Four signs you should transition away from your PEO (Professional Employer Organization)
PEO’s are a great solution for a small company that is scaling. Often they provide value to companies that are too small for a full HR function but still require some expertise around payroll, benefit administration, and human resources. Most companies begin using a PEO around 5 - 10 employees and it makes sense to stick with the PEO through 50-100.
As you scale your business, the relationship often becomes more and more clunky. Here are five signs your business is due for a transition away.
Sign 1: Payroll is constantly wrong and the math doesn’t math. PEO’s charge a service fee. It’s typically a percentage of payroll or a PEPM (Per employee per month.) What you likely don’t know is that you’re also paying more fees in the form of increase payroll taxes. It’s not significant, but often grows over time. FUTA,SUTA, FICA, Workers Comp, etc. PEO’s are notorious for providing one invoice with a lump sum amount per employee and no transparency into how the taxes are broken down. Beware that where there’s mystery, there’s margin.
Sign 2: Your onboarding and offboarding feels clunky. First impressions are important and there’s no shortage of research that will tell you that onboarding employees effectively hugely impacts future productivity and engagement. When you’re a small shop, onboarding is often centralized to one or two people who know the ins and outs of every facet of your business. Once you’ve reached that 100 person threshold, business processes become more complex and there are more stakeholders involved in each component. Adding a fully outsourced process to the mix can often exacerbate the weaknesses in the process.
Sign 3: Your health insurance plans increase year over year with little to no explanation. A major selling point to the PEO model is the ability for your team to access the health plans available. As a company of 5-50 people, this is a win. As I mentioned in my recent substack post, once you hit the 150 - 200 theshold, it’s time to start evaluating more self-funded or level funded options.
Sign 4: Talent Aquisition feels disconnected from compensation. Any good HR Exec will give you a full overview of why talent acquisition and total rewards have to remain in lock step. When you’re outsourcing to a PEO, no one on the other side is evaluating any component of job architecture. When you’re a 50 person company, pay bands and compensation philosophy feels like red tape. When you’re scaling from 100-200 people, this becomes increasingly important. If you don’t set the foundation to the house quick enough, scaling beyond 300 is going to be overwhelmingly painful.
So there you have it, those are the signs you should look out for. And, if you need any help- hit me up.
And always remember, HR People are people too.
#cancelyourpeo
#mynextlevelhr
Brit