Why, When & How to Switch PEOs
Using a Professional Employer Organization (PEO) is completely necessary for most mid-sized businesses. PEOs offer a wealth of services, like providing benefits, overseeing payroll, and aiding in recruitment efforts. However, businesses expand and change, and eventually your company might outgrow the PEO you started with all those years ago.
If it’s been a while since you’ve evaluated the usefulness if your current PEO’s services, you may be due for a PEO audit to determine the value of switching providers. Here’s everything you need to know about changing PEOs.
You may have become comfortable with your current PEO, but that comfort could be clouding your ability to determine whether or not your PEO is providing everything you really need. There are four main reasons companies should seriously consider switching service providers.
- Cost savings. It’s just a fact: Some companies charge more for services than others. If the economy is hitting your business particularly hard, you may need to look for a PEO that better suits your budget. However, be aware that cheaper PEOs will likely provide fewer options or lower quality service than more expensive ones.
- Lack of transparency. Some PEOs aren’t good at letting their company clients know what their fees are going toward. Payments for various PEO services may transfer in a lump sum, and PEOs may fail to itemize the costs of their various services. Companies exist to make profit, not spend it, so companies like to know how exactly PEOs are using their money. If your PEO isn’t telling you what your funds are going toward, you may be able to do better somewhere else.
- Substandard service. This one is a no-brainer — if you aren’t being treated right by your PEO, it’s time to move on. Poor service can manifest in unreturned communications, inappropriate insurance, or even incorrect procedures, like wrong payments or missing benefits.
- Unmatched growth. The most important goal of any business is progress, and sometimes companies move faster than the providers they employ. Your business may have more workers than your PEO can handle, or you may desire benefits your PEO simply can’t provide; there are myriad ways PEOS can’t expand with a company, and the only way for a company to continue up is to get out.
No matter the reason companies need to switch PEOs, the timing of the change can be critical. Payroll taxes and health insurance fees reset during specific times of the year, meaning selecting a new PEO services provider at the right time could save you serious money.
Payroll taxes are those taxes taken out of employee paychecks for Social Security, Medicare, and other taxes. If you change your payroll services provider at the wrong time, these already-paid taxes could actually be forfeit, meaning you’ll need to repay all of those dues. Depending on the amount on your payroll and your number of employees, you could cost yourself $100,000 or more for this mistake.
Meanwhile, providing health insurance for your employees is mandatory, and you face strict penalties if you fail to cover your employees for a certain period of time during the year. If you leave your current PEO without another PEO in the works or without appropriate coverage options for your workers, you’ll pay. Additionally, you risk your employees’ insurance deductibles; since these payments add up throughout the year, if you switch benefits packages in the middle of the cycle, you and your employees may lose all the money you’ve contributed to those deductibles and have to start over from scratch.
Once you discover that your current PEO isn’t providing everything you want or need, you might be tempted to ditch them and find someone new right away. However, if you don’t allow for the proper research, you could find yourself in the same situation you started: employing an inappropriate PEO with unsatisfactory services creating intense headaches and costing you more money than you have. Instead of succumbing to that knee-jerk reaction, be patient and diligent in your new PEO search.
First, review your new needs and how your current PEO isn’t servicing them. You must know exactly what to look for before you begin your search. This will help narrow your search and give you something to look for in the long list of PEO services.
After you’ve assembled a list of likely candidates, you can revert to more traditional lines of questioning to find the perfect pick. Ask about the strength of their company (how long they’ve been in business, how many clients they serve) and their compliance with various governmental regulations. You should also be asking about fees — it’s always a good idea to get the best bang for your buck, and the cost of services could be the deciding factor in your search.
Many PEOs do their job so well you barely even remember they’re there. However, when a PEO becomes unmanageable, it’s time to look elsewhere. The search for a new PEO can be grueling, but it will be rewarding when you find a PEO with the perfect fit.