When professional employer organizations first became popular in the 1980s, they solved a lot of problems for small to medium-sized employers that were too busy to keep up with the changing rules and regulations of the HR realm.
However, many have since outgrown their PEOs both logistically and philosophically. You’re far from alone if you’re questioning whether your PEO of record is still offering the best possible bang for your buck in terms of pricing, quality of benefits and range of support services. In fact, most companies nowadays are re-evaluating their HR practices and salary and benefits packages to ensure they remain attractive to employees in light of the tightening labor market.
All that is reflected in reports showing the U.S. PEO market has slowed significantly in recent years; revenues grew only 1.6 percent in 2017 and 1.2 percent in 2018, and analysts predict trickling growth of only 1 to 3 percent in each of the next five years.
How do you know it’s time to consider leaving your PEO? Here are five top reasons for making a change.
- Your PEO doesn’t prioritize transparency.
It’s essential for you and your employees to understand what you’re getting for your money, how economic and regulatory changes are affecting your offerings and how/whether HR issues are being addressed. “This (millennial) generation came of age with smartphones and social media, so they're highly accustomed to an abundance of information,” notes A.J. Agrawal in Entrepreneur. “This socially conscious demographic wants the brands they engage with to be open and honest.” As such, if your PEO is a poor communicator and/or can’t explain its own pricing policies, you may be better off handling your own HR. - Your staff has grown exponentially.
Your PEO may have worked fine when you had a handful of employees. But now that your workforce has expanded, your firm may need an in-house HR department that can effectively and efficiently manage a wider array of HR issues. Further, your larger staff can likely be leveraged to secure favorable prices on products and services on its own. “PEOs are not well-suited to creating affordable, fully customized benefit programs as firms expand,” advises Jacob Schaaf in Bizjournals.com. “PEOs are effective in creating an out-of-the-box benefits package, but their one-size-fits-all approach may not work as well as companies scale and require more tailored programs.” - Your employees complain about benefit offerings.
Because of the nationwide labor shortage, your employee recruitment and retention is going to suffer if you can’t offer optimal benefits and support services to your people. A serious upgrade may be in order if they’re perceiving your programs, products and benefits as inferior to your competitors. - Your administrative PEO fees are continually rising. Sure, it’s possible those increases are commensurate with market hikes and/or make sense because they come with higher-value offerings. On the other hand, your PEO may not be conducting due diligence to find you the best possible deals. “It is essential PEO leadership be honest when evaluating the value it drives to the market before it demands a higher price,” advises PEO consultant Rob Comeau on Netprofitgrowth.com.
- You perceive a conflict of interest.
If your PEO is affiliated with a certain broker and can’t prove it’s trying to find you the best deals regardless of vendor, you may wish to bring your HR back in house to ensure that you can objectively evaluate all options.
If you decide to migrate from your PEO, it’s a good idea to consult with a skilled, objective partner who can advise you on all your options moving forward.
“The most important part of the process is conducting due diligence to find the right broker,” concludes Schaaf. “That decision can make all the difference in powering the growth of your company. Having a strong and effective HR program is what maintains the very lifeblood of your organization: your employees.”
As a partner with Lockton Companies, Mike Gazzano can effectively walk you through all the alternatives to today’s PEOs. Call him at 303 621 5020 or email him at michael.gazzano@peobenchmark.com 816-960-9000 for a free, no-obligation consultation.
