10 Questions to Ask When Evaluating a PEO

Please note that these sessions are for educational purposes only. TriNet provides HR guidance and best practices. TriNet does not provide legal, tax or accounting advice. The materials in these sessions and the products, advice and opinions expressed in these sessions are solely those prepared by the presenter and not necessarily those of TriNet.

Katrina Faessel:
Deciding to work with a PEO, professional employer organization, can be complicated if you don't know what to ask and how to evaluate what they're offering. Here to walk you through exactly what you need to ask when evaluating a PEO is our next presenter, Josie Maltbie, Sales Strategy and Execution Director at TriNet.

Josie Maltbie:
Thank you so much for taking time to spend with us and we hope to just equip and inform you today, make this educational, maybe a little fun as well. And looking to make sure that you ask these 10 questions. If you're currently with a PEO provider, a professional employer organization, or if you're considering, we know that some of you might be considering joining or utilizing a PEO for your business.

My name is Josie Maltbie. I am a Sales Strategy and Execution Director here at TriNet. And really quickly, we always have to have disclaimers. Just a reminder that this presentation is for educational purposes only. TriNet provides its clients with legally compliant HR guidance and best practices, and TriNet does not provide any legal, tax, or accounting advice.

So as we go through these 10 questions, we kind of grouped them into three buckets. The first being PEO fees, how to calculate them or what to be aware of. The next bucket is going to be HR expertise and thinking about the guidance that you're going to be getting or have been receiving from your current PEO provider. And then lastly, is your PEO giving you peace of mind? What is the ease of administration?

All right. So we know that the landscape is ever changing, whatever it might be for the market needs. You're, you know, working from home, working and hiring in multiple states. The first question is what is the ROI or return on investment in working with a PEO or professional employer organization?

I always like to spell out acronyms. So according to NAPEO or National Association of PEOs, which is a nonprofit that oversees all PEOs in our industry, the total average annual savings, and now we know this is not the same for every person, it's a different situation, can be broken out by category, as you see here on the left-hand side. But on average, what we've typically found is that savings per year is about $1,775 per full-time employee or per full-time equivalent. Really the biggest savings on that category is coming from building out an internal HR team. So, think of salaries, taxes, budget, the benefits that come along with building out a team, that's about 54% of that savings is typically around there.

The next are health benefit costs, leveraging the economies of scale, getting access to a rich quality, high quality benefits. And then you have other external expenditures. Maybe it might be penalties or fees or filing manual work, soft costs, things of that nature.

And then lastly, workers’ comp. So overall, if you think about when you went through the evaluation process, or you received a proposal, or you went through a financial analysis with your current provider, or maybe you got your renewal and you're kind of calculating, "Okay, this is what we were told, this is what we're receiving." Are you still receiving that today? Do they give you like a two- or three- or four-year projection? So that's the first question on the fees.

Next would be how, or I guess, do you understand how your current PEO fees are being calculated? And in our industry, there's typically two methods that we usually see. I've been in the industry myself for 10 years, and I come across a lot of these different invoices from small regional PEOs to other publicly traded PEOs, such as TriNet and whatnot. And the two methods we typically see are a percentage of payroll or a certain percent, meaning there's like a bill rate or they're bundling taxes and workers’ comp together with an administrative fee, and sometimes that can be really difficult to unbundle.

Sometimes they may provide you where you have to request a broken-out report to understand exactly what are just my administrative fees versus workers’ comp versus my employer taxes or anything else that might be bundled in there. And then sometimes that method works. If you have a lot of lower wage earners or part-time people or seasonal workers, that might be advantageous to your business.

We often see that it can be anywhere from 3% to 12% of payroll. So always check whether you're going through an evaluation process with another PEO or with your current provider. How are my fees being calculated? And is that clear? Is it transparent to me how much my actual spend is for this service?

The second method that we typically see is a flat per employee per month rate. I usually call it like the subscriber method, meaning, you know, exactly we're paying X amount per employee per month. That can range anywhere from about a $100 to $200, depending on the size of your company, depending on the types of services that you have, per employee per month.

