We live in an outsourced world.  Call centers in foreign countries might be the first thing that comes to mind for most, but in the past few decades the term “outsourcing”  has taken on  a broader meaning.  For business owners, managing employee issues under the umbrella of Human Resource Outsourcing  through a Professional Employer Organization (PEO) is one such example.

What is a PEO?  The National Association of Professional Employer Organizations (NAPEO) offers this  definition on their website:

Professional Employer Organizations  enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.”

The decision to partner with a PEO should be done carefully.  Not all PEOs operate from the same platform and there are some important issues for a business owner to contemplate.  Here are a few:

1. Employer Services Assurance Corporation (ESAC) Certification

By some estimates, more than 800 PEOs are operating in the United States today.  Less than 30 of them are certified by ESAC.  By partnering with an ESAC certified PEO, you can be assured that your PEO is financially stable, compliant with all employment laws and regulations, and is owned by qualified professionals who have a proven personal and business track record.  Importantly, financial assurance is provided for covered clients through surety bonds.  Knowing that the PEO you select has been accredited for several years without interruption is also important.  To learn more about ESAC, see the video presentation on their website.

2. Employee Insurance Benefit Programs

The PEO you select should have a robust selection of employee insurance offerings which includes, of course, health insurance.  And while price is an important consideration, do not underestimate the importance of a partner who can offer the proper strategy that fits your company.  PEOs work with many clients and no two are exactly alike.  Your PEO Human Resources Business Partner must be able to help you develop a strategy that works today and must have the flexibility and expertise to rework that strategy as business conditions change.

3. Other Offerings

All PEOs provide human resource services, employee benefits management, payroll and tax administration, and risk management services.  Most will offer employee discount plans and other ancillary employee benefits.  A few will offer a wide selection of benefits that may include adoption assistance programs, tuition reimbursement or other plans not normally offered by any business – large or small.  The caveat is to make sure your employees plan to use these benefits because in all likelihood you will be paying for these privileges whether you use them or not.

4. Billing Methods

Speaking of paying, PEOs use one of two types of invoicing practices:

  • Bundled Invoicing:
    • A common practice is to apply an overall percentage of the total payroll which would cover all payroll taxes and service fees.  Normally, fees for employee insurance plans are billed separately, although some PEOs include the cost in the overall percentage mark-up.  Actual costs are difficult to measure, especially since some employer taxes (state and federal unemployment taxes and Social Security) cease to be paid once annual wage thresholds are met.
  • Full Disclosure Invoicing:
    • If you want to get an accurate measure of your Return on Investment (ROI), it might be best to consider a PEO that passes through all costs and bills a separate fee for each employee serviced.  Using this method, it is easy to measure the cost of your investment.  Also, the fee should be fixed based on the number of employees serviced.  The cost for a PEO to provide services to a highly paid worker is the same as it is for an employee who is paid less.
5. Human Resource Information Systems (HRIS)

All PEOs have (or should have) portals on their website that allow access (as appropriate) to owners, managers and employees.  You should ask for a demonstration and check for the system’s versatility and ease of use.  Be sure that the tools you use most frequently are intuitive and meet your expectations. What might also be important to know is how often the PEO can implement changes to their HRIS.  Be wary of PEOs who offer a “one-size-fits all” system.

6. Personal Touch

Make sure you know about the team that will be assigned to your company.  Ask to meet the Human Resources Business Partner who will be your lead contact.  Depending on your desire for the personal touch, determine to what extent call centers are used and get a handle on response times.  After all, this is the service you are paying for.  You should know what to expect.