Maybe you’ve started to see your administration fees go up, or maybe the total cost of your PEO (Professional Employer Organization) has just gotten out of hand, or maybe you’re just questioning if this is the right structure for your growing company. Whatever the reason you may be considering for rolling out of your PEO there’s a lot of questions you need answered, so hopefully this will be helpful for you.
To start off with, we want to be clear that there’s nothing wrong with Professional Employer Organizations – in many instances going with a PEO may be a good form or outsourcing for your HR needs for your business. But recently, we have had many discussions with clients that feel that the PEO they are involved with just is getting too expensive, and may not be fitting their needs.
So let’s start with the fundamentals. What will you need to replace or rebuild if you leave your PEO?
1. Payroll – this is probably the simplest part of employment administration to replace. There are dozens of payroll providers that can provide you different levels of services from basic payroll to robust services, all at different price points. We have relationships with several providers and would be happy to provide you introductions to the ones we think fit your needs.
2. Workers Compensation – This is also a relatively easy transition piece to accomplish. Now in most PEOs you are charged the workers compensation rates and the experience rating modifier (ERM) that the PEO has earned. Your particular loss experience is not reflected in the ERM. The ERM is a weighting system to rate each employer’s particular loss experience for workers compensation. Employers with loss experience that is better than the average receive a credit, those with worse than the average experience receive a debit. Under the PEO arrangement you are charged the PEO’s ERM or modifier which is not reflective of your own company’s experience. Rather, it is based on the entire group’s experience. That may seem confusing, but the point is, when you roll out of a PEO your own ERM will be calculated based on your loss experience, which could be better than the entire group’s; this is a good thing! You may also be able to negotiate better rates than the PEO if your experience is better than the group’s too.
Now, when it comes to paying for workers compensation we can help you design a plan which will mimic your PEO, and charge you on a “pay-as-you-go” basis. Meaning that your actual payroll reports will drive the frequency and cost of your workers compensation. Or, you can pay for workers comp the traditional way of monthly installments, whichever is more convenient for you.
We do NOT recommend purchasing your workers compensation through your payroll provider. While this is often pitched as an easy “add-on” to your payroll the simple fact is that payroll companies usually only represent one or two insurers to place your workers comp with; that means less flexibility. We also know that our expertise in insurance, especially workers compensation exceeds that of a payroll provider which will benefit you in the long run.
3. Benefits – most employers join a PEO to gain greater flexibility and lower costs for group health insurance and other group benefits. The PEO advantage has been to provide big company benefit plans for even the smallest employers. Now, complicating that process is ACA or as it’s commonly called “Obama-Care”. Depending on the size of your company, you may actually do better purchasing your own health insurance than through a PEO. We work with a great employee benefits broker who can help design the right plan for you and your employees, and take the hassle out of shopping for coverage to make sure you’re getting the best pricing structure available.
4. HR administration – if you have a good number of employees than HR administration may be an issue, and it may be an issue for leaving a PEO. Many of our larger clients have found that outsourcing this entirely to a PEO does not perform as they would have hoped. While the assistance on compliance issues is helpful, there is a lack of real personal interaction with employees which drives engagement, so they’re electing to get out of the PEO and start over. We have built key relationships with HR consultants and one company in particular which can host your HR platform, payroll and administration “in the cloud”, so we can help you make this transition away from your PEO.
PEOs may be a good solution for supporting the HR needs of some employers, but we’re finding that many of our clients have become dissatisfied with the costs and structure of them. If you’re in that same boat and need assistance determining if rolling out of your PEO makes sense, please give us a call for more information!