Now the flat model might be great depending on your OpEx, your budget, your forecasting, how you're looking to potentially, you know, utilize or extend your runaway. The flat admin model is great for transparency. You know how much it costs. Unlike that percentage of payroll, it's not tied to if your paying out bonuses, commissions, or any other additional salaries or wages.

With that percentage model sometimes what we say is, “If you give your employees a raise, you might also be giving your PEO provider a raise too. So just something to consider and ask those questions. "Hey, if I give a bonus or commission or a separate off cycle check, am I going to be charged an administrative fee for that as well?" With those fees, something to always consider as well is, are there any hidden costs or any additional costs above and beyond that?

Which brings us to our next question, are there any unexpected cost? Meaning, here's what we're paying for your services today. Have you incurred or seen anything on your bill? Or maybe you didn't quite understand like, "Hey, I thought this was something that was included, but I've seen another line item on our invoice."

So unplanned things happen, right? The risk of running a business, the risk of hiring and being entrepreneurial has its risks and sometimes there can be unexpected costs. And is that something that was clearly communicated in the beginning? Was there service fees that were outlined in your service agreement?

Or can you easily find where those additional above and beyond costs outside of your admin fees are? So as you're thinking about maybe going through your renewal, or maybe things that you've experienced this past year or past couple of years with your provider, did they provide you with, "Hey, if you run an off-cycle check, here's how much it costs. If you need reports, special reports made that might be an additional cost. If you want paper checks delivered, is there a cost for that?"

So some things to consider are, is there a new hire fee? This is actually something I've seen on some invoices is if you are planning to grow headcount, maybe 50% or double in size. We know that some industries have high growth models, or maybe you're going to be acquiring a company and adding that headcount. Is there a new hire fee to onboard employees? That can absolutely add up and that can be an unexpected, unplanned costs that you might want to chat with your CFO, your CPA on.

Things like W2, K1s, 1099s, tax, income tax forms, are there preparation fees for that? If we are to add a 1099 how much does that cost? Is that a different fee? Is there different part-time or full-time pricing? What does the setup look like? Is there cancellation fees? If we are looking to leave our current provider, is there anything in our agreement that says we have to pay out a certain administrative fee?

I've seen that a lot on certain service agreements. Always review your agreements with your current provider and always check with your legal counsel as well. As we said in the disclaimer, “TriNet does not give legal advice.” But another thing is if there are errors that are made, maybe on your part, maybe on the PEO providers part who covers that? Meaning, with co-employment, if taxes are filed incorrectly, or something is missed, who actually pays for that? Is it the PEO provider or is it you?

I've actually seen it in multiple ways and we have this saying here at TriNet, that if you've seen one PEO or experienced one PEO, you've only seen or experienced one PEO. Each company has its own philosophy of its go to market strategy and how they service the market. So always make sure to ask these questions because again, these things can definitely add up. And the whole goal of working with a PEO is to consolidate costs, get some cost containment around your HR and OpEx and hopefully make your life easier as well. All right, so that covers the fees portion of the questions and now moving on to that second bucket of HR expertise.

Does the PEO provider have, ask what is their longstanding HR expertise and do they have any industry specific HR expertise? Meaning, what we often see in here and what I would say, we also say here is, "There's not a one size fits all approach to HR." A restaurant or hospitality management group is going to have a very different HR need than a growing scaling tech company that's trying to raise funds or from a nonprofit to a construction like manufacturing, warehousing company.

So there's always going to be different needs from different laws that govern those industries, different accessibility to technology, different, if you're in multiple states, that's a whole nother slew of issues that you have to deal with in setting up different state tax IDs, different taxes you have to pay in, different requirements around benefits that you have to pay for your employees, things of that nature.

So, when you think about kind of the risk mitigation piece, how has that been handled by your current provider in the last year? How has the consistency been when you have questions? And that'll kind of tie into another question that we have, but something that we've often seen with a lot of our clients that they've appreciated is expanding your network, specifically industry.

Is your current provider opening up new doors, new opportunities to network with other likeminded entrepreneurs or business owners? Are they bringing clients or referral partners or network partners to the table for you? Because they have that depth and expertise in a specific industry. We know that can be huge and nonprofit and also things like life science and pharma, where they're trying to get grants or do research or anything like that or get FDA approval.

