How To Choose a PEO: Top 14 Questions To Ask & Features To Consider Before You Decide

HR is complicated, but you don't have to do it alone. Have you ever heard of a Professional Employer Organization (or PEO for short)? If you haven't, a PEO could be the secret to simplifying HR for your business.

A PEO provides outsourced solutions for everyday HR administrative tasks that are conducted to support businesses throughout the entire employee life cycle. But how do you choose a PEO that's right for your business? Consider if you need help finding and keeping talent, payroll processing, employee benefits administration, and legislative and regulatory compliance support. Spending a lot of time completing these tasks can have HR creating its own cost center. Maybe it's time to choose help from a PEO.

The time and money spent on HR administration tasks, such as processing payroll, administering benefits, and managing workers' compensation claims, can be staggering. Sixty-four percent of companies spend over 570 hours a year on HR administration, and annual spending for bigger businesses with up to 500 employees is as high as $375,000.¹

Choosing a PEO can help you to save time and money for your business², including:

• Up to $1,775 per employee per year in HR-related costs
• Savings averaging 37% on employee health benefit costs
• Savings averaging 30% related to unemployment insurance
• And generally having fewer concerns about hiring, retaining, and motivating employees

The PEO Selection Process

We suggest eight important steps to complete in the PEO selection process to help you choose the right PEO for your business. These being:

1. Assess your workplace needs to determine your HR and risk management support requirements and align these with your business goals.
2. Ask for references to fine-tune your assessment for fit and determine if a PEO is right for your specific business and working style.
3. Research their online presence, including social media and third-party reviews, to assess their culture, brand, and working relationships to investigate the company's administrative and management expertise and competence.
4. Check for membership in the National Association of Professional Employer Organizations (NAPEO) representing the PEO industry.
5. Research company history to assess certifications, such as being IRS certified, and if a CPA independently audits their financial statements.
6. Review contracts and service agreements carefully to ensure clear and realistic responsibilities and liabilities.
7. Know what the service model includes; not all models are created equally.
8. Know what technology is available and how easily it may integrate with your business and meet your goals for manager and employee self-service, among other things.

Features To Look For When Selecting a Reliable PEO

At least half of the business leaders surveyed¹ said they achieved their HR administration objectives by leaning on a third-party service to help with payroll, recruiting and onboarding, retirement plans, administering employee benefits, risk management, and workers' compensation. It's a proven success strategy. That's probably why 78% percent say it's extremely or very likely that they will choose a PEO to outsource HR administration tasks in the next 12 months, up from 17% last year.

Where do business and HR leaders perceive the most value when choosing a PEO? The leaders in our survey ranked these PEO features as most helpful:

1. HR management support
2. Recruiting and onboarding tools
3. Payroll administration
4. Benefits administration
5. 401(k) administration
6. Managing employee performance
7. Risk management/workers' compensation
8. Maintaining regulatory compliance
9. HR technology

The HR tasks that leaders outsource to a PEO can vary dramatically by the age of the business leader, according to the survey.³ Baby Boomers and Millennials focus on payroll, while close to half of Gen Z leaders emphasize recruiting and onboarding.

Typically, a PEO is designed to help make bringing on talent for your organization easier. Once you have hired a new employee, it doesn't stop there. The PEO you choose can help to make you an employer of choice by offering Fortune 500-type benefits and employee services, along with assisting you with retaining your best performers. Additionally, your PEO of choice should work to ensure you continue maximizing the productivity of each employee with practical performance management tools. Finally, when it comes time for transition, PEO HR advisors can often help you through replacing employees and continuing to strengthen your company.

Below is a list of the most common features provided by a PEO to help you in your process of choosing the right PEO for your business:

Payroll Administration

PEOs take on the task of handling payroll and reporting and remitting payroll taxes for you. If you don't partner with a certified PEO, you might be liable for unpaid taxes, late penalties, or interest.

Employee Recruiting, Hiring and Onboarding/Offboarding

PEOs can help you find and keep employees by streamlining the hiring process and providing new hire onboarding programs to help you make a good first impression with employees. PEOs can also help when it's time to transition employees out of the organization, providing support for the entire employee lifecycle.

Benefits and 401(k) Administration

Apart from offering top-notch benefits like those from Fortune 500 companies, PEOs usually handle tasks like plan enrollment, claims management, and answering employee questions. They may also assist with Affordable Care Act paperwork, including annual employer-provided health insurance offers and coverage information returns (IRS Forms 1094-C and 1095-C) and the Form W-2 value of health insurance coverage.

Staff Training, Development, and Performance Management

Skill-based training programs and career pathing services are also typically offered by PEOs to help you develop your employees as they grow with your business.

Attracting and Keeping Talent

Competing for talent means delivering on what employees want. Successful leaders understand that developing and supporting employees is their number one job. Given this, it makes sense that more than half of all business leaders in our survey said that employee career planning and skill-building are top priorities for the next 12 months.¹

Workers’ Compensation Administration

A PEO can help protect your business and employees by developing worksite safety programs, onsite employee safety training, and claims management while supporting workers' compensation coverage. It can also help you administer the program and provide safety assistance with the backing of professional underwriters, loss control specialists, and claims managers. In addition, some PEOs may offer a pay-as-you-go workers' compensation option that allows you to pay premiums based on actual wages — not estimates — to help eliminate large up-front premium deposits, improve your cash flow, and reduce the risk of additional premiums due at audit.

Unemployment Insurance

When you choose to work with a PEO, you can leave your state unemployment tax concerns in the PEO's hands. Typically, the PEO will calculate and pay your State Unemployment Tax Act (SUTA) for you.

Regulatory Compliance Support

When you work with a PEO, you can tap into the expertise of compliance professionals. They stay updated on changes to employment regulations. This includes tax reporting, unemployment insurance, workers' compensation, the Affordable Care Act (ACA), employee benefits compliance, leave, disability laws, and more.

HR Technology

PEOs often provide HR technology to help streamline and automate everyday tasks and self-service tools for managers and employees. Robust technology can also help with meaningful workforce insights and analytics.