Quick look: Professional employer organizations (PEOs) can help small- and medium-sized businesses reduce their daily human resources workload, stay compliant, recruit top talent, and more. But with hundreds of PEOs on the market, it can be difficult to decipher which is the best match for your organization. Here, review the 7 top criteria to evaluate when choosing a PEO provider.
Partnering with a professional employer organization (PEO) can help alleviate much of the stress associated with fulfilling day-to-day human resources (HR) functions for large and small businesses alike; however, choosing a PEO that is right for your business comes with its own set of stressors.
Selecting appropriate vendors to grow your business advisory team requires a careful assessment of the value they will bring to your organization. Determining the right fit is challenging for most business owners. Making the correct choice for your business will establish a partnership designed to support your organization’s long-term success. Choosing incorrectly can land you in a difficult engagement – or back at square one in your search. With so much on the line, some business owners become trapped in an ongoing cycle of evaluating and re-evaluating multiple vendors without evidence indicating a single, clear front-runner.
7 criteria to evaluate when choosing a PEO provider
With a deliberate strategy for vendor assessment and comparison, it’s possible to look past industry table stakes and surface the perfect PEO partner to help achieve your business objectives. Here’s how.
One of the most basic measures of a PEO’s professional standards is their current industry accreditations. These credentials confirm a high level of professional conduct, reducing financial and compliance risk to your organization.
ExtensisHR is accredited through the Employer Services Assurance Corporation (ESAC), an independent organization providing financial assurance and national standards of operation for the PEO industry. ESAC monitors PEO companies for adherence to financial, ethical, and operational standards, and provides surety bonds designed to help protect the payment of wages, payroll taxes, employee benefits, and insurance premiums. This accreditation is considered the “gold standard” for financial reliability.
ExtensisHR is also one of the first PEOs to meet the requirements to become a Certified Professional Employer Organization (CPEO) with the Internal Revenue Service (IRS). The Certified PEO designation provides federal regulatory certainty, as well as flexibility to employers to choose the best time of year to initiate PEO service without double taxation of FICA and FUTA.
2. Avoid PEOs that outsource primary HR functions
One of the primary benefits of partnering with a PEO service provider is gaining access to a team of HR experts who take a proactive approach to managing your account. When PEO companies outsource their HR services to a third party, they are further distancing themselves from your organization.
Selecting a PEO partner with experienced in-house HR staff will allow you to gain valuable perspective on day-to-day HR functions while also tapping into expertise on big-picture strategies. Audit your prospective PEOs to ensure they are not outsourcing any of the following HR solutions:
- Payroll processing and administration
- Benefits administration and planning
- Workers’ compensation and risk management
- Recruiting and retention services
Only when a PEO takes the time to get to know your current organizational standing and unique business needs can they provide true “white glove” service. This is accomplished with a service-first PEO business model delivered by in-house staff.
3. Connect with an HR Manager
Request one of the PEO’s HR Managers to attend your initial exploratory meeting. Quality PEO companies offer personalized attention, and this is your chance to get to know the people who will be providing your day-to-day service.
What credentials does the HR Manager possess? How many years of experience do they have? Have they managed PEO clients that are comparable to you and your organization? What do they see as the biggest HR challenge facing your industry today?
Look for responses demonstrating a strong perspective on human resources issues, as well as insight into your industry and jurisdiction. This would also be an appropriate time to request the PEO’s Net Promoter Score (NPS) and client testimonials—and if they can be specific to your industry or the challenges you are currently facing, even better.
4. Carefully review the service agreement
A PEO service agreement is a contract that outlines specifically what each party will own in the co-employment relationship. Your service agreement should clearly state the following:
- Services provided by the PEO, which typically include:
- Workers’ compensation and liability insurance
- 401(k) and health insurance plans
- Payroll services
- Other various administrative tasks
- Liabilities owned by each party
- Terms of the contract
- An itemized pricing breakdown
You should not feel confused or uncertain at any point when reviewing a PEO service agreement. Avoid PEOs that lack transparency in their agreements or hide behind over-complicated jargon. The best PEOs will set crystal clear expectations and be straightforward about what will be required of you to ensure a successful partnership. Do your due diligence and read the service agreement in its entirety!
This is also an opportune time to review the PEO’s customer service approach. Does the PEO have in-house experts, or will you be routed to an automated ticketing system or call center? How quickly are phone calls answered, and what is the PEO’s same-day case resolution rate?
5. Research the company’s history
A PEO company’s history reveals the strength and duration of their professional relationships, and it also provides an indication of their own organization’s priorities. Ask about the length of their average client engagement and how many current clients are on their roster. It is also very insightful to understand how their company structure and service offerings have evolved over the years. New PEO companies lack valuable industry expertise, while larger box PEOs often undergo little to no change over the life of their company, making them less likely to innovate and tailor offerings to your unique needs.
Also, be sure to ask if the company is publicly or privately held. Privately-owned PEOs like ExtensisHR tend to focus on building long-term relationships, while publicly-held firms may place more emphasis on generating revenue from new client companies.
6. Request a tech demo
Ask for a live demonstration of the capabilities of the PEO’s human resources information system (HRIS) solution. Look for next-generation technology spanning the entire scope of HR and benefits administration. Some things to look for include:
- Employee self-serve tools
- Educational and training resources
- Manager tools
- Reporting functionality
- Onboarding solutions
Software should be straightforward, securely stored, and accessible via the cloud.
7. Present your company’s biggest challenges
One way to determine how a PEO partner will address your business challenges is to simply ask. Describe an HR or compliance issue you’re facing and solicit their opinion. Outline specific problems you have had in the past with previous HR outsourcing providers and be upfront about areas where you lack information or experience. A quality PEO partner will provide education and insight on how they will streamline your most time-consuming HR processes, as well as describe how their services and solutions will help you overcome your challenges.
Not every PEO is the right fit
As in any industry, some HR outsourcing firms are more appropriate for certain clients than others. Do not rush headlong into an engagement under the assumption all PEOs provide the same type and quality of service. Every PEO brings different experiences, perspectives, and solutions to your business. Reviewing the above topics up front with your insurance broker and PEO candidates will go a long way toward revealing a partner with the potential to deliver the service level and solutions you expect.