So are they supporting you in that? A couple of things that we also want to make sure of is, are you getting guidance and expertise on industry trends? A thing that we often see here is accessibility and just knowledge around R&D or research and development tax credits from the government. Can they help you make an informed decision?

And is your PEO provider giving you access to liquidity around certain tax credits? Are they making you aware and helping you process some of those tax credits? So again, it's a lot of things to consider, but you're looking to have an expert basically, you know, help you navigate the murky waters and the ever-changing landscape of employment regulations and laws. And are you getting that from your current provider today?

So, next question is going to be, do the benefit plans meet all the needs of your employees and maybe your expectations? One of the key pieces of why clients and companies choose to partner with a PEO and utilize a PEO is being able to leverage those large company style benefits, meaning rich plans, lots of options, not a headache of administrations, your HR team, or you as the owner, or the CFO, or whoever's administering it or managing employees. You don't have to be the expert and understanding all the different benefit plans and what a EPO is versus an HMO.

So, when you were presented your options with your current provider, or maybe now that you've had some experience with your current provider, what has the feedback been from your current employees? Are you getting the breadth of a variety of benefits that you thought? One thing that, you know, we've kind of seen another stat here is 75% of employees say offering a wider array of non-medical benefits would make them more loyal to their employer. So it's not just about having a great medical plan or vision or dental plan, but we're seeing that employees are wanting more things.

Like, maybe it's and this kind of goes back to the industry aspect. Maybe they're looking to have more wellness plans or unlimited PTO or a more compelling PTO. It's looking at your total rewards package, not just your benefit offering. So as you think about getting the guidance from your current provider, have they provided you with ancillary or above and beyond things like perks to network partners meaning, are they getting discounts off rental vehicles?

When laws change, like, when we have the JOBS Act, are they helping you navigate state-by-state regulation on different things that are above and beyond just medical care costs? Does the PEO provide you and your employees with education, whether it's technology, tools and platform, or do they have a service team that you've been able to call into and they can help your employees select the best plan for them? We oftentimes see that employers are trying to fund generously, meaning they're contributing and offering a lot of benefits, but with that can come a lot of expenses. It's the second largest expense outside of gross wages.

And did your PEO provider help you come up with a funding strategy that, you know, made sense for you now, but also, as the company changes over time and progresses? Maybe you move into multiple states that you needed to make a change and you didn't want to downgrade some of your plans. We can see that happen during renewals too. So as you are coming up against renewals, are you seeing high renewal rates? Are you seeing any degradation of your current plans? Do you have access to multiple plans or are you being limited to only select one or two? Or are you also being kind of required to offer things that maybe you didn't want to?

Or things that are bundled, sometimes we see like dental and vision might be something that's bundled, but not everyone needs that. So we want to also tie that into, you know, not having your employees and yourself spend more money on benefits than necessary, depending on what's being required. Again, every PEO has a different philosophy on this. And then there's additional things as we talked about outside of non-medical benefits, things like retirement options, life insurance options, disability options, maybe leave or getting guidance on parental leave policies, health savings, flex spending accounts, commuter benefits.

Pet insurance has been a big one. A lot of people got a lot of pets in the last handful of years and they're, you know, like a lot of people's families. I have two dogs myself and sometimes things happen and are there above and beyond just non, you know, medical benefits to think about, along with adoption assistance and so many things, legal insurance, as well as hospital, accidental, things of that nature.

All right. So it's a great time to review. We spent a lot of time there on the benefits, but it's such a big piece. So now moving on to question six, we're almost there. 10 questions to get in there. Will HR compliance concerns properly be handled? I would say this is a number, probably the number two feedback, if not the number one, sometimes around the benefit piece of what I see when speaking with other PEO clients is when you called in, who answered the phone? Did someone even answer it? What was the SLA or service level agreement? Meaning, if you call or email, is there a guaranteed turnaround time? Like, 48 hours, 24 hours? If you have an urgent request, you know, what does that escalation process look like?

