The Benefits of a PEO
Professional Employer Organizations (PEOs) are great when a company is just getting off the ground. At an early stage they deliver two major benefits:
- Simplify HR administration with many built-in services
- Reduce the cost of health insurance
However, at a certain point, it makes sense to switch because there are typically huge cost savings and duplicate or inadequate services.
The 3 signs it’s time to switch
The biggest telltale is cost. PEOs charge a per-employee administration fee for their services. Those fees can reach into the hundreds of thousands of dollars, all in the name of cheap health insurance! There are tons of ways to skin health insurance cat in the small and large group markets that will dramatically reduce this spend.
2) Duplicate Services
Another sign is the PEO’s built-in services start becoming duplicative. This happens when a company hires a full-time HR or People Operations manager. This hire will replace some of the built-in PEO support services offered to staff.
3) Systems Upgrade
Finally, as a company grows, the demands on internal payroll, accounting, and HRIS systems become much more sophisticated. For example, integrated human capital and performance management systems can make a huge impact on scaling, but are rarely offered by PEOs. The demands tend to outgrow the capabilities of most PEO’s leaving managers wanting for “better systems”. This leads managers to adopt best-of-breed software tools that overlap with the PEO’s services.
Ultimately, companies end up paying huge admin fees for systems and support that they’re not using.
What are the drawbacks to switching?
Decentralizing the HR suite can be intimidating for managers that have grown up with a PEO insurance provider. However, when done with the help of experienced benefits brokers and systems consultants, the transition is quick and (almost) painless.
Be sure to keep an eye out for these signs as your company grows to take advantage of big cost savings and the chance to get best-of-breed tech services when you switch off your PEO. Talk to us if you have questions!