PEO, Professional Employer Organization, Co-Employer, Employee Leasing
capaccio
2 Posts
I am considering a "Professional Employer Organization" or PEO. I am interested in hearing pros and cons from anyone familiar with this type of arrangement. I was approached by our payroll service who has another division that is a PEO, and was intrigued as it seemed like a good way to offer more benefits to employees in a small/medium-size firm and minmize HR administration. However, I am wondering if there are any downsides to doing this (particularly with the "co-employer" designation" -- the PEO is the "employer" of record for W-2 purposes, benefits, and other HR functions). Any additonal information would be appreciated. Thanks.
Comments
We use a PEO because they got better Workers Comp rates in CA and since we have so few employees in that location, it was difficult to shop health insurance and get an affordable rate. They were able to give us two health plan options which we would have never been able to offer.
There have been plenty pros and cons in my experince. One pro is that you have another view point when handling sensitive issues, but the downside is (our PEO anyway) does not take legal responsibility for any advice that they give you. Even though they are the employer of record, your company is still responsible for all employment practices. (FMLA, EOE, ADA etc) I double check everything that they tell us and have found that they have been mistaken on a few instances. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The major advice I can give you is that there has to be outstanding communication between you and the PEO. I have been frustrated at times with the turn around time to get information, paperwork flow and it mostly came down to communication breakdowns.
I'm not sure if this helps you. I would be happy to answer any specifics you have regarding my experiences.
Hello,
I have worked for two PEOs and became interested in working in the industry when I was a client of one. I have to say, this is actually my calling. I love the work that I do. However you have to have a different mindset when working with clients, due to the fact that they are smaller and don't understand the laws that are applicable to them. It takes a lot of finesse in respecting their right to run their businesses as they see fit, but also informing them of the risks they take in their employment decisions. They don't always understand and don't always take your advice and that can be very frustrating at times.
I work for a small "mom and pop" PEO, not for one of the national PEOs. The national PEOs tend to be more bureaucratic and not as client friendly. The smaller PEOs understand small business and are very hands on. The unfortunate part is that the industry is not highly regulated in some states as it is in others so I advise you to really look at the company you are considering. I have seen some of the shadier sides of the business, but I've seen more of the positive sides to it as well. I like the fact that you are not just dealing with once certain business. I deal with any business from construction companies, to restaurants, to doctor's offices and lawyer's offices and learning and understanding these businesses is a challenge in a very good way. Also you must be well-versed in state unemployment laws because your clients' businesses may transcend the borders of your home state. Good luck!
From personal experience, we were the client of a large PEO in Texas until the end of 2005. I was hired by my company with the express desire to pull all of our benefits/payroll/HR out of the PEO. The first thing I did when I came in was to estimate, as best I could, the cost savings. The amount I came up with was $75K annually...and that included taking into account my HR/payroll/benefits salary and assuming the highest tax and workers compensation rates. We had no more than 25 employees at any one time, so the savings was considerable at $3000 per employee. This was with keeping basically the same (or better benefits). We added STD/LTD and dropped vision coverage.
But the proof was in whether I could actually save the company that much money each year. I was able to accomplish it in 2006 AND 2007 and saved over $80K each year. And 2008 looks to be about the same ($80K over 2005 PEO prices which I am sure have only gone up). So it was very expensive for us to be in the PEO.
Some considerations:
(1) Although a lot of companies move to PEOs because they think they will get better group health or workers compensation insurance rates, we did not find that to be our case. The COBRA amounts were higher than what we were small group quoted at the time we pulled out.
(2) We found that the PEO had significant turnover and there was a different person to talk to depending on what the issue was. I had a two-sided piece of paper with names and contacts. Our "client manager" was not helpful in any knowledge -- she just passed us onto the specific group (payroll, 401k, etc)
(3) There was a lack of deep knowledge in any one area. Mistakes were made and covered up. We found quite a few when we requested records (especially on the 401k) when we pulled out. It was actually kind of scary.
(4) While they state that they assume a lot of the liability and responsibility for employment decisions, based on conversations with the DOL in late 2005, mistakes made by the PEO were considered mistakes made by the employer. Had any of our 401k participants decided to sue based on the 401k mistakes, we would have been equally liable.
(5) In most PEOs, there are specific packaged benefits. We found that there were a lot that we didn't use and no one at the PEO was reminding us they were there. For example, job descriptions and compensation surveys. Or tuition reimbursement. Things we were paying for but employees never used.
I don't ever see us returning to the world of PEOs. It would take one that had excellent knowledge and customer service skills to get me to even let them in the door to present their abilities. But I have high expectations of both myself and others. I am not their target client by any means. They were probably happy to see me go. Because I looked way below the surface and saw things that they didn't want anyone to see!
TXHRGuy...is the PEO in the "livable forest"? If so, it is the one I am referencing and there is no way I would want to work for them.
try this email: resumeHR2007@gmail.com. It should get you to me without my main address getting a lot of spam hopefully.
I have to agree with HRforME's experiences. Fortunately, we control most all of our own benefits. The only PEO benefits that we use is in CA, otherwise we administer our own Health, 401K, Dental etc in all our other locations. Our WC rates in CA were so bad at the time they signed with the PEO we did save money, but because we administer our own benefits, we got a discount over regular PEO clients. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
I will also add that it has been frustrating at times for our employees. Because the PEO has little contact with them, it has created some issues when they have needed information. One example, an employee had a garnishment that they wanted more information about and the PEO was reluctant to help and would not discuss with me at all. Employees would rather deal with a live person that they see everyday and not someone that they can only talk to by phone. It comes across to the employees as very impersonal.
Good luck with what ever you decide to do.