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PEO Audit Checklist

On the fence about exiting your PEO? We recommend conducting an annual audit, using our PEO Audit Checklist, to make sure you are getting some of the value your PEO promised.

Here are some issues that need to be addressed in your PEO audit:

Payroll Taxes. If payroll taxes are filed under the PEOs tax ID (as they should be) then you
should make sure each quarterly tax filing was completed and the taxes deposited with the State
and IRS. If they have not or were incorrect or late you may be liable for fines, interest, and/or
penalties. If they are capping FUTA, SUTA, and OASDI then check to be sure the caps were
properly applied. Make sure W2s were provided and were on time. You may also want to check
that the PEO is current on all taxes and deposits. You may also want to inquire how they are
holding deposits and whether you were credited for employee taxes withheld from the
employees.

Workers’ Compensation. If you are not aware of how workers’ comp is funded or who holds the
contract then you need to find out. Get a copy of the policy. Make certain that your place of work
is covered and that the classifications are correct. Make sure the premiums are paid and the
policy is current. Check for claims filed by your employees or pending hearings. Confirm if a
portion of the premium is self-insured and if so, how much, and how much are you at risk for
(how is it determined). Find out if there have been premium adjustments, refunds, dividends or
pending increases or retroactive adjustments.

Payroll Processing. Make certain that employees have been compensated as agreed upon. Be
sure overtime has been properly managed and applied. Make sure proper deductions have been
applied for each employee and that you have been given credit for any employee
deduction/contribution for benefits. If you are being charged in full for employee benefits and
your employees contribute to the plans then be sure you are not also being charged in full for
payroll – you should be getting a credit.

Employee Handbook/Manual. If you haven’t already, obtain a copy of the PEOs employee
handbook. Make sure it is applicable to your state and consistent with your own. If not, be sure
to identify the areas of difference. In particular, check the leave and return-to-work provisions.
This could become critical in an exit strategy.

Employee Benefits and COBRA. The PEO should provide you with a copy of all the employee
benefits offered to your employees. Be sure to familiarize yourself with their eligibility rules for
employees and dependents (waiting periods, effective dates, attained age limits/restrictions,
participation requirements, contribution, etc). Make sure they are compliant with your state and
that networks are adequate. Check other policy factors such as leave restrictions, rehire
provisions, deductible/copay carry-over credits, etc. Make sure that departments, classifications,
and any eligibility class differentials are consistent with your policies. If the PEO requires you to
monitor eligibility and enrollment you might check with your legal counsel as to how that might
affect the PEOs responsibility and your liability.

Once a year you might want to bid out the benefits just to be sure the PEO is maintaining their
commitment to save you money on benefits. Make sure they are not accomplishing savings with
cost shifting to employees (with deductibles, copays, contributions levels, maximum benefit
allowances, etc).

Make certain the PEO is properly managing COBRA. Ask for a copy of their COBRA policy
and administration rules. If the PEO is requiring you to report qualifying events you might check
with your legal counsel to see if this alters the PEOs responsibility and your liability. Have the
PEO confirm to you if any or part of the benefits they offer are self-insured. If so you will want
to review a copy of the TPA and stop-loss agreements. Be sure you know how your liability in
the self-insured pool is determined and how your risk is calculated. Have the PEO confirm TPA
and claim payments to you – especially that they are current. There is usually a two to three
month lag in claims payment. You may also have to continue to pay administration fees after
termination. This could potentially be a large liability for you in an exit strategy. You may also
need to obtain HIPAA-credible coverage certificates.

410(k). Your employees (and you) will be contributing to the PEO’s pension plan/401(k). You
may still be held partially liable so be sure to familiarize yourself with the PEO’s 401(k), it’s
policies, practices, advisors, investment funds, customer service, ratings, and transferability in
the event of your termination.

Leave of Absence or Disabled. Be sure to carefully check the PEO’s policy regarding “leave”.
You need to know what their policies are toward vacation, sick leave, disability, FMLA, and
other forms of leave and how they might impact your employees. If your company has less than
50 employees it may not be subject to full FMLA leave requirements on its own, but the PEO
will surely have full FMLA policy and, as such, you must operate by those regulations. Be sure
you are familiar with this policy and how it might impact you and your employees.

In our experience, often employers feel trapped when their PEO begins radically changing
the rules and the rates and it can become costly. This doesn’t have to be the case. If you are concerned, assemble a team with experience and implement a plan using the PEO audit checklist. Allow yourself sixty days to prepare for an audit or termination of your plan. Often just building the plan proves worthwhile.

If you have decided to terminate your PEO contract or have additional questions, contact us. We can assist you with a successful transition. There may be a better program available to you. Our knowledgeable brokers will demonstrate side by side comparisons illustrating the financial investment of staying in or coming out of a PEO to provide you with the transparency to make the best choice for your business.