Key Considerations of Entertaining a PEO Change

Deciding to switch Professional Employer Organizations (PEOs) can be a frightening task to tackle and is a decision that should not be taken lightly.  With so many moving pieces and factors to consider it is important to invest the proper amount of time in understanding all of the pieces of your business that will be touched by making a change. 

While there are many catalysts ranging from an increase in administrative costs, health insurance costs, and workers compensation costs to inadequate service levels one needs to keep in mind that changing from one PEO to another comes with potentially different legal structures, payroll software, access to HR expertise, 401k offerings, and more.

While this transition can offer numerous advantages, it’s vital to approach the changeover thoughtfully to ensure a smooth process.  Today we are diving into the benefits of switching PEOs while also exploring the essential factors you should consider when making such an important change.

Benefits of changing PEO Vendors

1. Cost Efficiency

• Lower Fees: Often we find that clients may not be using all of the services that a PEO is offering.  In these scenarios we try to educate our clients on understanding what value can be gained from implementing these additional services available to them or showcasing alternative PEO options that do not require a group to pay for their entire suite of products.  In the event the additional services are unneeded, there are often alternative providers that can provide a similar or improved service level at a more value driven price point.

• Transparent Pricing: There are a lot of moving pieces with PEOs and if you are not an expert at knowing where to look or are confused on how percentage of payroll or bundled billing works over time you may not have realized there was a cost increase.  If making a change it is important to negotiate in your contract the ability to understand any and all costs so they are easily found in reports when needed.

  2.  Enhanced HR Services

• Comprehensive Support: People are often surprised to know there are many private PEOs that often offer more robust HR services than many of the more well known brands.  While PEOs like TriNet, Insperity, and other big box players have adequate offerings for the right groups, there are some PEOs that provide a much higher level of communication and take more of a hands on approach to HR support, offer stronger benefits administration, and provide a niche solution specifically tailored for companies in certain industries that many end users find valuable.

 

• Specialized Human Resources Expertise: There are certainly different levels of HR expertise that one gains access to at different PEOs.  Some go as far as offering HR Attorneys and Tax Advisors while others offer HR Professionals with varying levels of experience.  Be sure to get an understanding of which is best for you and that the PEO can deliver.

  3.  Improved Employee Benefits

• Improved Employee Benefits: PEOs are constantly improving their benefits offerings.  Due to changes in your business, employee base, the overall market or the individual PEOs themselves there is a possibility that making a change could offer access to a more robust employee benefit suite that could boost employee satisfaction and retention.



• Cost Reductions: In some situations there is a possibility of large benefit cost reductions.  There are many strategies that can be put in place to lower health and disability insurance costs.

  4.  Advanced Technology

• User Friendly Systems: The most common PEO HRIS platform is Prism and if you are with a PEO who uses Prism and would like to continue to use Prism with a new provider you will have plenty of options to do so.  Other common platforms used by multiple PEOs are Isolved, UKG and Worklio.  Insperity is working on upgrading their technology through a joint venture with Workday.  ADP and Paychex have platforms that can scale for companies that have large growth plans.  Justworks has a great technology platform and while Rippling also has good tech unfortunately their service model needs major improvement before being considered.

• Enhanced Reporting: It is important to set expectations with your PEO before contracting with them on what custom reporting needs you will have.  Most PEOs can create any report you need and can even build them for you to make integration with almost any outside vendor possible.

What to Evaluate When Changing PEO Vendors

1. Service Offerings

• Lower Fees: Often we find that clients may not be using all of the services that a PEO is offering.  In these scenarios we try to educate our clients on understanding what value can be gained from implementing these additional services available to them or showcasing alternative PEO options that do not require a group to pay for their entire suite of products.  In the event the additional services are unneeded, there are often alternative providers that can provide a similar or improved service level at a more value driven price point.

• Transparent Pricing: There are a lot of moving pieces with PEOs and if you are not an expert at knowing where to look or are confused on how percentage of payroll or bundled billing works over time you may not have realized there was a cost increase.  If making a change it is important to negotiate in your contract the ability to understand any and all costs so they are easily found in reports when needed.



 2. Compliance and Risk Management

• Regulatory Compliance: It is important to investigate the new PEO's track record for regulatory compliance and their ability to stay ahead of legal changes.  Some do a great job of keeping your team up to speed on need to know regulatory information where others have resources that you gain access to for self education.  The best have both.

• Risk Management: Evaluation of a PEO's Risk management team is vital to long term success.  Understanding what you gain access to in regards to Workers Compensation can keep premiums down and workplace incidents low.  Their ability to manage unemployment claims, reduce State Unemployment Tax rates, and limit exposure to other liabilities can save your company stress and resources while keeping employees happy.

  3.  Impact on Employee Benefits

• Carrier or Deductible Changes: Medical deductibles are an obvious place to look when changes are being made.  However it is important to think about FSA account balances, HSA allowances, and 401k black out periods as well.

• Cost Reductions: You can not only focus on costs in the health insurance part of the equation.  It is important to verify that network strength, plan designs, pharmacy structures, and other elements of the health insurance plan are not going to present surprises after being implemented.

  4.  Transition Process

• Implementation Plan: The most stress will certainly presentation itself in the implementation process if a good plan is not organized with timelines in place.  It is by far the area where the most can go wrong so be sure that the PEO and your team has a clear understanding of expectations.

• Data Migration: While you can negotiate a time to have access to all of your data from your previous provider, it is still a good idea to take precautionary measures and download or migrate all of your relevant employee and payroll data.

  5.  Contract Terms

• Contract Flexibility: Examine the contract terms and look for areas where flexibility can be introduced including the length of the agreement and conditions for termination or renewal.

• Termination Fees: While termination fees are necessary to protect the interests of the PEO, they are certainly negotiable and should reflect terms that are fair to both sides with reasonable termination periods.

Confidence in a PEO Switch

Changing from one PEO to another comes with a lot of thought, evaluation and scrutiny, but it certainly can be done in a way that provides long term benefits for the company and its employees.  By going through a thorough evaluation process you can ensure a smooth and successful transition that ultimately provides benefits that create a stronger employee experience and position the company for years of long term growth.

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