By providing payroll, benefits, and HR services and assisting with compliance issues under state and federal law, PEOs allow small businesses to improve productivity and profitability, to focus on their core mission, and grow.
According to a recent study by noted economists Laurie Bassi and Dan McMurrer, small businesses that use PEOs grow 7 to 9 percent faster, have 10 to 14 percent lower employee turnover and are 50 percent less likely to go out of business.
Through a PEO, the employees of small businesses gain access to big-business employee benefits such as 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits they might not typically receive as employees of a small company.
Guidelines for Choosing a PEO Company
- Assess your workplace to determine your human resource and risk management needs.
- Make sure the PEO is capable of meeting your goals. Meet the people who will be serving you.
- Ask for client and professional references.
- Check to see if the company is a member of NAPEO, the national trade association of the PEO industry. Use our Find a PEO search tool to find a NAPEO member doing business in your state.
- Is the PEO IRS certified? This confirms the certified PEO (CPEO) can pay federal employment taxes under its EIN and protects customers by requiring that the CPEO assume sole liability for wages paid to worksite employees. List of certified PEOs.
- Check to determine if the PEO’s financial statements are independently audited by a CPA, whether their risk management practices have been independently certified by the Certification Institute or if their operational, financial, and ethical practices have been independently accredited by ESAC.
- Investigate the company’s administrative and management expertise and competence. What experience and depth does their internal staff have? Does the PEO corporate staffing allocation follow the priorities of the PEO’s marketed services? Does their senior staff have professional training or designations?
- Understand how the employee benefits are funded. Is the PEO fully insured or partially self-funded? Who is the third-party administrator (TPA) or carrier? Is their TPA or carrier authorized to do business in your state?
- Understand how the employee benefits are tailored. Determine if they fit the needs of your employees.
- Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out? What guarantees are provided? What provisions permit you or the PEO to cancel the terms of the contract?
- Make sure that the company you are considering meets all state requirements.