Partnering with a PEO is the best way to outsource your HR. It allows you to unload most of your tedious administrative work, increases compliance, and can save you significant amounts on benefits, especially health insurance and retirement.
However, not all PEOs are made equal. Some may not be right for you, and some may not be right, period. You need to make sure you choose a PEO that offers the services you need for the price you can afford. Here are some signs that it may be time to switch PEOs.
Unstable Medical Renewal Rates
Perhaps the most significant advantage of partnering with a PEO is access to their master health insurance plan. For smaller businesses, this can be the best, if not the only, way to afford quality coverage and compete for the kind of talent you need to grow and succeed.
However, if you see double-digit increases in premiums each year, that is a sign that your PEO is not correctly controlling premium increases. It might mean that they are not as good at negotiating with their insurance company. It can also signal a deeper problem; your premiums are increasing because the pool of employees is getting smaller as the PEO hemorrhages clients for some other reason. Finally, it could indicate that the PEO is not providing the right help to other clients to keep claims down.
With an excellent PEO, your premiums will stay stable. They may even go down as the PEO grows. While some premium increases are hard to avoid as healthcare costs generally go up, a good PEO will do everything they can to keep your costs down without taking coverage away from your employees.
No Workers’ Comp Savings
Not all PEOs will provide you with access to their workers’ comp plan and, thus, their experience modifier. Especially for new companies, the ability to use a PEO’s modifier rate can result in significant savings. It can also be helpful if you have had claims in the past. If your PEO doesn’t have a master workers’ comp plan, it’s worth shopping around to see if you can find one which does.
Best-in-class PEOs will also pay the deposit premium for you, allowing you to pay on a monthly basis. This can help you keep a stable cash flow and avoid paying a deposit that is more than you need to pay. For new businesses, it can hurt your cash flow in the short run. Unfortunately, you are legally required to have workers’ comp in most states. While you may get some of that deposit back in the long term, it can still challenge your ability to afford other parts of overhead.
Finally, PEOs can help make sure that your employees are classified under the correct code, keeping premiums down and reducing the risk of compliance issues. When an employee can be classified under more than one code, they will choose the one that results in the lowest cost.
What happens when you or an employee needs assistance and has to call the PEO? If the PEO is handling benefits administration, they may be fielding many questions from your employees.
With some large PEOs, your call will be routed to an offshore call center. Yes, this is cheaper, but it also means that the person on the other end has no way to understand the unique needs of your business. They will be answering most of your questions from a script and will need to get back to you a lot.
In other words, a call center is cheaper for the PEO but likely to be more expensive for you, if only in time and frustration. A good PEO handles their own customer service using people in the office. Over time, they will learn your needs and be able to answer your questions quickly and easily.
Because you will have access to their actual staff, you will build a solid relationship that will help them improve their service to you and their other clients. Moving forward, this relationship will only get better in the long term, allowing additional stability. They will also provide excellent customer service to your employees.
Last but far from least, you should consider changing PEOs if you find you are paying considerably more than the going rate.
Larger PEOs tend, paradoxically, to charge higher rates. They have to pay for the overhead on multiple offices, and you may find that you are paying rates set in New York or San Francisco, regardless of your location. You may also find you are paying for their reputation and brand. In a few cases, you may believe you are paying the going rate, but a bit of research may show you otherwise. While you should never cheap out on HR outsourcing, you don’t want to overpay either.
Meanwhile, best-in-class PEOs don’t have to charge you much more than a payroll processor (and you get far more for it). They don’t have the same overhead but spend their money instead on talent, software, and things that help you directly. A smaller, more local PEO may also have higher expertise about the things which affect you, such as state employment law.