[aa_subtitle_display]The PEO model offers a solid turn-key HR outsourcing model for small organizations. However, picking the right PEO can be a bit overwhelming as the products and services on the surface look very similar. This article shows you how to evaluate a PEO with 5 important things to consider.
The first question I would pose is what type of company and workforce do you have? This is important because PEOs products and services are geared around particular industries and workforces (ex: white collar technology software company).
Once the question of workforce type is answered, I would set up the following criteria set for your PEO selection process.
• Customer Segmentation – What % of companies does the PEO serve within your size / industry?
• Pricing Model – I would strongly suggest that that you partner with a PEO that delivers a transparent pricing model on all products (gross wages, taxes, workers’ compensation, benefits, and service fees)
• Technology Platform – What is the true capability of the platform as it relates to payroll, benefits enrollment & administration, employee /manager self-service, as well as the overall “experience” that your employees will get from the platform. I advise that you get a real demo from the sales associate as the feature check-off list does not tell you the entire story of the system capabilities.
• HR Services – Many PEOs state that they offer HR services and have most of these features in their marketing material. Once again, you need to go well under the hood to see what these “products” actually are and HOW they are delivered. Job Descriptions, Offer Letters, Handbooks, Performance Reviews, Separation Agreements, are just a few examples. The last area how to evaluate a PEO is to see what the experience and credentials are of the HR team that will serve you within your industry.
• Benefits – You need to do your homework here. It goes well beyond the carrier and the pricing. Is the benefit platform robust enough to offer a range of plans (medical, dental, & vision) as well as voluntary benefits (life, disability, and others) that are geared toward your workforce. Do not make the mistake that most buyers do – assume you will get a better rate given the PEOs scale or be attracted by great introductory rates just to see your increase go up significantly the next year. (Note: PEOs now underwrite and re-price annually based on client level claim experience for both health and workers compensation. You’ll be assigned the price you earn.) Talk to customers that have been with the PEO several years and ask them what the increases have been year-over-year since they joined the PEO. Or better yet, use our PEO Consulting Services.
• Add-On Services – Does the PEO offer a range of valued added services such as Performance Management, Expense Management, Recruiting, etc? You may not need these services right away but you want to be able to turn to your PEO for these services when the needs arise.
The main challenge that you will have no matter what PEO you choose, is that you may grow out of the model sooner rather than later. For fast growth companies this can happen within a short time depending on your growth and/or funding. That’s why we recommend reviewing your situation every 2 years.
Another area is that you can lose some control over some of your HR decisions since the PEO is the co-employer and has risk in these areas. This isn’t necessary a bad thing though. The PEO is assuming your employment risk and will represent your company if something bad should happen.
The last area to think about is your company brand – this will be somewhat lost in the PEO model, but only with your employees since they’ll interact directly with the PEO for HR issues. If these areas are super important to you for some reason, there are other alternatives in the marketplace.
All in all, using a PEO for HR is a fantastic decision. These steps show you how to evaluate a PEO. It’s a time-consuming process. And securing the best rates is difficult. Use a PEO broker and let them help you. It’s free.[/fusion_text]