Think back to maybe some of the situations that arose this past year with your current provider. If you called in for kind of the same or a similar situation, did you get a consistent answer? And sometimes we know that cannot always be the case. And that's not to say every company, no company is perfect. It's all made up of humans and whatnot, but what is the process and standard operating procedure when you do have an issue? How is that being handled by your current provider? Oftentimes what we find is that small businesses, their regulatory compliance costs are usually higher because they're held either they just aren't aware of the different things.

They don't have a full legal and HR team to support them, which is why they look to leverage and use a PEO provider to help give them that guidance and give them that HR expertise. So when you think about like a worker's comp claim, how is that currently handled? Or do you know how that's handled? Do you know if your current PEO provider will have legal support with an employment attorney or a hotline that you can call into to get legal advice? If your PEO can't provide legal advice, are they providing you with employee handbooks and updates? Are their push notifications for your employees?

How are they handling multi-state? Is it something that they're supporting you with? Or are they kind of pushing back on you and saying, "Actually, that's your responsibility"? Again, it's not always clear cut the delineation of roles, even though there is that co-employment that's to help kind of shift some of that employer risk and liability. It's not always the case, depending on the provider that you're with.

A quick story on the employee handbook. That's the little details. How is it currently being acknowledged? I had a client a few years back that had a situation where an employee didn't show up to work. A couple of days went by, a couple of weeks went by. They called in, "Hey, here's the situation. What should we do? How should we handle this?" We gave them guidance and they terminated the employee. A couple of weeks later, the employee came back. You know, "Why was I terminated?" Decided to file a wrongful termination lawsuit. Turned out the employee was incarcerated, but that employee also acknowledged in the employee handbook. There's a definition called job abandonment and because of a simple thing, like having a time and date stamped acknowledgement electronically on a platform, that a client employer didn't have to go through the legal proceedings in the process or settle through all that. So it's again, a little detail, but so important to make sure that everything is buttoned up and that your I’s are dotted, T’s are crossed. And is your current provider providing you that with that information or that guidance?

Another big thing that we see is understanding FICA taxes. Because the PEO is a benefit administrator, technically, they could be the person that is overseeing the Section 125. So a great thing to ask is, "Hey, how are my current FICA taxes being processed? Are they being processed on the gross wages or are they being processed on the net wages? Are they processing FUTA or pseudo federal unemployment or state unemployment taxes? What are the wage bases for that? And if we hit the wage bases, do we continue paying into it or does it stop?" Again, all these little nuances to think of, but, you know, again, every PEO is different. So make sure to ask those questions. If you have additional questions, I know that we're doing a Q&A after this or reach out to an HR specialist or consultant that can help support you with that. I know we're getting towards the end here. So I want to wrap things up.

So is there employee training? This one always makes me laugh a little bit because it says 75%, which is like a grade C of workers are pretty satisfied with learning development opportunities, but 11% say they just don't feel like they're getting enough or getting adequate training. So, as you think about your company's growth, maybe learning management was not high on the priority list when you were five people.

But now you're about 20 or 30 employees and you have employees requesting things like upskilling. They want to be able to do professional development, maybe personal development. They want to understand leadership training and how do they advance in their career. Or within the industry, and we all know that retaining talent is so key.

It's very costly to have attrition and it does happen when you're competing, especially with larger companies. So, as you think about training, support, aside from this statutory training that most PEOs are providing you, things like the anti-harassment training and whatnot, what are the company goals? Are you looking to upskill your employees? Keep them there for a long time? Put together a career architecture, career path, and are you getting that additional kind of strategic service from your current PEO? Do they provide you with platforms like a learning management solution included? Can you build out or customize your own learning activities or is that something that's an additional charge?

Or you have to use a third party and it's not single sign on through your current platform? Again, just some questions to ask. Maybe you've been getting feedback from your employees. So again, is this something that's included above and beyond costs or do we have to completely outsource it from our current provider?

Number eight is: Will you get the support you need or expect, right? So we kind of go back to the service side of things around consistency. What is actually being the level of customer service that you're receiving? So how does the PEO account get handled? Do you have a dedicated support team? What happens if that team is out sick or they're on site and you can't get ahold of them again with an urgent request? What are the response times or SLA service level agreements look like? Are there wait times? Are the call centers here based in the U.S. or are they offshore? What are the coverage hours? Have they provided you maybe in the beginning or what you've experienced the last couple of years with your current provider?

