The Best Professional Employer Organization (PEO) Companies
As a small-to-medium business owner, one of the most time-consuming tasks that can take you away from working and spending time on your clients is human resources.
Whether it is organising your staff payroll, dealing with employee benefits or ensuring that your company is employment law compliant, how can you be sure that your HR function is adhering to best practice and your procedures are up-to-date?
Small-to-medium businesses that don’t want or cannot afford to have an in-house HR department may decide to outsource the HR function to a professional employer organization (PEO) instead.
When a business enters into a co-employment agreement with a PEO, the business’s employees become co-employed by the PEO.
This means that both the business and the PEO are jointly responsible for employees.
The PEO agrees to handle employee payroll, including the:
- collection of employee tax
- tax payment to local, state and federal authorities
- issuing of form W-2
- other negotiated aspects of the HR function, such as sourcing employee benefits
The business remains responsible for all other aspects of the company, such as marketing, business operations and production.
A PEO will generally charge a percentage of payroll, but it is important that you understand the full breakdown of any charges from the beginning.
While the service offered by a PEO can optimise the way a small-to-medium business uses its time and resources, there are both advantages and disadvantages to consider.
If you decide to outsource your business’s HR function to a PEO, what are the advantages?
A PEO company will generally handle the HR function for many businesses and, as a result, hundreds or perhaps thousands of employees.
They therefore have access to more competitively priced benefits and those that would only otherwise be available to large companies with sizable staff numbers.
A small-to-medium business working with a PEO can offer its workforce an increased and more lucrative range of employee benefits.
Should you decide to work with a PEO, you can rely on them to not only carry out the HR function on your business’s behalf, but to also have up-to-date knowledge of the HR industry and be fully compliant with employment law.
This means that you do not have to spend time learning about HR, because the PEO company you work with are experts.
Working with a PEO is not free. However, it does save you the time, effort and the cost of recruiting HR staff to your business, as well as the corresponding employee salary and benefits.
When a PEO handles your business’s HR function, you can concentrate on your business instead of worrying about payroll, tax discussions with the IRS or sourcing an employee pension plan.
As with any arrangement, working with a PEO has its disadvantages too.
When a business works with a PEO company, they enter into a co-employment agreement.
The PEO subsequently takes full responsibility for the business’s HR function and any connected risks.
Your business will be expected to adhere to the PEO’s policies.
This adherence and the PEO’s full responsibility for the business’s HR function may mean that you have less control over aspects of how HR issues are handled, such as which benefit plans are sourced for your workforce.
You are unlikely to be the only business working with your PEO of choice. In fact, you will generally be one of many.
The customer service you receive may therefore seem impersonal.
The key to using a PEO service effectively is to choose the right PEO to suit the needs of your business and workforce.
So how do you decide which PEO company is the right one?
This must be the starting block for your investigation into using a PEO to outsource your HR function.
- What do you need from the arrangement?
- What level of customer service do you need?
- How much can you afford to spend on a PEO service?
Consider if you need:
- A full HR service
- Mainly payroll
- Advice for your employees
- Particular employee benefits, such as 401(k) pension plan
- Service and advice specific to your industry
Now that you know what you need, find out whether any of the PEO companies you are considering can meet those needs.
- Are they suitable for a business with your size of workforce?
- Do they offer the elements of an HR function that you want to outsource?
- Do they offer the type of employee benefits that you are interested in?
- Can you afford their service?
It may be necessary to ask for a quote to obtain pricing from a PEO. As with any service, it is wise to obtain at least two or three quotes to compare before making a decision.
You may also like to consider whether the PEO will be a match for your future business plans.
If a PEO only serves businesses with under 10 employees, it may not be suitable if you intend to grow your workforce of five to 25 within the next two years.
It is perfectly acceptable to ask a PEO company for both customer and professional references.
Customer references will provide you with a more-rounded picture of a PEO’s professionalism and reputation.
You may also like to search online for relevant reviews and news articles.
NAPEO is the national trade association of the PEO industry. NAPEO provides its members with extensive resources, including up-to-date information on regulatory compliance and IRS registration.
PEO regular membership is restricted to US-based PEOs. PEOs based outside the US may join as an associate member.
