Is A PEO Right For You?

Someone told me I should sign up with a PEO. Should I do that?

Great question. Before I say “yes, of course” I want to clear the path and guide you down the road toward clarity. Nothing is worse than getting involved in a situation that you regret and that you want to undo. A PEO is not for everybody.

 

First, what exactly is a PEO?

It stands for “Professional Employer Organization.” Here’s a simple description: A PEO is a company that handles your company’s payroll, workers comp, health, and payroll taxes (and maybe a few other things like EPLI insurance and your 401k) for you for a fee.

 

Hmmm, interesting. So how does it work?

Pretty simple: this is a service-for-fee model. Every pay period, the PEO processes and pays for your your payroll, taxes, workers comp, health insurance, and whatever other services you have with them. They deduct all those dollar amounts due, plus their fee, from your account. You get notification on a statement each period explaining where each dollar of yours went.

Lastly, you have a team of experts at the PEO that provide customer service to answer your questions. Many PEO plans also include additional services like HR, Risk Management, and Loss Control.

 

So what about when I hire, layoff, or fire someone?

When any of these scenarios happens, you just notify the PEO. They handle all the paperwork for you.

 

I don’t know… I’ve heard bad things about PEOs. Why all the negativity?

Probably because those people believe that a PEO also must act as a staffing agency or an employee leasing firm. Staffing agencies and leasing firms take ownership of your employees and lease them back to you. So technically, you no longer have your employees anymore. Some PEOs do have the staffing agency component, but most do not.

So if you are looking at a PEO, that is one of the first things you want to find out about them.

With a PEO that is not a staffing agency or a leasing firm, your employees are your employees. Your Xmod is your Xmod. Your taxes are your taxes. You still use your FEIN.

Another bad thing you may have heard is that PEOs that don’t explain what your costs are. They just pull a bunch of money from your account each pay period and don’t tell you what you are actually paying for. When you call and try and get help, their customer service reps are reluctant to explain anything. That can certainly happen and has happened too frequently in the past. That’s why if you go with a PEO you have to go with a good one. How do you know if the one you’re talking to is good? They can explain your costs with ease – including their fees. Their invoicing shows where every cent goes.

 

OK, so PEOs can be good. But what is the real advantage of using one? Why don’t I just continue doing what I’m doing? I like what I’m doing.

If you like what you’re doing, then certainly, keep doing what you’re doing.

If, however, you want to know how a PEO can really help you, here are a few things.

First, a PEO can reduce your own payroll. When you use a PEO, you don’t have to pay wages to someone in-house to process all these things for you.

Second, a PEO reduces complexity in your own operations. As new labor laws get passed more frequently, wage requirements, notification requirements, and every other requirement falls upon you to learn, handle, process, advise. The HR part of your business can consume so much time that you feel like your primary function as business owner is staying on top of the everchanging rules. And how about turnover? How much time did it take you to train your last administrative assistant? How much time do you want spend training your next administrative assistant? And what new rules have you needed to learn before then?

The third reason to go with a PEO is that you can save money. Do you like to save money? How does this happen? This happens primarily on the insurance: workers comp and benefits. Regarding workers comp, PEOs tend to prefer the higher risk classes of business, you know the businesses that have employees out there actually doing physical things where injuries could occur. I’m talking about contractors, manufacturers, agribusiness. When you have a high base rate, the PEO wants you. Regarding benefits, the answer is more concrete: because they can apply large group rates to a small business. It’s that simple. Rates are higher for small groups (under 50 employees) and lower for large groups (50 or more). When you go with the PEO, you automatically get large group rates. Take that big business.

The fourth reason a PEO can be an advantage is for job costing. This applies to businesses that base their projects in part on what their payroll for that job will be. With a PEO, you have a rate that applies to taxes, benefits, and workers comp, so when you are estimating a payroll for a project, you get a consistent, accurate rate to multiply on top of your payroll to show you your true cost. Low bids will get you the job, but if you underestimated your costs, you’re truly giving away money. Accurate bids keep you in business and PEOs help you get accurate bids.

 

Well, maybe I should I look into a PEO…

That’s up to you but I will say the following categories tend to get the best results out of a PEO:

Small business in any industry that want to provide group health: the health savings alone could save you tens of thousands of dollars, regardless of what industry you are in.

Businesses that are sick of dealing with the costs and training of HR personnel, and the ever-increasing rules and regulation: when you delegate these duties to the PEO, you don’t have to manage, train, educate, and pay as much for your staff. You can keep your eye on the things that matter to you – sales, marketing, growth – basically, your business!

Businesses with a high workers comp rate: PEOs always excel in the heavy duty work comp classes like construction, restaurants, farms, manufacturing, and trucking. When you have a high rate, whether because of your industry or your claims experience, you are a prime target for savings in a PEO.

Businesses with a high workers comp Xmod: PEOs excel with those businesses that have had a surge in claims. PEOs are willing to assume higher levels of risk than standard workers comp carriers and help you mitigate against future claims with their loss control and safety services, which are typically included without extra cost, which then brings your Xmod mod and overall cost down.

Businesses that bid jobs based on the estimated payroll for that job: Contractors, manufacturers, agribusiness, as well as any businesses that provide custom services or products, benefit greatly by the predictable and accurate cost of your labor.

Businesses that are sick of spending time on annual workers comp audits: there is no more audit because your workers comp IS your payroll company. It is the same entity. You no longer have to gather data from payroll company and try to make sense of it. No more filling out forms asking you about 1099s, subcontractors, class codes. You no longer have to wonder how tips, bonuses, and overtime pay specifically need to be reported and hope that your audit doesn’t come back with a big invoice.

All right, I’m interested. Who should I call? You?

Well, I’m kind of busy writing blogs, traveling the world, and walking on beaches collecting seashells. But you can call my associate Paul and he can help you out. His number is 909-793-7597. or email him at paul@giscoverage.com. If you like do fill out online forms first, go here: https://gillespieinsuranceservices.com/interact-communicate/request-a-quote/ and we’ll get back to you.