How to Choose a Reliable PEO
Choosing the best PEO partner for your business is critical. Verifying a PEO's accreditation should be your first step because accreditation is the only practical way for a PEO client company to confirm:
- Ongoing financial reliability (confirmed by quarterly financial statements and an independent CPA's annual audit and quarterly verification of the payment of wages, payroll taxes, insurance premiums and contributions to retirement plans);
- Ongoing compliance with important industry best practices, multi-state PEO licensing requirements, and other applicable state and federal laws and regulations;
- Ongoing assurance of the payment of taxes, insurance premiums and contributions to employee retirement plans, backed by ESAC's client assurance program with millions of dollars of surety bonding.
A second critical step is to understand the importance of selecting a PEO based on the overall value provided. A PEO often can reduce your costs for one or more employer-related responsibilities such as benefits or insurance. The right PEO can create lasting value by helping you increase workforce productivity and profitability. So when choosing a PEO, focus on finding a service provider with the verified capability to help you increase your business' productivity and profitability, not just provide a temporary cost savings.
Most PEOs' sales brochures and presentations appear very similar. So be prepared to do adequate due diligence, especially if the PEO is not accredited by ESAC. The following additional criteria can help you choose the right PEO to deliver the service value you need:
- Ask for client and professional references and talk to several existing clients about their experiences with the PEO. Have they experienced significant value from the service relationship in addition to any direct cost savings?
- Carefully assess your workforce in relation to your business goals to identify key human resource and risk management needs. Are you having trouble attracting or retaining the employees you need? Are you and your key employees tied up with day-to-day business tasks with no time to focus on important business goals? The right PEO can help you solve these challenges. Ask to talk with key PEO staff and make sure the PEO is capable of meeting your requirements.
- Investigate the experience and expertise of the PEO's management and the key staff who will be servicing your account. Are the PEO's staff and service capabilities consistent with promises made in the PEO's sales proposal?
- Does the PEO's management and staff keep up with evolving regulatory requirements and service strategies by participating in continuing education provided by the National Association of Professional Employer Organizations and other applicable professional associations?
- Understand what employee benefits are available and how they are funded. Is the PEO fully insured or self-insured? If self-insured, is the arrangement legal for PEOs in your state(s) of operation? Confirm that insurance carriers or third-party administrators (TPAs) are authorized to do business in your state.
- Review the PEO's service agreement. Are the responsibilities and liabilities of both parties clearly defined? What guarantees are provided? What provisions permit you or the PEO to amend the terms or cancel the contract?
- If you need help improving workplace safety and workers' compensation (WC) claims experience, verify that the PEO's WC risk management practices have been independently certified by the WC Risk Management Certification program.
- If the PEO is not accredited by ESAC, you should consider retaining the services of a CPA or attorney to help you evaluate the PEO's financial and legal qualifications:
- Ask to see a copy of the PEO's most recent audited financial statement(s) along with a letter from their auditor or an independent law firm certifying that the audited financial statement(s) cover all PEO entities under common ownership control. When verifying that a PEO has positive working capital and net worth, it is important to make sure these are determined on a consolidated or combined basis for all entities under common control so that you are getting an accurate picture of the PEO's overall financial stability. Such statements should demonstrate adequate net worth and working capital, including sufficient financial reserves for any loss-sensitive or self-insured insurance plans. You can use ESAC's financial standards as a guide in verifying the adequacy of PEO financial statements.
- If your state has a PEO registration or licensing requirement, verify that the PEO is registered or licensed in good standing. If your state does not have such a requirement, investigate the PEO's officers and principle owners to verify that they have a track record of responsible financial management and law abidance.