Many variables affect the cost of joining a PEO.  Your company’s size, overall workers’ compensation risk and the Employee Benefits offered to employees are all examples of components that contribute to cost.  In addition, there can be differences in the way PEOs’ bill for their services.  Some PEOs calculate their fee as a percentage of your payroll while others charge a flat fee per employee.  With the payroll percentage fee structure, bonuses and commissions you award your employees may cause fluctuations in cost – you may pay more to the PEO in those weeks.  With the flat, per-head fee structure, it doesn’t matter if an employee makes $30,000 or $1,000,000 annually – your PEO costs stay the same.

It is also important to consider and evaluate all costs associated with the PEO such as State Unemployment Taxes (SUTA), Section 125 Benefits, and other miscellaneous costs to see how they compare to alternative options.  Not every PEO provides the same value or cost structure so understanding which PEO provides the services you value the most can create cost efficiency when deciding on which provider is best to partner with long term.



How does the PEO manage their health care costs long term? A good way to judge this is to ask for an average annual increase statement. A difference as low as 2-5% medical increase between either PEO could mean thousands of dollars. What may be an inexpensive PEO year one could be more expensive than a premier player year two. This will be easy for a publicly traded PEO as this is public record.



While a PEO sales rep might be very knowledgeable, chances are he/she will not be your main point of contact.  Be sure to meet the people you’d be working with.  Find out things like:

• Are they reactionary service or are they proactive with updated laws and regulations, handbooks, HR best practices, etc? How much work do they do?  For example, some PEOs will create custom job descriptions and present it to the client while others only give templates and want you to customize them.  Some will come on site for employee issues, some won’t.

• What methods of communication will there be?  Some technology driven PEOs handle client interactions through self-service applications.  You may have opportunities to meet in person with the PEO’s service team provided one is available. Be aware that many PEOs use call centers to answer client questions, while others assign a dedicated team that the clients contact whenever an issue arises.

• What are their credentials? American Payroll Association (APA) offers two levels of certification – the Fundamental Payroll Certification (FPC) and the Certified Payroll Professional (CPP).  HR Certification Institute (HRCI) offers six certifications that show relevance, competence, experience, credibility and dedication to human resources. The most common are the Professional in Human Resources (PHR) and Senior Professional in Human Resources (SPHR) certifications.  To gain these credentials, HR professionals must meet certain experience and education eligibility requirements, pass a comprehensive exam and get re-certified every three years.

• What is the staff to client ratio?  The staff support ratio is the number of the PEO’s service team members to the total number of their client companies’ employees.  This is a good way to compare the level of service you can expect from one PEO to another.  For instance, a PEO that provides one service team member for every 1000 client employees may be slower to respond to your requests than a PEO that provides one service team member for every 100 client employees.

• How long have they been working in the Company?  Ever have a great account manager that leaves the company and is replaced by a lousy one?  If every HR person on the call has low tenure with the PEO, what is happening internally?  You wouldn’t get a haircut from a stylist who had bad hair.  Why would you get HR advice from a group that has high turnover?
  

What are their values, what do they believe in as an organization?  Are they practicing what they preach?  Like building teams if the values and ideologies of everyone involved don’t align that might jeopardize the success of the team.  If an organization doesn’t have fruit on the tree in an area you’re looking to grow in they can’t help you.

A good example would be if increasing employee morale and satisfaction is important to you, what does the PEO have in place structure wise to assist on that front?  Do they openly communicate with employees on how to take advantage of available programs or are they available to take calls in times of need? 

Be sure to ask your PEO Consultant many questions on about the look and feel of the PEO relationship after implementation.  Often times this ranks as the most important aspect of the relationship with a Professional Employer Organization.

Do you carry Employment Practices Liability Insurance (EPLI)?  What coverage would my company gain through the co-employment relationship or does the policy only cover the PEO?  Compare the level of risk you would gain or eliminate with one PEO versus another.

Some EPLI policies are what I call “Conditional Insurance” meaning the PEO decides whether to extend coverage to the client provided they followed the PEO’s recommendations to manage the issue leading to the claim.

Some PEOs take out an EPLI policy in both the client and the PEOs name, so regardless of the situation, whether the client abided by the HR team’s recommendation, the client has coverage.

When it boils down to an employee lawsuit, how much ownership interest will the PEO have?

As you can see there are a lot of moving parts.  This is why I recommend having at least two people on your leadership team on this project.  From my experience too many important details fall through the cracks when one person is left to juggle all aspects of the evaluation.

It’s also smart to involve a trusted business advisor which might be a strategic financial consultant, a business consultant, your health insurance broker or a PEO Consultant. 

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