Members learn about best practice in the industry and must adhere to the NAPEO code of ethics.
An IRS-certified PEO (CPEO) is registered to pay federal employment taxes under its own employer identification number (EIN) and is solely liable for making employment tax payments.
The client’s business does not share any part of this liability and is therefore protected should a tax payment be missed.
You can find a list of certified PEOs on the NAPEO website.
Before signing a PEO service agreement, you should always check that its contents match your understanding of the business arrangement.
For instance, does the agreement clearly state what each side is responsible and liable for?
What are the payment terms and related penalties? What are the conditions for cancellation of the contract, on both sides?
Audited financial statements demonstrate a level of transparency and indicate that a company is adhering to the generally accepted accounting principles.
In certain US states, audited financial statements are a legal requirement for PEOs.
What type of customer service do you want from a PEO? Are you happy to communicate solely by email, or would you rather speak to someone on the telephone?
Do you want your employees to have access to the PEO customer service, or is it solely for the business owner/manager to use?
You may find the quality and responsiveness of the PEO customer service covered in the customer references you source.
Best for: Businesses that want excellent customer service
Pros: Top HR software and tools; self-service payroll for employees; dedicated support
Cons: Five-employee minimum; pricing not transparent; ADP’s size may appear intimidating to small businesses
Pricing: By requested quote
One of the largest PEO services currently available, ADP operates across 140 countries and has over 500,000 customers. Suitable for all sizes of business, ADP offers a personal HR consulting team for both employers and employees.
Having said that, ADP has built its reputation on working with small-to-medium businesses and the ease with which it can adapt its service and offerings to suit.
Best for: Small businesses who are interested in a range of benefits that might not otherwise be available to them
Pros: Transparent pricing; 24/7 customer service; dedicated account manager
Cons: Still reasonably new to the market; training services are basic; limited compliance help
Pricing: From 99 per month per employee on the Plus plan
Justworks brings a wider range of benefits to smaller businesses that would generally only be available to larger businesses.
Their pricing is transparent and offered in two plans, Basic and Plus. Clients receive dedicated account support and a number of perks, such as a reduction in price when you commit to a one-year contract.
Best for: Small businesses
Pros: Extensive range of online training resources; customized customer plans; flexible pricing
Cons: Five employee minimum; no pricing transparency; only one health insurance provider
Pricing: By requested quote
With a dedicated team of specialists, Insperity is most suitable for small businesses because of its personalised and adaptable service.
Customer service is high quality and responsive, and includes an app to allow ongoing access.
The health insurance offering is, however, limited and there is no pricing transparency.
Best for: Start-ups
Pros: Easy to use; online demos; customizable to suit specific industries
Cons: Five employee minimum; tied to a one-year contract; early termination fees
Pricing: By requested quote
Created by Paychex, Oasis is ideally suited to small start-ups because of its ability to customize its service to specific industries such as hospitality, retail and financial services.
There is no transparency in pricing, but Oasis does offer a personalised support service, including an HR expert and a personal payroll account manager.
Best for: Businesses who want an all-round HR offering with employee advice
Pros: Complete HR service; offers on-site HR managers; extensive online resources
Cons: Five employee minimum; not the most up-to-date systems
Pricing: By requested quote
Paychex stands apart from many of its competitors by working directly with your employees. Its HR offering is extensive, as is its online resource provision.
Paychex offers HR solutions that are customized to the size of your business, ranging from small businesses with a handful of workers to large businesses with 1,000 employees.
Best for: Businesses who want a full PEO service customized to their industry
Pros: Specialist HR service and advice for your industry
Cons: Five employee minimum; only offers a bundled service
Pricing: By requested quote
TriNet offers an HR service and advice that is specific to your industry – for instance, architecture, finance or non-profit.
Their range of HR services are extensive; however, they are only available in a bundled option, rather than offering singular services.
Find out about more about what TriNet has to offer in The Best Human Resources (HR) Software.
Choosing the right PEO company for your business can save you the money of recruiting that HR expertise.
It can also take the weight of learning about the HR function off your shoulders and open up a range of benefits to your employees that might not have been available to them with an in-house HR department.
However, the key to finding the right PEO company is to do your research first to make sure they are the best match for you, your business and your workforce.