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PEO: The Right Solution or a Costly Approach?

March 6th, 2018

Exiting A PEO Image

Companies are often approached about becoming part of a Professional Employer Organization (PEO). PEOs serve as an option for businesses by offering assistance with human resources and administrative tasks such as payroll, P&C insurance coverages, employee benefits plans, legal and regulatory administrative services, and onboarding and termination procedures.

For businesses that do not have the capacity to staff a full HR department, or who employ a single individual to handle a multitude of responsibilities, outsourcing employee management tasks to a PEO may seem like the right solution, but it may also be an extremely costly approach.

Utilizing a PEO puts a magnitude of trust into the accuracy and dependability of the services provided. While many tasks are handled by the PEO administration, the employer may be solely liable for any lawsuits or issues. Another little-known aspect is that when your company joins a PEO, your employees become “co-employees”. This means they are now working for the PEO as well as your company. While this might not change your company’s day to day business outright, changes behind the scenes do occur. For instance, the paycheck that employees receive is no longer from you, but from the PEO. These behind the scenes changes can lead to a host of administrative issues and headaches such as recruiting and termination limitations, and even compliance issues and cultural differences not aligning with PEO policies.

Equally deceptive is the cost and service structure of the PEO. PEOs are well known for making it difficult to understand how much you are paying for the services they are providing. “Bundled” pricing options versus “Unbundled” pricing may make it difficult to discern the individual components making up the total percentage cost or per-check rates or even what percentage you are actually paying for each individual administrative service. Not being transparent about costs per service, and making it difficult to access fee information could make a company vulnerable to over pricing and essentially make them believe that staying in the PEO relationship is their only option, potentially costing the company thousands of dollars.

While there may be times that a PEO makes sense, how can your company know for sure?

At Brown & Brown, we developed our Validity Health Matrix which allows us to perform a full company audit to determine if the PEO is the best financial option for your business. With Validity Health, we can demonstrate side by side comparisons illustrating the financial investment of staying in or coming out of a PEO.

This service is complimentary and provides you the transparency needed to make the best call for your business. In some cases, being in a PEO relationship may make sense, but before you decide, talk to us. If you are currently in a PEO and curious if there is another program better suited for your company, talk to us.

Our Employee Benefits team is available to discuss all your benefit options and run a Validity Health Matrix. Contact us to schedule yours.

Article updated.

Brett Struiksma

Employee Benefits Consultant

Brett takes a strategic approach when assisting his clients navigate compliance and health insurance reform, providing comprehensive analysis and creative plan design for optimal benefit plan communication and compliance.

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