Have You Outgrown Your PEO?

Author, Shane Medlin, Employee Benefits Account Executive, Rancho Mesa Insurance Services, Inc.

Image of people shaking hands.

Many companies can outgrow a professional employer organization (PEO) model, over time. Most companies currently in a PEO are unaware that they have outgrown this service model. Determining if you have outgrown a PEO can be a difficult task and will require a professional insurance broker and payroll advisor to assist your company.

What is a professional employer organization?

A PEO is an outsourcing firm that provides services to businesses. PEO services typically include; employee management portal, payroll, health insurance benefits (compliance assistance), workers' compensation insurance (safety and risk control services), retirement plans such as 401k, and human resource consulting (employee training and development).

The PEO enters into a contractual co-employment agreement with the employer where the PEO becomes the employer of record for tax purposes through filing payroll taxes under its own tax identification numbers. The employees are leased back by the employer. Smaller businesses that employ fewer than 100 lives can take advantage of large group medical rates and composite rate structures.

Steps to determine if you have outgrown your PEO

Below are some tips that can help prepare you for a comparison of your current PEO against options in a traditional market.

  1. The first and most important action is to determine the cost for the services provided under the PEO. Ask your PEO for a complete breakdown of the cost for your Worker’s Compensation, EPLI, Payroll, health insurance benefits, 401k, and employee management portal. Depending on the PEO, compliance services and human resource consulting is built into the service fee or cost of the employee management portal.

    • The service fee can vary between companies in the same PEO. It is very important that you have a full understanding of the fees that your company pays to the PEO. We encourage you to get the pricing of the fees in writing from the PEO separate from all of the fees for the insurance and services.

  2. The next task is to find a quality insurance broker that partners with payroll services. The broker can provide you with pricing for payroll services, worker’s compensation, EPLI, 401k, employee benefits, etc. You can compare the pricing directly with the fees associated with your PEO.

  3. If you do not see an immediate savings after the first comparison, continue to engage with your broker each year to determine if your company has out grown you PEO.

If you think you might be ready to transition from your PEO, contact Shane Medlin at (619) 438-6902.