As a small business in need of an HR solution, your options can be overwhelming. But if you’ve narrowed your search and are ready to choose a PEO, you’re off to a great start.
As you’ve probably learned, the acronym PEO stands for Professional Employer Organization. PEOs work with small businesses to help them manage payroll-related taxes, certain human resources functions, access to benefits, and other employer-related administrative functions necessary to running a business.
PEO’s do this through a practice called co-employment. Co-employment allows small- to medium-sized businesses to outsource certain HR and payroll functions to a PEO.
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The Benefits of a PEO
The National Association of Professional Employer Organizations (NAPEO) has done extensive research on the benefits of PEOs for small businesses. According to their data, small businesses using PEOs grow 7-9% faster and are 50% less likely to fail compared with small businesses overall. In addition, these companies using PEOs see an employee turnover rate that’s 10-14% lower than the national average.
Clearly, there are competitive advantages to using a PEO. But once you’ve decided to go with a PEO, you still have decisions to make. There are plenty of options on the market. How do you choose a PEO that is right for you?
Below, find some key questions to ask to help determine which solution will be a good fit for your business.
We've created a simple guide to walk you through the process of choosing a benefits provider.
Questions to Ask:
1. Is the PEO certified?
A Certified Professional Employer Organization, or CPEO, is PEO that has received ‘certified’ status by the IRS. CPEOs offer their customers added security, because they are subject to ongoing audits and IRS reporting and review.
According to the IRS, “To become and remain certified under the CPEO Program, CPEOs must meet tax status, background, experience, business location, financial reporting, bonding and other requirements described in the statute and regulations.”
Learning if a PEO has met these certification requirements is a great first step toward determining if the company follows industry best practices. If the PEO offers HR services, it’s worth investigating whether their HR professionals are also certified along HR industry standards.
2. What kind of benefits do you need?
PEOs generally offer access to health insurance as a part of their services. However, the providers they work with and the richness of the plans can vary greatly. It’s important to come to the table with a good idea of what your current — and potential — employees want and need in terms of health coverage, and what you’re willing to spend on it.
Will access to certain benefits and perks create a great place to work and help retain your team?
Beyond health insurance, many PEOs offer access to additional benefits for your employees. This might include things like an Employee Assistance Program (EAP), discounted gym memberships, discounted bike share memberships, commuter benefits, retirement savings, and more. Given this wealth of options, it’s good to consider what your current and potential employees are looking for, and what other companies in your industry offer.
Will those added benefits give your company a competitive advantage in recruiting talent? Will access to certain benefits and perks create a great place to work and help retain your team? Answering these questions can help you decide which benefits to provide.
3. What kind of technology does the PEO offer?
At the end of the day, you’re choosing an HR solution to make your life easier. If the platform isn’t simple to use, the solution isn’t really achieving that goal.
It’s always a great idea to request a demo of a new technology. This way, you can get a look under the hood and understand what it’s like to use the platform. You and your team members will have to log in on a regular basis, so you want to make sure it’s something everyone can handle — and maybe even enjoy. A modern, intuitive platform is always helpful.
Another aspect of the technology to consider is whether the PEO offers self-service onboarding. For smaller companies, the ability to get started on your own can be a very efficient means of transitioning to a PEO.
4. What kind of support will you get?
When you choose a PEO, you should feel like someone has your back. With payroll and compliance, issues can come up that you may not predict. Knowing you have experts in your corner can be a big comfort.
If you find yourself managing administrative tasks over late nights or on the weekends, ask whether the PEO you’re considering offers 24/7 support. Also, think about how you like to communicate. Find out what channels the support team makes available, whether it’s phone, email, online chat, or others.
If you find yourself managing administrative tasks over late nights or on the weekends, ask whether the PEO you’re considering offers 24/7 support.
A great way to determine a PEO’s support level is to review their Net Promoter Score (NPS). This score ranges from -100 to 100, and measures the willingness of customers to recommend a company’s products or services to others. You can also check to see if the PEO has received any accolades or awards for customer service.
If you don’t have an HR team in-house, it’s also worth asking if the PEO offers HR support representatives. These professionals can provide HR guidance and best practices on a variety of HR topics beyond what a PEO’s platform itself generally covers.
5. What’s the cost?
A big part of your decision when you choose a PEO will come down to price. Comparing price tags is an important consideration.
The breakdown of price can vary from PEO to PEO. For instance, some may charge setup fees while others won’t. Some PEOs may charge for making one-off payments. There are likely fees for additional add-on benefits companies opt to make available to their team. Most will charge an administration fee on a monthly or an annual basis. Always request a quote to get a clear picture of pricing.
How Justworks Can Help
Justworks is a CPEO with customers across the country. We believe in radical transparency. This means we will never charge hidden fees, we will always be upfront with what we can and cannot do, and if we're not a good fit for you, we'll help you understand who might be.
If you’re shopping for a PEO, visit our comparison page to see how we stack up against the other guys.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.