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Before You PEO, Know What You’re Getting Into (and What it Will Cost)

Are you considering outsourcing your Workers’ Compensation, payroll and benefits to a PEO? While there are many valid reasons to subscribe to a PEO, there are reasons not to do so. While a PEO relationship may be just the ticket for your business, be aware of the pitfalls that can cost you. Let me help you make up your mind.

Does a PEO really save money?

Some PEOs charge a percentage of gross payroll, while others bill based on your Workers’ Compensation, or charge a per-employee check fee. Look at the details of the PEO process and you may find many hidden charges that can significantly impact your cost-to-benefit ratio.

Does a PEO save time?

PEOs often speak to the advantage of having a single administrative contact. However, many PEOs are simply static with their offerings – this “bundled” approach can actually create a complicated maze of access points.

Does a PEO provide broad and comprehensive products and services?

Not all PEOs are created equal. Some provide quality products and services that serve many of their clients well. Other PEOs are rigid and limited in their capabilities.

How does a PEO work?

When the PEO contract is in force, you and all of your employees will have a new employer. The PEO becomes the employer of record, and all of your employees must be “hired” again, including you. This means new hire paperwork, new tax forms, new benefits enrollment forms, new employee manual, new everything. A reputable PEO will do all they can to make this transition as smooth as possible, but it is never easy, and it could cost you more than you know.

You could pay more taxes

If you have employees when join a PEO, you may pay Uncle Sam more. Switching employees over to a new employer-of-record rolls everything back to zero where cut-off limits on taxes are concerned, even if the transition occurs in the same calendar year.

What about Workers’ Compensation?

Companies starting PEO relationships may believe that their Workers’ Compensation premiums will be reduced. Depending on your experience modification and the market, association with a PEO may not save you money. If yours is a safe company, you may already have a low experience modification rate. In this case, joining a PEO may cost you more money

Do you have more questions? I have answers.

There are many other nuances to consider depending on where your business is located and the complexities of your business including: military duty, prevailing wage, treatment of first aid, a lack of direct contact with claims adjusters and insurance representatives, your ability to positively impact your own experience, and many other important factors. These issues, coupled with the size of the company, can be very important in the long-term analysis of the benefits of a PEO relationship.

Some information in this blog provided by Deisy Bach, HRI