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Potential Diasadvantages of utilizing a Professional Employer Organization (PEO)

While Professional Employer Organizations (PEOs) bring significant value to businesses by allowing them to outsource business processes related to payroll and tax compliance, human resources, employee benefits, and workers' compensation, there are still some potential disadvantages to consider.

Co-employment and Control Over Employees

One of the initial areas of concern for a business preparing to enter into a PEO relationship is control over employees. In a PEO arrangement, a "co-employment" relationship is created making the PEO "employer of record" thus, giving the PEO some control over your employees and depending upon the customer service agreement, could include giving the PEO power to hire and fire your employees. See also Co-Employment Issues.

Group Health Insurance and PEO Purchasing Power

For years the PEO industry has evolved by presenting purchasing power for health insurance claiming that they have more power to get better health insurance rates simply due to the overall size and population of their employee base. For years this was absolutely the case and provided a significant value towards consideration of a PEO. Unfortunately, today this is not the case due primarily to PEOs adding so many unhealthy groups to their employee base that a reasonably healthy group can typically get more competitive health insurance rates in the open market.

Workers' Compensation and PEO Purchasing Power

Workers' Compensation is another value proposition to consider when entering in to a Professional Employer Organization (PEO) arrangement. Like group health insurance, a PEO typically allows client's to adopt in to its current workers' compensation policy and claims added value and reduced cost. The added value is present simply by eliminating larger premium payments due at certain times of the year versus the PEO billing on a per payroll basis. Additionally, there are typically no annual audits passed down to the client under the PEO arrangement eliminating the audit process altogether. Today however, products like Pay-as-you-go Workers' Compensation provide the same value allowing businesses to pay for workers' compensation as wages are paid reducing the likelihood of an annual audit.

Professional Employer Organization (PEO) Cost vs. Value Consideration

Although the PEO arrangement offers tremendous value through the services and products offered. The fact is, most PEO clients'  today admit they only use a small portion of the services offered. Considering the average cost of utilizing a PEO (see also ASO / PEO Cost Comparison) today,  businesses currently in a PEO arrangement are paying a premium cost for minimal returned value.

If you are currently in a Professional Employer Organization (PEO) relationship and would like to learn more about the Advantage Smart ASO solution provided by Solid Business Solutions, please contact us here.