How to Transition Beyond a PEO

How to Transition Beyond a PEO 2560 1707 Balance Point Team

people working on office computerFor many start-ups and small business owners, choosing a Professional Employer Organization (PEO) to help with human resources functions may seem like a no-brainer. There’s no denying their popularity.

According to the National Association of Professional Employer Organizations, there are approximately 780-980 PEOs in operation in the U.S., providing service to 156,000-180,000 businesses.

What makes them so appealing? They help over-stressed, under-staffed business owners by:

  • Handling basic HR responsibilities like payroll and benefits administration
  • Granting access to HR services that they may not otherwise be able to afford (like recruitment, onboarding, training, etc.)
  • Providing workers’ compensation coverage and administration
  • Giving them the ability to offer a competitive benefits platform

When a PEO enters into a co-employment relationship with a business, the PEO assumes all or most of the organization’s human capital management tasks. The PEO hires the client company’s employees, incorporating the business under their tax ID. Under this format, the business maintains control over their employees, but the PEO becomes their employer-of-record for tax and compliance purposes.

As a business grows and the number of employees rise, limitations of working with a PEO can surface:

  • Loss of protection from potential compliance issues that larger companies face, like wage and hour and overtime violations
  • The inability to customize a health care plan to meet employees’ needs
  • Loss of control of essential processes and people
  • Challenges when an outside company has impact on the culture
  • Frustration over having to deal with someone outside the company when issues arise

Are you the owner of a growing company who is contemplating leaving your PEO? Consider the following:

Do you understand exactly what you’re paying for?

Many times, the ambiguity and complexity of the billing process makes it difficult to decipher exactly what you are being charged for. Many billing practices, like basing fees on a percentage of payroll and charging on FICA and SUTA after the wage base limits have been reached, can go undetected.

If you’re not 100% sure of what you are being billed, ask your PEO for an itemized breakdown. Having a clear picture of you are paying per employee, per month can help you better evaluate the other options available to you.

How will you address your HR needs?

For some, bringing HR in-house by hiring a full-time HR professional is the answer. Once you have identified your PEO costs, compare it to the total compensation of hiring a new employee. Depending on the region, justifying the salary of an HR Generalist is often reached when an organization reaches 50 employees.

According to SHRM, an HR Generalist performs essential duties. These include: maintaining the employee handbook, assisting with talent acquisition, administering benefits, handling employee relations counseling, and ensuring compliance with employment laws.

For those not ready to add a new employee to the roster, an HR consulting service makes the most sense. With this arrangement organizations can accomplish more than with a single HR Generalist, and can have HR take on a more strategic role. Some of the services they provide include: creation of compliant job descriptions, management training for best hiring practices, custom onboarding packages, workplace investigations, and anti-harassment training.

Do you have the right technology?

HCM technology has evolved over the years from systems of record to sophisticated tools that can streamline all aspects of the employee life cycle. Integrated, cloud-based platforms can handle many of the tasks that a PEOs provides, and more. This includes applicant tracking, performance management, time and attendance, compensation and benefits management, workforce analyses, and scheduling. Other benefits include reporting capabilities to help with compliance and a paperless environment, since everything is automated.

The right technology, coupled with a high-touch HR consulting service, provides the best value for the price for most small- to mid-sized organizations.

When is the best time to make a change?

If you decide that transitioning from a PEO is what’s best for your organization, there’s no need to wait until year-end to take action. Thanks to the Small Business Efficiency Act (SBEA), companies that leave certified PEOs (CPEOs) midyear won’t have to double pay certain federal laws.

Balance Point can help you determine the solution that’s best for you. Reach out to us to schedule a consultation

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