Why a PEO is a No Go

A professional employer organization (PEO) can be valuable to a business. These organizations are adept at ensuring payroll is accurate, reducing health and legal costs and lowering employee absenteeism rates. Despite these benefits, many businesses forgo using a PEO for numerous, justifiable reasons.

 

Reason 1: Lack of Control

Business owners who work closely with their employees believe they exercise the best judgment when it comes to hiring, firing, training and disciplinary measures. However, when liability issues arise, the PEO enforces strict policies that the business owner is compelled to follow.

Compliance is mandatory when working with a PEO, even in light of cultural differences. The lack of subjectivity from the PEO may lead to diminishing employee morale or legal issues, especially when staff are treated unfairly. PEO processes are objective, allowing room for clashes with business owners.

Aside from issues of control when dealing with employees and human resources issues, business owners have no say when it comes to partnering with health and workers compensation vendors. A PEO might select a carrier that is unfit for the company, and the owner will suffer the long-term consequences.

 

Reason 2: Lack of Value

Small businesses and startups with less than 100 employees benefit the most from PEO services due to increased buying power. Per employee, the PEO costs average $800 to $1000 annually. As mentioned, PEO services result in lowered insurance premiums and legal expenses.

When a company expands and the number of its employees grows to over 100, the PEO fees remain steady. The fixed PEO cost offers no value to growing businesses, especially since the cost of maintaining the employees decreases once a firm exceeds 100 employees.

For example, if the PEO cost per employee each month is $100 and the company has 50 employees, the annual PEO cost is $60,000. A shrewd business owner may better spend the funds on hiring a fulltime HR Generalist in conjunction with an HR consulting service.

Expanding companies eventually outgrow the PEO because the latter fails to provide the tailored benefit programs most needed in order to be effective and cost worthy. Rather, PEOs offer a one-size-fits-all service; and growing firms require far more customized and affordable services than a PEO can provide.

 

Reason 3: Less Protection

A small business owner may perceive that a PEO will protect them from potential HR issues. The reality is that the PEO policies require that the business owner be responsible for various aspects of employment law, no matter how complex the regulations happen to be.

Despite working with a PEO, the budding firm is accountable for wage compliance, accurate overtime classification and determining the type of tax forms each employee should receive, such as W-2 or 1099 forms. Companies are unable to depend on a PEO to act as a protective shield against HR problems.

Even though some protection is offered via a PEO, such as Employment Practices Liability Insurance (EPLI), companies are still left to pay exorbitant fees. In instances of sexual harassment or discrimination claims, the firm must first pay a deductible, which can balloon up to $50,000 per claim.

Companies that are hit with an age, race or sex discrimination claim typically pay on average $125,000. It is not uncommon for PEO companies to cap the insurance benefit at $100,000 per year. After paying the plan deductible and reaching the limit, employers are left in a precarious financial position.

 

Reason 4: Issues with Technology

PEO companies fail to invest in developments in technology. A business owner who needs to pull a simple employee report will have to jump hurdles to access it. A call to the PEO customer service only starts the process; in the end, the owner will be limited to standard reports.

Plus, PEO employment data is subject to preventable security breaches. Even in recent years, personal employee data stored in PEO databases have been compromised by hackers. Criminals were able to pilfer W-2s, file false tax returns and set up fraudulent accounts.

PEO companies are designed to benefit small teams rather than expanding businesses. Access to metrics, like company demographics and career path ratio, become critical when making decisions about the company’s employees. PEOs, however, are unable to offer these valuable insights.

Fortunately, leaving a PEO has been made easier. The Small Business Efficiency Act (SBEA) makes leaving a certified professional employer organization (CPEO) at any point a viable option. Rather than leave mid-year and be hit with having to pay double taxes, businesses can leave at any time of the year.

The new law allows PEO companies to apply to become CPEOs. In order to benefit from the SBEA law, companies would have to work with a CPEO. Instead of waiting until year-end to leave, businesses can leave a CPEO without the aforementioned tax liability.

 

As a business owner, you anticipate growth, making a PEO impractical and unaffordable. Instead, consider long-range plans and invest in a reliable shared service organization, like HRBOOST®. Our shared service model ensures you benefit from more advantages than working with a PEO.

Your HR strategy is enhanced by our team as we share the implementation and results of the strategy. We customize an efficient HR program that works for our client. Defined measures, pace and budget are designed to meet the needs of the businesses with whom we work.

 

HRBOOST® clients receive numerous benefits, such as an experienced HR team to offer depth in human resources issues as well as employee relations. Our agreement length is flexible, and we offer a flat rate. Rather than lose your benefit design rights, HRBOOST® will tailor an agreeable benefits plan.

HRBOOST® offers businesses far greater rewards than a PEO. With highly qualified human resources professionals, HRBOOST® is prepared to take your HR strategy to a new level. We are dedicated to offering comprehensive HR services to benefit companies in Chicagoland. Contact HRBOOST® and switch to the area’s most reputable HR shared services.

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