As the vast body of labor regulations continues to grow and ratchet ever tighter, companies must keep abreast of and comply with hundreds of new workplace requirements each year. This means hiring bigger HR departments, contracting with more outside experts, or both.
To staunch administrative outflows and cut through the complexity, many businesses are looking to PEOs and other HR outsourcing models that combine compliance, payroll and benefits services under one provider.
This comes with its own set of challenges. As many businesses owners who’ve already tried HR outsourcing can tell you, some co-employers are more interested in selling their services and creating client dependencies than helping their partners to grow and thrive.
When owners partner with a PEO, they’re not only taking on a partner in running their businesses, but also giving that company their trust. Finding the right partner means looking for honesty, loyalty and empathy in addition to knowledge, experience and quality. The best partners understand what it’s like to go from startup to stability and are willing to take businesses from needing an HR department, to having one, to running one.
First Things First: What’s a PEO?
A professional employer organization, or PEO, is — to oversimplify — a human resources outsourcing partner. Client companies enter into a co-employment model, under which they focus on day-to-day work activities while the PEO shoulders the burdens of payroll, benefits and other contractual responsibilities. Workers are technically employed by both entities.
When it comes to providing benefits such as retirement plans and health insurance, PEOs can often get better deals than their partner companies because they can pool all their clients into a single bargaining group.
PEOs aren’t staffing agencies, although many provide such services as part of their offerings. Clients, however, maintain control over all management, hiring and firing decisions and are free to bring people on at their own discretion.
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In addition, PEOs often handle the following business needs:
- State Mandated Coverages: Keeping up to date with workers’ compensation and unemployment premiums and managing claims.
- Employee Onboarding/Offboarding: Planning, development and administration of programs to bring on new hires and separate from employees.
- Human Resources Management Technology: They may not resemble Silicon Valley startups, but PEOs are innovators when it comes to building digital HR platforms that provide the technical infrastructure to manage HR-related tasks.
- Risk Management: Crafting and implementing workplace compliance and safety policies and directly shouldering some liabilities.
The Importance of Finding the Right PEO Partnership
Relying on a partner, no matter how trustworthy, to handle so many essential matters shouldn’t mean ceding a large part of your control to a separate entity. And not all your HR worries will go away the moment you sign with a PEO; there will still be challenges to confront.
What owners gain when they find a good partner is the infrastructure and expertise required to face an increasingly challenging business environment. Doing things the “right” way has never been more difficult — or more important — to accomplish.
A five-person startup that hires a PEO shouldn’t expect to gain sudden access to the HR resources, benefits and protection of a Fortune 500 company, but rather a partnership that enables it to fulfill its business goals and unique vision. With the wrong partner, businesses get poor service, cookie-cutter services and are treated as just another tiny part of a big machine.
13 Essential Questions to Ask PEOs Before You Partner:
- Are you familiar with my industry and labor force?
- How good are your employee benefits?
- Where do you often have problems with your partner companies?
- How have you dealt in the past with tough HR issues like discrimination, workplace injury, big claims and lawsuits?
- Can you supply the infrastructure to support my business’s unique needs, or does every business get the same exact services?
- How much must my business change in order to be accepted into the co-employment relationship?
- Have you “been around the block?” How much HR management and benefit administration expertise do you have?
- What do former clients usually say about their time under partnership with you?
- How much liability can you really take off my shoulders?
- How effectively do you comply with workers’ compensation requirements, risk management and claims administration?
- Do you carry accreditations and financial assurances with the Employer Services Assurance Corporation (ESAC), Centre for Fiduciary Excellence (CEFEX) orCertification Institute (CI)?
- Are you a member of the National Association of Professional Employer Organizations (NAPEO)?
- Will you clearly outline your fee structure — including likely marginal add-ons — and predict the total cost of services for my business?
Your Trust Must Be Earned, Not Sold
A good PEO partnership means establishing a trust hard-won through effort and honesty. It’s a large investment for any business to make, and so a company’s co-employer should be willing to invest in that business’s success, in turn.
It takes more than a well-known name and big promises to establish that trust. Your needs may be great and they may be immediate, but the right partnership is about mutual respect and support over the course of years — or decades. It’s well worth the effort to find the perfect PEO for your company.
Like what you just read? Here are some more articles:
- To learn how to avoid workplace injuries, read Do Your Employees Need Safety Training? The Answer is Yes!
- To learn how to keep your employees happy, read Want to Retain Your Key Employees? Here’s How You Do It.
- To learn how cost cutting in the HR department could be damaging your business, read Exposing the Hidden Cost of DIY Human Resources.