What is ESAC and Why Is It Important for PEO?
The PEO industry has seen tremendous growth over the last several decades. As HR has become a bigger challenge for small businesses throughout the United States, the interest in PEO solutions has increased.
With this industry growth has come a significant rise in the number of PEO firms operating today. As small business leaders and benefits brokers explore potential partnerships, it can be overwhelming at the number of options available. However, is there a way to differentiate one PEO from another?
As a matter of fact, there are few important factors that can make a PEO stand out from the competition. One of these, which we have written about before and is fairly new, is the I.R.S.’s Certified PEO program.
But another important thing to look for in a PEO, which has been around much longer than CPEO, is accreditation from ESAC.
Let’s explore what makes ESAC so important for PEOs as well as the benefits brokers and small business clients who partner with them.
WHAT IS ESAC, WHAT DOES IT STAND FOR, AND HOW DID IT COME ABOUT?
As the PEO industry grew in size and numbers, there became a need for regulation and accreditation to build integrity and trust, in addition to providing assurance, within the industry.
Then in 1995, the Employer Services Assurance Corporation (ESAC) was formed. An independent, non-profit organization, ESAC became the official accreditation and financial assurance organization for the PEO industry.
The mission of ESAC was (and still is) to “build integrity and trust and provide assurance to the PEO industry, so the industry can reach its full potential in support of America’s small businesses.”
Additionally, the organization is managed by a board of directors that is made up of industry attorneys, certified public accounts (CPAs), and independent directors. These individuals have more than 100 years of combined PEO industry experience.
However, it is the accreditation given by ESAC to PEOs who meet the strict industry standards that makes this organization so valuable.
WHY IS ESAC ACCREDITATION IMPORTANT FOR PEOS, BROKERS, AND SMALL EMPLOYERS
The biggest reason why ESAC is so valuable to the PEO industry is that it has an accreditation process that is recognized as the gold standard for financial reliability.
Gaining ESAC accreditation proves a PEO’s financial stability, ethical business practices, and adherence to regulatory requirements. Additionally, ESAC routinely monitors PEOs for adherence to financial, ethical and operational standards and provides surety bonds that help protect the payment of wages, payroll taxes, employee benefits and insurance premiums.
Much like the CPEO program established by the I.R.S., working with an ESAC accredited PEO provides brokers and their clients with financial assurance and peace of mind knowing that they are working with a best-in-class organization.
To date, only around 5% of PEOs are accredited by ESAC. For additional information around the benefits of ESAC accreditation for small businesses, check out ESAC’s website by clicking here.
WHEN CONSIDERING A PEO PARTNERSHIP, CHECK FOR ESAC ACCREDITATION
According to the National Association of Professional Employer Organizations (NAPEO), there are currently between 780 and 980 PEOs operating in the United States.
Some of these PEOs operate nationally, and work with clients in every state. Others, like Extensis, are regional PEOs that partner with small business clients in certain states and areas.
These numbers and characteristics mean that brokers and small business leaders have more options available to them than ever when exploring PEO solutions. But it is extremely important know that not all PEOs are the same.
Small employers and benefits brokers must look to see if a PEO they are considering has certain traits that make it stand out in a competitive market.
ESAC accreditation is one important factor to look for, and should be listed on a PEO’s website. You could also check via the ESAC website. Additionally, seeing if the PEO has been certified as a CPEO is also important. Only 3% of PEOs are currently certified by the I.R.S. as CPEOs.
Looking to partner with a PEO who is both ESAC accredited and a CPEO ensures a small business client that their PEO is financially sound and is held to the highest standards by both the PEO industry AND the United States government.
Choosing a PEO solution is a big decision for small business owners and their benefits broker, but it is also something that can lead to significant growth and success.
This is why it is more important than ever to know what to look for in a potential PEO partner, and checking for ESAC accreditation is a critical part of this process!
What’s the difference between co-employment and employee leasing? Check out our eBook, Co-Employment vs. Employee Leasing: The Differences Brokers (and Clients) Should Know, to learn more about how different they really are!
