Managing employees and their benefits is becoming more difficult by the day. The rules and regulations surrounding employees are complicated, require a great deal of reporting and compliance, and may create liability on the part of the company and its owners.
One of the options to address the multiple requirements is to utilize a Professional Employer Organization (PEO) to manage some or all your employee and HR processes. In our experience companies will start looking at a PEO for the following reasons: payroll administration; employee HR management; and/or benefits administration. Creating a matrix to list the various offerings available is best to start your review.
One thing to be clear on is the relationship between you the company where the employees work, the employees and the PEO. The PEO will typically be the employer of record and ultimately control the employment relationship. They do not really want to manage your employees but want to be sure that you manage them appropriately. The most common services provided by a PEO are listed below along with some thoughts to consider:
Payroll Administration – Computing payroll, creating checks or direct deposit, filing payroll taxes, generating reports, depositing payroll taxes and paying for other employee benefits is a pretty standard service. If this is the only service that you are looking for a payroll company may be a better option. The scale of the PEO allows them to ensure that regulations are monitored and followed, payroll is computed correctly, direct deposits and paychecks are handled appropriately, and taxes are deposited and reported properly. If you do not engage them for the full suite of services offered you should understand how they will manage payment for those services not transferred to them. For instance, insurance and 401K contributions may be a manual process and may be your responsibility.
Employee HR Management – Services are onboarding new employees, managing paperwork, monitoring employment regulations and ensuring compliance, providing workplace posters, assisting in discipline and termination issues, providing required notices to staff, creating personnel manuals, providing HR experts for staff and management both to talk with. Watch for the level of PEO involvement in employment issues. While they do not want to manage the people working for you they also do not want liability for improper termination. Understand their stance when it comes to discipline and if it meets your requirements
Benefits Administration – The other big reason to engage a PEO, particularly if you are a small organization struggling with getting benefits for your employees. While highly variable the PEOs will offer standard medical, dental and vision insurance and possibly HSA/FSA along with other options. A 401K option may be available. The benefit option may make it possible for you to offer a competitive benefits package that may otherwise be unattainable. Understand the benefit renewal cycle and requirements. The availability of a 401K option gets special mention. The liability that goes along with maintaining a 401K for employees is often overlooked. There are reporting obligations, possibly fiduciary obligations, and complicated tax reporting. Passing these obligations to the PEO is a plus.
Insurance – PEOs will frequently require employment practices liability insurance (EPLI) be carried in their name. Every employer should have this coverage. Understand what is covered and who is covered. Make sure that you are named in the policy as an insured. Workers Compensation insurance will frequently be in the name of the PEO.
Other – PEOs will often offer other services including recruiting, background checks, training services, outplacement services, safety reviews and training, help with employee reviews.
Cost – The price varies, and the options will be bundled differently depending on the company. Fees may be charged by employee, as a percent of payroll, by service. They may be transparent, and they may be hidden. In general, it will be more expensive than doing it yourself. We have talked with companies looking to engage a PEO and with companies looking to disengage.
Final Thoughts – Engaging a PEO is a big step and finding the right match a complicated endeavor. Expect a process that can take several months if you try to fit it into your normal work routine. Leave plenty of time, particularly if benefits are on the plate. Talk to as many PEOs as you can to understand the full suite of offerings. Know that getting out of a PEO relationship can be almost as challenging as getting in.
We are talented at helping you navigate decisions such as this. Feel free to call, we are always happy to talk with you. If you would like us to help you navigate this process or any other service or process acquisition we are willing.
If this process sounds too complex for you, don’t put it off. Just call us and we can help you define your needs. We do this analysis all the time and we get you started at no cost.