What to Consider when Joining a PEO

What to Consider when Joining a PEO

The decision to join a Professional Employer Organization (PEO) should not be made solely on employee count and should consider other factors. Engaging an advisor who can evaluate multiple PEOs as well as the traditional insurance market, outsourced HR, and payroll services will provide the best results to make an informed decision. There are positives and negatives that must be weighed to determine the best solution for your company.

According to NAPEO’s, “An Economic Analysis: The PEO Industry Footprint in 2018,” PEO clients represent 15% of all employers with 10-99 employees, with an average size of 21.2 employees. However, the graph below adds important context to the 15% considering that 80% of employers in the 10-99 space are under 50 employees. From this perspective, it is evident that far fewer companies with over 50 employees find PEO’s as attractive.

Source: U.S. Bureau of Labor Statistics https://www.bls.gov/web/cewbd/table_g.txt

Factors to consider when Evaluating a PEO

When choosing a PEO for your company, consider the following factors:

  • Is co-employment best for the company?
  • Costs:
    • Percentage of payroll
    • Benefits are often offered at reduced rates, but margin is built into service or admin fees
  • Control:
    • Is the ease of an off-the-shelf solution worth sacrificing a customized program?
    • There is a loss of control in the buying process and the ability to make decisions that fit the corporate culture.
    • Employee engagement is bundled with other employers. Usually not good for larger organizations, but efficient for small employers.

As a general rule, the efficiencies and cost-effectiveness hit a tipping point for companies once they break the 50-employee threshold. The status quo is usually stronger than the desire to change, but thoughtfully performing due diligence is a best practice that companies should be doing as they grow.

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