There are a variety of PEO’s in the marketplace that range from massive umbrella corporations to highly specialized niche partners. Because a PEO, or co-employment arrangement, is such an intimate affair, careful selection is paramount. A good recommendation is to always consult with an HR Outsourcing resource like Centripetal Consulting Group before selecting a binding, long-term PEO partner. Having established that there are quite a large number and variety of PEO’s, the question becomes which HR services firm would be the best fit and how to go about choosing them. The former depends on a whole series of variables, including the size of a client firm, it’s growth objectives, and any existing HR capabilities (if any) that need to be taken into account in order to inform the latter.
Picking a PEO or HR Outsourcing services provider isn’t always a straightforward decision because of all the variables, but the following primer can assist firms of all sizes in choosing the right co-employer for them. It’s all about avoiding potential pitfalls.
1. Assess and Adjust
Just because PEO’s sound great on paper, and are known to be a viable growth tool for small businesses, doesn’t mean that a firm needs to rush to find one without doing their homework first. Being locked into a dysfunctional co-employment model could be just as damaging as not having one. Instead, companies looking to outsource some or all of their human resources (HR) and risk management tasks, should assess their actual needs, determine acceptable thresholds, and take into consideration any existing HR capabilities. Only then, after needs are clarified, should a prospective client firm begin the process of finding a PEO to match.
2. Always Meet and Greet
Once you determine your needs, it’s time to interview potential PEO’s. Ask to meet with a prospective PEO’s representatives at their offices. Insist that those representatives include the specific individuals with whom you would be working. Consider it an opportunity to get to know the people with whom you will be partnering. One-on-one contact helps to reinforce credibility.
3. Get References
The best PEO’s will have a list of client and professional references that confirm and corroborate both their client history and areas of expertise. Ask to see these, then contact individuals associated with a current client of the PEO to confirm.
4. Background Check
Of course, resume’ vetting will only reveal so much. Because best possible fit is paramount, it is highly advisable to dig deeper. Does the PEO or HR services provider have a demonstrated history of adherence to the industry’s professional performance practices? Is it managed in a financially responsible way? The National Association of Professional Employer Organizations (NAPEO) recommends that clients always check to determine if the PEO’s financial statements are independently audited by a CPA, whether their risk management practices have been independently certified by the Certification Institute, or if their operational, financial, and ethical practices have been independently accredited by the Employer Services Assurances Corporation. As an important side note, ESAC certified PEO’s are audited on a yearly basis, and critically, are financially assured with a $1,000,000 Surety Bond plus an Excess Surety Bond of $5,000,000 for Key Services. The bottom line, know what you need to look for.
5. Professional Membership
Another key indicator of a respectable co-employment service provider is simple membership in an industry trade organization – in this case, the National Association of Professional Employer Organizations (NAPEO).
6. Look for Relevant Expertise and Experience
Rigorously interrogate a target PEO’s administrative and management expertise and competence, paying particular attention to both experience and depth in their internal staff. Senior staff members should be professionally trained and have professional designations. Furthermore, a prospective HR outsourcing firm’s staffing allocation should reflect the priorities of their marketed services. In other words, the services an HR provider offers should be adequately supported by an appropriate number of specialized staff. A PEO hawking tax mitigation strategies, for instance, ought to be well staffed with CPA’s and other tax professionals.
7. Follow the Money Trail
Understand how the employee benefits are funded. Is the PEO fully insured, or is it fully or partially self-funded? This is a very important distinction and the best fit depends on a variety of factors, including a firm’s size, growth objectives, and existing administrative capabilities. Typically, small employers that offer health benefits are fully insured. Under this model, employers pay a fixed premium to insurance carriers who then take on the risk. Companies can however, also choose to self-fund or partially self-fund their employees’ benefits by simply paying providers directly or pooling under the umbrella of an HR outsourcing company. But note that in the State of Texas, it is unlawful for a PEO to self-fund or partially self-fund medical health plans. It is also important to verify how the HR services provider will collect premiums for employee benefits. Are the premiums collected as-you-go (weekly) or in advance (monthly)?
8. Determine Fit
Understand how the employee benefits are tailored, and determine if they fit the needs of your employees.
9. Read the Fine Print
As with any transaction of services, always read the fine print. Be sure to review the customer service agreement (CSA) carefully, and if possible, with a lawyer experienced in the HR field at hand. Look for key details including each parties’ responsibilities, liabilities, and critically, how the PEO or HR service provider will be held accountable for rendering the services agreed to. Look for guarantees. Better yet, look for specific clauses detailing how to end a PEO contract if those guarantees are not met. In other words, expect the best, but prepare for the worst.
10. State Compliance
Finally, before signing an agreeable co-employment contract, make sure that the HR provider in consideration can actually legally operate in your state. The PEO must be licensed and meet all state requirements and stipulations. If applicable, determine who the third-party administrator or carrier is and whether or not it is authorized to do business in your state.
Selecting the right PEO or HR outsourcing service for your needs can be a daunting task at best. For business owners looking for help to find the perfect HR outsourcing service provider, or for more information on PEO’s and other HR solutions, visit Centripetal Consulting Group. We will be glad to help you.