gained some efficiencies by shifting HR to your PEO, you’ve likely found that you have given up quite a bit of control over employee relations decision.
In order for the PEO to mitigate employer risks, you have to inform and consult with the PEO regarding any employee relations matter (such as termination, discipline, harassment, discrimination, disability accommodation, leaves, etc.). They do all this because your personnel are technically employees of the PEO, and they want to mitigate their risks.
As you navigate these employment issues together with the PEO, you might be wondering if they really have your employees’ best interest in mind. Have they made impartial recommendations and responded timely to management’s needs?
6. Is your PEO helping or hurting HR efficiency?
Did you expect the PEO to relieve the administrative burden on your team only to find that the PEO required more of your internal resources? PEOs take on some HR functions, but ultimately these arrangements often require an internal resource to liaise between employees and the PEO. Even entering data and providing all the information to the PEO can be a time-consuming task.
7. Can you get the HR data you need?
As companies grow, their decision-making depends more and more on having the right data and information. In order to make data-driven decisions about personnel, you need detailed information about your employees.
Oftentimes, pulling even a basic employee report from your PEO’s platform likely requires a call to support. Even then, you’re limited to a few standard reports. PEO technology platforms typically don’t provide leadership with visibility into key HR metrics they need to drive advanced business decisions.
Is it time for a PEO Analysis?
Maybe you’re happy with some aspects of your PEO partnership, but if there are too many items on this list that resonate with you, it’s time to conduct an informed, objective PEO analysis.
Our HR consultants can provide a detailed analysis of your PEO's costs and benefits. We'll help you compare plans and determine whether you can save money by moving HR services in-house.
It’s easy to get a competitive bid from a PEO salesperson or benefits broker, but how do you know the true cost and benefits to making a switch? Our HR consultants aren't affiliated with any PEO or benefits organization; they're here to help you find clear unbiased answers.
Next Steps: PEO Extraction
Leaving a PEO can be overwhelming and seem like a real challenge with so many elements intertwined, but it doesn’t have to be daunting.
Our HR consultants can help you create and execute a plan for PEO extraction. We'll help you understand the costs of extraction and find the right plans and people to take your HR department to the next level.
The newest addition to the CCN team, Tammy McCarty is leading the charge as we expand our consulting and recruiting services to include strategic HR. She has a wealth of experience in HR and the business acumen to go with it. Tammy has always been a partner to the CFO and a servant leader to her teams.