11 Misconceptions Regarding a PEO

For those considering the use of a PEO there is tons of information you can find online. The only problem is while much of the information is accurate, there is an equal amount of false mumbo jumbo being spread as well. Some common misconceptions we see on a daily basis with business owners across the country are as follows:

Misconception #1: When you’re a small company a PEO doesn't work.

Truth: Actually, smaller firms most often realize the greatest return on their labor budgets by using a PEO. The economies of scale, or buying power of being in a large network, qualifies smaller companies for preferred group discounts, big-company advantages, and employee perks not typically available to smaller organizations on their own. Many companies do not have the luxury of a dedicated HR infrastructure or the strategic performance advantages and risk management safeguards it provides. More importantly, partnering with the right PEO helps small businesses compete more effectively with the bigger players for top talent in the industry, and provides access to training and resources to develop that talent to its fullest potential. This helps level the playing field with those larger firms who once held a monopoly on these advantages. Even larger companies with a full service HR department benefit and will still save significant amount of time and money by using a PEO’s services.

Misconception #2: Office admins or Controllers can do the work a PEO will do.

Truth: Keeping current and maintaining compliance with increasingly intrusive government regulations has made full compliance a very risky and time-consuming process for small to mid-sized (10-200 employees) businesses. Even the best of employees wear too many hats to be able to contribute effectively. Every labor dollar is critical for smaller firms and should be focused on increasing business, not the maze of government paperwork. A good PEO will provide an expert team of specialists in all areas of HR, Payroll, Employee Benefits, Workers' Compensation, Safety and Human Capital Management. So, no – office managers cannot do what a PEO does – at least not safely. They are however an integral part of the PEO relationship and we need them to make the program work effectively. The PEO should be thought of as an added tool your current HR manager or Admin can use at their disposal to create positive change and increase employee morale in the organization if necessary.

Misconception #3: A PEO is just a glorified payroll company.

Truth: Payroll is a very small, but critical component of the total services a PEO provides. Payroll companies offer no HR administrative support or liability protections for anything other than payroll. PEOs provide admin support in Workers' Comp and Safety, Employee Benefits, Labor Law and Government Compliance, and Employee Performance Management; all of which should be customized to the unique needs of each individual business. Payroll service is a commodity...an expense, whereas the services a PEO provides should be considered an investment designed to increase overall ROI.

Misconception #4: When you work with a PEO you essentially give up control of your company.

Truth: PEOs provide not only more control, but actually more effective control. By taking non-core and non-revenue generating functions off the business owner's plate, management has more time, energy and money to devote to growing their business, being more proactive regarding growth strategies, and less reactive to outside distractions and yearly changes.

Misconception #5: A PEO has a say in how your company is run and who is hired and fired.

Truth: PEOs serve as administrative co-employers only, providing outsourced HR support and a big company infrastructure to support management and staff. The day-to-day management (including hiring and firing) and establishing the corporate culture remains with the business. A good PEO is there when you need them and “back office” when you don't.

Misconception #6: A PEO is only a good option when you can’t find the right Workers’ Compensation insurance.

Truth: Many PEOs do not want the unnecessary risk and will not accept companies with poor workers' comp experience as that can be indicative of deeper underlying operational and management issues. However, PEOs can be invaluable in helping rehabilitate these companies with customized safety programs and incentives. Businesses with good workers' comp histories, however, will benefit from better rates and some PEOs offer periodic rebates for those with fewer claims. A PEO lets you pick and choose what programs you would like to use. If keeping your Workers Comp policy where it is instead of moving over to the PEOs plan is in the best interest of your organization we will always side with you and do what works best for your individual situation.

Misconception #7: Since we have fewer than 50 employees we don’t need to worry about Affordable Care Act Changes.

Truth: Even now, with thousands of pages of modifications and revisions, no one really knows the full impact of the Affordable Care Act and the eventual rules regarding small business participation. In fact, some of the qualifications will be judged retroactively. The possibility of fines resulting from confusing and ever-changing guidelines might well be the norm, not the exception. Even now in NY a recent change has made small group healthcare move from what used to be a 50 employee group to 99 employees which is sure to cause some problems in 2017.

Misconception #8: We have in-house HR employees that can do what a PEO can do.

Truth: Sure, they can do the same work, but most of the tedious hours spent on simple tasks can be spent in other areas of the business such as talent management and Employee Performance Management. When you outsource your HR services, you're also outsourcing much of your employer liability and risk. Your in-house HR employees are still an integral part of the process and all PEO’s will tell you that these employees are still very much needed to make sure the program is run correctly and is as seamless as it is meant to be.

Misconception #9: All of my employees will be considered temporary – this comes from the belief that a PEO is a staffing agency.

Truth: PEOs serve as administrative co-employers only, providing outsourced HR support and a big company infrastructure to support management and staff. The day-to-day management (including hiring and firing) and establishing the corporate culture remains with the business. A good PEO is there when you need them and will remain in the background if you don't. You are able to cancel anytime, and most clients who come on board with a PEO stay with them on average 5-10 years because of the single digit increases in healthcare and general cost stabilization over time.

Misconception #10: My employees won’t like the change.

Truth: Working with the right PEO will provide personalized support to enhance the employee experience. PEOs provide access to better benefits and the latest employee assistance programs designed to improve the lives of employees at work and at home, increasing their productivity. Most business owners say partnering with their PEO was the single best thing they were able to do for their current and future employees.

Misconception #11: PEO’s are more expensive than the traditional broker channels.

Truth: They don't have to be. In fact, with the economies of scale and liability protections a PEO provides, in most cases the total costs are either cost-neutral or result in significant savings to the business owner. In most cases we see, the owner not only saves money but is able to offer the employees a much better more comprehensive benefits package that they would not have been able to attain on their own.


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