benefit of outsourcing HR duties to PEOs.
Generally a PEO’s fee is a percentage of the client company’s gross wages, based on the types of employees, ie., managerial, professional, etc., and the number of employees. Fees are negotiated up-front.
When West Michigan Flocking first signed on with ADP TotalSource, it paid an initial per employee fee. The company now pays a set processing and administrative fee on a weekly basis to coincide with payroll.
While there are hi-tech solutions on the market that deal with individual components of the HR process, Yager says that PEOs are “high-touch,” and help companies focus on the bigger picture of motivating their workforce and steering clear of legal problems. “The PEO relationship is designed to make the employment world work better for you,” he says. “Technical solutions tend to be standardized to carry out routine administrative functions.”
For business owners thinking about hiring a PEO, experts offer this advice:
- Make sure the PEO is qualified in the area where you need the most expertise. PEOs have specialized HR expertise in different areas. For example, West Michigan Flocking Assembly (a manufacturing company) is concerned with worker’s compensation issues and providing a safe working environment. When it hired ADP TotalSource, West Michigan Flocking was looking for a PEO that had expertise in this area so that it could develop a policy and create an internal safety committee.
- Research credentials. Yager advises checking to see if the PEO is a NAPEO member. The association is the only organization that trains and educates PEOs. NAPEO also offers the following guidelines to companies considering a relationship with a PEO:
- Assess your workplace to determine your human resource and risk management needs. Make sure the PEO is capable of meeting your goals. Meet the people who will be serving you.
- Check the firm’s financial background; ask for banking and credit references. Ask the PEO to demonstrate that payroll taxes and insurance premiums have been paid.
- Ask for client and professional references. Investigate the company’s administrative and risk management service. Have any of the senior staff of the PEO been certified as certified professional employer specialist or received other relevant professional designations?
- Understand how the employee benefits are funded. Are they fully insured or partially self-funded? Who is the third party administrator (TPA) or carrier? If required in your state, is their TPA or carrier licensed?
- Understand how the employee benefits are tailored. Determine if they fit the needs of your employees. Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out? What guarantees are provided? What provisions permit you or the PEO to cancel the terms of the contract?
If your state requires a PEO to be licensed or registered, make sure the company you are considering meets all such requirements.
Most important, understand why you’re interested in hiring a PEO. Are you interested in being a more attractive employer [to top talent] or are you interested in short-term savings?