Choosing the Right PEO Partner for Your Business

As a business owner, you know that human resources functions like payroll, benefits management, and compliance can be frustratingly time-consuming and expensive. More and more companies are turning to Professional Employer Organizations (PEOs) to handle these critical but burdensome tasks. But not all PEOs are created equal. How do you find the right partner for your unique HR needs? Here’s a strategic approach to evaluating and comparing PEO providers.

Do Your Homework on the PEO Industry

Before reaching out to vendors, get up to speed on how PEOs work and current trends shaping the market. Key background knowledge will help you ask informed questions and assess how well a provider measures up. Spend time researching:

PEO Industry Basics

  • Typical services offered: payroll, benefits, workers’ comp, compliance, recruiting, HR systems, and training
  • Common pricing models: per employee per month fees, onboarding costs, and add-on fees
  • Legal implications: the PEO becomes your co-employer, so find out whether the PEO provides a performance bond to protect you against their failure to perform

Market Size and Growth

  • $152 billion industry projected to reach $163 billion by 2024
  • 7-9% annual growth rate forecast through 2027

Major Players and Market Share

Service Geographic Reach

  • Many national PEOs have limited regional support, so confirm coverage in your locations

Compliance Requirements

  • Ask how they ensure compliance with labor laws, ACA, OSHA, FMLA, ADA, EEOC, and state/local laws

Risks and Downsides

  • Lack of control over PEO’s employees and new employer procedures around employee management
  • Potential service gaps or restrictions

Arm yourself with an understanding of PEOs so you can select a partner tailored to your priorities.

Clarify Your Goals and Must-Haves

Every company has unique pain points and objectives that a PEO partnership aims to solve. Reflect on your specific HR frustrations and needs. Ask yourself:

Where Are We Currently Wasting Time and Money on HR Tasks?

  • Manual payroll processing, compliance paperwork, managing benefits plans

What HR Functions Do We Want to Offload?

  • Payroll, compliance, benefits administration, recruiting

What HR Capabilities Do We Want to Gain Through a PEO?

  • HR expertise, technology, expanded benefits, compliance assurance

What Are Our Top HR Priorities and Challenges?

  • Reducing overhead costs, improving compliance, enhancing recruitment

How Do We Want a PEO to Impact Our Bottom Line?

  • Reduce HR costs and reallocate savings to core business

Get clear on the outcomes you expect from PEO human resources outsourcing. This will drive which providers you short-list and inform your vendor questioning.

Create a Request for Proposal

Now that you know your HR goals, put together a request for proposal (RFP) that communicates your needs, priorities, and selection criteria upfront. The RFP provides a consistent structure to compare bid proposals. Include:

Company Overview and Current HR Pain Points

  • Your company background, size, locations, industry, HR challenges

Specific HR Functions to Outsource 

  • Payroll, benefits management, recruiting, compliance, etc.

Service Requirements and Preferences

  • Must match your locations, integration needs, preferred platforms

Timelines for Provider Response and Selection

  • Allow 2-4 weeks for bid response, 2 weeks for selection 

Legal Compliance Needs

  • Specify all federal, state, and local laws to adhere to

Pricing Requirements

  • Per employee per month fees, implementation costs, add-ons

Key Metrics for Evaluating Proposals

  • Scorecard for Assessing Custom RFP Responses

Customizing your RFP helps attract PEOs well-suited to support your HR objectives and business.

Research PEO Providers in Your Area

Cast a wide net to find providers that offer the services you need in your region. Search:

Your Professional Network and Business Contacts

  • Ask for PEO referrals from your network

PEO Databases Online

  • Use PEO trade group directories like NAPEO  

Local HR Associations and Chambers of Commerce

  • Check for PEO partners or recommendations

Online Directories and Marketplaces

  • Search PEO listing sites

Compile a list of potential vendors for further vetting. Focus on PEOs with a strong local presence and experience supporting businesses like yours.

Vet Short-Listed Providers Thoroughly

Now it’s time to dive into detailed vendor evaluations. Develop a checklist of must-have PEO qualifications based on your RFP criteria. Assess each prospective partner on:

Services Offered and Pricing Structure

  • Match services to your needs, get fee estimates

Technical Expertise and Experience

  • Years in business, client retention rates 

HR Technology Platforms

  • Evaluate their system functionality and integration

Client Portfolio and Retention

  • Request client lists and retention rates

Leadership Team Backgrounds

  • Research C-suite experience and tenure  

Financial Stability and Growth

  • Review audited financial statements

Reputation and Reviews

  • Check third-party review sites for ratings

Compliance Record           

  • Ask for their latest SOC 1 report

Service Flexibility and Scalability

  • Ensure they can adapt as your needs evolve

Collecting this data necessitates calls, meetings, site visits, client references, and independent research. But comprehensive due diligence sets you up to select a stellar PEO match.

