Four Questions To Ask Before Hiring A PEO

What’s a PEO?

This used to be the question I was asked most often when people learned that I was the founder of a Professional Employer Organization, or PEO. PEOs are a valuable resource for small businesses, enabling them to outsource many time-consuming HR management functions, such as administering payroll and payroll taxes, accessing insurance and benefits plans at significant savings, and ensuring HR compliance.

The good news is that PEOs are no longer a secret competitive advantage. According to the National Association of Professional Employer Organizations, PEOs provide services to 173,000 small and mid-sized businesses. These businesses represent more than 15 percent of all employers with 10 to 99 employees.

There are more than 400 PEOs in the U.S., but not all PEOs are created equal. There are important differences in certification and accreditation, industry experience, health insurance, and workers’ compensation plans.

To help clarify these differences and ensure that you choose the right PEO for your business and your needs, here are four questions to ask before you hire a PEO:

How will you deliver health insurance to our employees?

When small business owners decide to partner with a PEO, access to affordable health insurance is often a factor. But value matters as much as cost. You need to look beyond the attractive monthly premiums to compare all the features—deductibles, inpatient and outpatient care, referral requirements, network specifications, copays, vision care and prescription coverages.

Larger PEOs often offer self-funded master health plans, meaning that claims are paid by the PEO rather than the insurance carrier. These plans are more flexible in their design, and because they aren’t subject to state premium taxes, they typically are much less expensive. But smaller PEOs that don’t offer self-funded plans can still offer savings by shopping the markets and matching plans to the client’s needs.

How will you help me ensure workplace safety and manage risk?

Workers’ compensation insurance is regulated at the state level, and every employer must have it. State laws can vary, impacting the types of injuries covered, the costs associated with certain injuries and disabilities, and even who gets to choose the doctor treating the injury. A PEO can help your small business implement valuable safety training, ensure that you have the necessary insurance coverage required by the laws in your state, and work to provide that coverage at a deeply discounted premium. It’s critical to ask this question about practices because the difference in programs and premium costs can be substantial, depending upon the PEO’s size and risk management policies.

Do you specialize in my industry?

Expertise matters, especially when it comes to ensuring compliance with regulations. Most PEOs have specific experience in certain industries, whether trucking or assisted living or medical practices.

You’ll want to partner with a PEO that has proven experience, represented by other clients in your industry. If you’re a small dental practice and are considering partnering with a PEO that is offering a great benefits package but has no other medical clients, keep looking for a PEO that has the knowledge and expertise you need.

What certifications and accreditations have you received?

The IRS certification is voluntary for PEOs, but a certified PEO (or CPEO) indicates that the PEO will assume sole liability for the collection and remission of all federal payroll taxes. If the PEO defaults on payment, there is no tax liability for the business.

Accreditation by the Employer Services Assurance Corporation (ESAC) demonstrates a PEO’s financial stability, ethical business conduct, and adherence to operational standards and regulatory requirements. The PEO submits quarterly documentation, key personnel undergo background checks, and the PEO must meet minimum net worth, working capital, and reserve requirements, as well as standards governing procedures and internal controls. These rigorous reporting requirements result in an elite group of PEOs. Fewer than 5 percent earn the ESAC accreditation.