What is a PEO and Are They Always Cheaper?
Small businesses look for any possible outlet to stay competitive with larger companies. One option they look at is Professional Employer Organizations (PEO). PEOs help companies provide greater benefits and handle their administrative tasks.
As a team of health consultants, we help small and medium-sized organizations select the best possible options for their company. A growing trend is the adoption of PEO services. In fact, there are now more than 700 PEOs in the United States helping companies of various sizes.
But what is a PEO and how can they affect your group health rating, if at all?
What Is a PEO?
A Professional Employer Organization handles virtually all of your HR needs. Their role includes work with payroll and administration, workers’ compensation insurance, employee health and benefits, and compliance with state and federal laws.
Small companies who are overworked and need to strengthen their staff turn to PEOs to cut down on tedious, yet important, tasks. HR departments have much on their plate. If you can find a way to make their jobs easier, you can improve employee morale and reduce overtime.
PEOs have the bandwidth to manage thousands of employees for you. They can handle and purchase insurance benefit plans. If they’re skilled at their job, they might even be able to provide higher-quality plans that increase your skilled workforce. Essentially, they are experts in all things employee-related and are trained to provide the best options for your business.
Instead of spending hours trying to figure out how to onboard a 401 (k) plan for your team, you can task your PEO to tackle the job for you. They can also manage your flexible spending account.
PEOs also support your employees by providing HR manuals that outline the guidelines and procedures required by law regarding your benefits packages. They keep up to date with frequent changes to the world of insurance and employment legislation so you never miss a beat.
Speaking of compliance, PEOs aid with regulatory compliance including the OSHA, EEOC, ADA and so much more. This can, in turn, save your business on costs and penalties that could creep up if you’re not careful. Management of payroll, employee benefits, and sick-time accruals are also benefits of hiring a Professional Employer Organization.
Now that you know the good, let’s take a look at the negatives of using a PEO directory for your business.
What You Need to Know about PEOs
At HCI Consultants, we work with PEOs on a fairly consistent basis. Our experience gives us eye-witness accounts of how Professional Employer Organizations work.
First, we often hear our clients talk about the costs, or more directly, the savings offered by PEOs. However, what’s often overlooked is that PEOs can very easily transfer the savings they offer to other aspects of your coverage. For example, they can roll the savings they achieve for medical services over to payroll or workers comp. Sometimes it’s even transferred to an administration fee.
Failure to recognize these fees can cause you to overpay for basic services for years. While this isn’t the case across the board, it is an important facet to be aware of.
PEOs also make it a bit of a struggle to leave because they do not release claims data after you renew. If they by chance happen to release that claims data, they provide the least amount possible so that other carriers reject it for underwriting. The result is higher priced coverage for your company at no fault of your own.
Our recommendation is to separate your coverage as best as possible so that you enjoy greater savings. Another benefit of this is that it’s easier to get underwriting for various plans moving forward, giving you more freedom to choose what is best for your company, not what’s best for the organization you’re employing.
While promises may be high, it isn’t uncommon for PEOs to fail to properly evaluate the company they are working for. This can lead to serious price hikes for your business. The whole point of using a PEO is to cut costs and to improve your employee services. Unfortunately, things could go in the opposite direction if you’re not careful.
For most businesses, though, they feel that the cost savings of using a PEO directory are worth the risk. But that might not be the case…
The Truth About PEO Costs
In most situations, the savings you enjoy from group health and benefit plans outweigh the cost of using a PEO. However, that might not always be a reality. Your PEO should be financially responsible enough to carry your company and get the savings you need, after all, what would be the point of hiring them if they aren’t providing those savings?
Unfortunately, there is much misinformation out there about how PEOs actually work. Many companies mistakenly believe they are the only route to cutting costs via your HR department. That isn’t the case.
At Healthcare Consultants Inc., we provide tools and resources that support your HR department. Offloading some of the most pressing components of your employee benefits services might be all you need, and as your healthcare consultant team, we can do that.
Additionally, the costs of hiring a PEO might be much higher than you think.
Conservative estimates for PEO costs range between $500 and $1,500 per employee each year. Small companies could see lower, flat rates instead. Those costs add up quickly when your workforce grows. Even 10 to 15 employees might rack up enough costs to send you to the accountant.
How to Know if a PEO Is Right For Your Organization
Any decision you make for your company can have a serious impact. Hiring a Professional Employer Organization requires that you do your part to research the effect it could have. If you are going to use one, be sure to check that they are accredited by the Employer Services Assurance Corporation. It’s also a good idea to investigate references to see what previous customers have to say about their services.
At the end of the day, your HR costs will make the decision for you. If you feel there is room for an investment in alternate services, a PEO could be a good fit. It’s tempting to hire a firm to manage your paperwork and employee benefits plans, but that could be an extra charge you really don’t need.
Remember, HCI can provide the long-term support your company needs to tackle much of your extra HR tasks. However, if you need additional guidance on whether or not a PEO is right for your company, we’d be happy to answer your questions. Contact us today for more information.