Evaluating a PEO
There are an array of issues to consider when evaluating a co-employment arrangement. The business owner will receive great value from such a relationship if they are able to discern a few key items.
As a business owner, it is imperative to understand the parameters in which you are being measured by a potential business partner. In a sense, are you helping or hurting “the pool” you are about to join? If insurance arbitrage is your goal, I urge you to consider if this is truly a long term solution for your business. Here are four things to consider:
1. Did your health insurance rates rise more than 11% in 2006? The national average rate increase was 11%, either you beat that or fell victim to a heftier increase than the average. Do you see the Professional Employment Organization (PEO) as a way to hedge that increase? It may for a year or two, but consider all of the other companies that also are joining the PEO for the same exact reason. Eventually, you will become the healthier risk in the pool yet paying the same rates as the unhealthy groups. On average, the rate increases that most PEO’s are experiencing are right in line with the national average. 
2. Have you experienced significant claims within the last 2 years with regards to workers compensation? If not, the same risk pool concept applies. You are bearing the brunt and potentially overpaying in premium to insure riskier groups that may have unsafe practices. If you have had substantial claims, this may be a strategy to consider as a way to hedge future premium increases. Provided the PEO will underwrite your group favorably and accept you as a client, you gain access to the PEO’s expertise to form a sound safety plan and implement better practices for the future and at the same time shield yourself from the high premiums. Once the risk has been improved and you leave the PEO, you gain a brand new experience modifier as if you were new business with no prior workers comp experience.
3. What is your State Unemployment Rate and will the PEO provide credits once the limits are met? Once again, is your rate better or worse than the PEO? If it is worse, you can save significant dollars in utilizing a PEO to shelter your from SUI tax. If your rate is better than the PEO, you are helping them lower their rate for the rest of their clients and paying more than needed if you were not on a PEO. Usually the SUI limits are met fairly early in the year, in fact, employers are taxed on the first 9k of wages for each employee. Will you stop paying SUI after your company meets these limits within the PEO? 
4. Will the PEO break out the cost for each service in your proposal? Will you be able to see the cost of benefits, workers comp, and administration separately? Is this broken down as a percentage of payroll or a flat dollar amount? If the PEO will not break fees out as a flat dollar amount, ask for a credit in fees. You shouldn’t have to pay more in fees simply because you give your employees a raise. With the increasing complexity of business decisions, partnering with the right PEO solution is a strategic decision that may enable the growth of your business. Consider the PEO a partner to your company rather than a mere vendor of services but make sure to understand all of the aspects before making this decision. In this light you will be growing the value of your employees and your business to your customers.
For more information, contact Centripetal Consulting Group to help in the decision making process: info@gocentripetal.com (214) 824-4439