Evaluate Provider Proposals and Costs

Issue your RFP to leading contender PEOs. Specify a timeline for receiving customized proposals. Be sure to collect:

Point-by-Point Responses Explaining How They Will Meet Your Requirements

  • Require detailed explanations of their capabilities 

Service Packages and Associated Pricing

  • Have them break out all costs

Implementation Timelines

  • Standard is 30-90 days

Contract Terms

  • Review length, renewal, termination details 

Account Management Plans

  • Get specifics on your service team

Next, objectively score each proposal on how well it fulfills your RFP criteria. Weigh the pros, cons, and costs of each to narrow down to your top choice(s).

Ask the Right Questions

Interviews and Q&A sessions allow you to probe PEOs further before partnering. Tailor your questions to fill knowledge gaps and clarify uncertainties. Ask about:

Specific HR Processes and Technologies

  • Get details on systems, automation, integrations

Client Support Model and Accessibility

  • Confirm response times, escalation process

Customization Capabilities

  • Learn how flexible they are to meet your needs 

Data Security Provisions

  • Ask about encryption, access controls, security audits

Performance Metrics and Reporting

  • Verify you get the reports you need to manage the relationship

Disaster Recovery Provisions

  • Confirm backup systems and business continuity plans

Other Relevant Services Provided

  • Inquire about add-ons like compliance services

The right questions will illuminate differences between providers as you zero in on the optimal match.

Check Client References

Speaking with current clients delivers invaluable insight into a provider’s offering and service. Make sure to ask:

How Long Have You Partnered with the PEO?

What HR Functions Do They Handle for You?

  • Get specifics on outsourced tasks

What Do You Like Most About the PEO’s Services?

  • Learn the pros of working with them

How Responsive and Accessible Is Their Support Team?

  • Check on issue resolution timeliness

How Have They Improved Your HR Operations?

  • Understand operational impacts and ROI

What Challenges Have You Encountered?

  • Learn about any issues or complaints

Why Do You Continue Partnering with Them?

  • Confirm overall satisfaction level

Candid feedback directly from clients carries more weight than any marketing message. Prioritize PEOs with proven long-term client relationships.

Negotiate a Customized Agreement

Once you’ve selected your top choice, move to contract negotiations. Work closely with the provider to refine an agreement addressing:

Specific HR Services Covered

  • Detail exact tasks to be outsourced

Performance Standards and Metrics

  • Define service levels and reporting needs 

Implementation Timeline and Plans

  • Confirm all rollout milestones and dates

Client Reporting Requirements

  • Specify regular reports and cadence 

Billing Procedures

  • Align invoice and payment terms

Contract Length and Terms

  • Negotiate optimal multiyear duration 

Cancellation and Termination Provisions

  • Add appropriate notice periods and exit terms

Other Special Considerations

  • Address any unique needs or customizations

A customized contract gives you greater assurance that the PEO relationship will fulfill your human resources objectives. Don’t leave this vital step to the last minute!

Reevaluate Periodically

Signing a PEO agreement isn’t the end of your due diligence. Regularly assess performance against contract terms and your evolving business needs. Schedule quarterly reviews to discuss:

New HR Challenges to Address

  • Discuss emerging needs and gaps

Client Satisfaction Levels

  • Get formal feedback on service quality

Service Delivery Metrics

  • Review reports on compliance, SLAs, etc. 

Technology Functionality

  • Assess platform issues or desired upgrades

Performance Trends and Improvements

  • Analyze progress and areas for improvement

Billing Accuracy and Value Received

  • Confirm accurate invoicing and ROI

Contract Adjustments Required

  • Renegotiate terms as you see fit

Periodic check-ins enable you to provide feedback, realign if necessary, and ultimately get the most value from your PEO partnership over the long-term.

Selecting a PEO takes time upfront. But proper vetting and due diligence are crucial for outsourcing such a critical business function. Define your needs, evaluate providers thoroughly, and negotiate an agreement tailored to your goals. This allows you to implement a customized HR solution through a trusted PEO advisor and get strategic value from the partnership for years to come.

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