If you own a business with more than 10 employees there is a possibility that a PEO can be of benefit to your company. Working with a PEO can bring hard and soft cost savings along with decreased risk. Additionally, PEO's provide an "HR Department" that assists your company with all the administrative tasks - from payroll processing to the hiring/firing process. Unfortunately, PEO pricing can be confusing. Since the administrative fee is only one element of their pricing you may be paying more than you expect.

Hidden Charges

Hidden charges don’t only come in the form of administrative fees. This can be an easy place to find where you are being over charged, but it may not be the only place. While your expectations within the PEO are that you must be getting a better deal on medical insurance than if you weren't with a PEO, many times this isn't true. Your claims history with the PEO will determine whether your company is getting a better deal. There is a chance that your benefits package doesn't bring as much value or is costing you more money than one you could find on the open market. This is much harder to detect. Another example may be your PEO is charging you more for state unemployment tax than if you weren't with them. In addition, your workers’ compensation rates could be higher with your PEO than without them.

Overall Costs

Many times PEO's "creep" their percentages up without your knowledge. For example if your payroll is weekly but it's $2 Million annually, you may not notice a $769 weekly charge more than what you paid the prior year. You may attribute this to increased taxes, workers' compensation costs, etc.. When in reality it could simply be a 2% increase in your administrative fee. This would equate to a $40,000 increase per year to your company. Even if you find the increase and the PEO your with states it's due to workers' compensation or state unemployment tax increases, you may not have that increase without the PEO.

Analysis

The only way to get to cost savings like these are to conduct a thorough analysis on a periodic basis. Analysis must become part of how you conduct this part of your business. Just like marketing or sales analysis to see how people are finding you or if your close ratio is improving, there must be a periodic analysis focused on employee benefits, workers’ compensation, employee taxes and payroll services. In order to do this correctly, it takes an expert to know exactly what to look for and where. When it comes down to it, your time is much more valuable focused on running other elements of your business and not sifting through medical plans.

The best analogy for how you should view your costs, whether with a PEO or not with one, is cell phone technology. The cell phone you have today is outdated in six months. The way the employee benefits market is moving, with ACA and other changes, the plan that you chose two years ago may not be compliant and may not be as affordable as a new plan today.

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