The last time you wanted to find out more about something did you type it into Google or Yahoo? These days that’s usually the first thing someone does when they have a question. With that in mind if you put PEO “Prefoeesional Employer Organization” in your Google search you are probably going to find articles about the benefits of a PEO and many of them are going to be written by PEO organizations. There are pros and cons to both sides of the argument, however, if you are reading an article from Outsourcing.com there is going to be a somewhat biased opinion, so be cautious. If you are considering a PEO it is only fair that you understand the hidden costs and misconceptions. Our hope is that you will understand the significant factors.

Let’s start with the obvious questions. Will a PEO save you time, money, do PEOs provide a comprehensive products and services? First, let’s talk about time. PEOs are often looked at as having a single administrative contact, however, sometimes with the bundle approach delivering of products and services  can be complicated and create a a maze of steps, which in the long run will take more time. What about money? In order to really know the money side you need to be aware of the costs associated with the PEO and the services you will be billed for. There are many ways that PEOs charge, but most importantly you need to understand that many times hidden and misunderstood charges will impact the cost analysis. If you are looking into a PEO you need to understand the spectrum of services you are looking for. Not all PEOs provide comprehensive products and services. Some PEOs are very rigid in their offerings and are limited only to a certain business community.

Here are some factors that you should keep in mind when you are making a decision about PEOs.

1. Starting with a PEO – once you have completed your contract with a PEO all of your employees including yourself will have a new employer. The PEO becomes the employer of record and all of your employees have to be ‘hired” again. This includes yourself, this can be a lot of paperwork, new tax forms, new benefits enrollment, etc… If you are working with a good PEO firm they are going to try to make this transition very simple, but no matter how hard they try it’s still going to be a transition and will take time and money. This is something important to keep in mind.
2. Workers compensation – some people think that when they sign on with a PEO their workers’ compensation premiums will be reduced. Depending on many factors a PEO may or may not save you money. If you are considered a “safe” company and you do not have many work related accidents then joining a PEO may cost you more depending if they can get you your existing benefit rate. With a PEO as an employer or record the rates will be determined on their anniversary date and when the new rates will go into effect.
3. Taxes – if you have existing employees when signing up for a PEO you might have to pay extra taxes. When you switch employees over to a new employer-of-record everything will go back to zero where cut-off limits on taxes are concerned, even when the transition happens in the same year.

We will continue with more factors in part 2 of the blog. The most important part is to understand each of the factors and how they will impact your business. It is always helpful to speak with your benefits consultant when you have questions or concerns. Please stay tuned for part 2.