What are the resolution rates? Can you actually see when your employees call in or yourself? Do you have like a ticketing system? Again, lots of things to consider as you potentially renew with your current provider or look to join a PEO, but again, going back to that, what does the escalation process look like? And who's responsible when we make an error? Does it come back on you and you have to pay a fee, or are they willing to kind of, negotiate or meet you halfway, depending on the situation? And then again, just the industry expertise, are you getting the answers that you need, or are you going to have to go to an HR consultant or an employment attorney to get some additional information? Things are always changing all the time, too. So again, are you getting notified? Are you getting updates, newsletters, when things change, or is that your responsibility to find out that information?

Question number 9 is: Does the PEO platform or the technology, tech stack technology platform make HR administration easy? I always like to say, "Is this giving you a peace of mind?" Oftentimes, most people are looking for a single source or single sign-on HRIS system that's all inclusive and automates a lot of manual processes today taking away, you know, not having to do paper forms. Is there a mobile app? Can you onboard your employees or can they onboard themselves and do their direct deposit, elect benefits? Can you run payroll through a mobile app? That's huge. Most people are on the go and you don't want to be tied to a laptop or desktop. So just thinking about usability, intuitiveness, what is that UX UI experience? Does your PEO provider actually own the technology platform or do they outsource it?

And there could be some issues there with outsourcing like data breaches, security concerns. You know, if there's disaster recovery, what does that look like? If you were to leave that PEO, how long do you have access to information or how long does your employees have access to information?

How easy is it to get real time reporting? Do you have to request reports? Or can you go in and have a self-service feature and find the reports easily such as an invoice or a payroll register and find the information that you need?

Can you have a third party like a CPA or a broker or someone else that might be supporting your company? Can they access the software and help you manage or reconcile your books? Can they go in and, you know, get information into your accounting software for your general ledger? Is there integration or an open API platform?

And if they do integrate, what systems do they integrate with? Are they relevant? Is it modern? Is there some level of customizability, things of that nature. What we've seen and what we've heard from a lot of our clients and their employees is that they just want something that's easy, they can get to it on their phones, they can quickly log in. If they lose their password, they can call in or get access and recover that quickly. But more than anything, it's accurate and it's giving them real time insights and it's much more self-service as well.

All right. So, now that we have arrived to the last question, ultimately, as you think about your experience with your current provider, or if you're thinking about maybe, you know, reading reviews, things of that nature, the last question is simply, well, would you recommend this to, you know, your friend or family member that was running a business? We always say that's kind of the highest form of appreciation and flattery is that if you have a great experience, you want to share that great experience with other people. So, if you were to give your current provider a rating on a scale of one to 10, what would that look like and why?

And so a couple of things to, again, think about as we recap on these questions here is what business value was created? Did you notice that there was more retention because your employees had better options, better benefits that they were feeling more supported? Maybe you're a small, you know, 10-, 15-person company but when you hired people and they onboarded, they're like, wow, this was a great experience, or maybe it was the opposite of that. Was it easy to implement? Was it easy to get your questions answered, whether it's from your employees or for yourself and just how intuitive was everything? Again, really, did it live up to the expectations that you were essentially told in the beginning process of going through the evaluation and basically the proposal and sales process? Did it meet your needs and is it able to help you be forward thinking with your business as you expand and grow and how are they able to support you as you grew?

Or did you kind of outgrow your support and you had to look at other options? All right. So I know we're just about at time here, but lastly, one, we just want to say, thank you so much. I appreciate you spending some time out of your day to review these with us. And if you are in that position where you're, maybe we've piqued some interest, or you're looking to evaluate, or maybe you're just not happy with your current provider, whether it's a PEO or multi-vendor approach, something to consider is just the unparalleled ease of working with TriNet.

A couple of things to think about is, you know, we've been doing this for 35-plus years and we take a lot of pride in our supporting our clients and helping the small to medium-size businesses. We are the only tailored and industry-specific PEO that exists, meaning we work specifically with certain industries.

So we have a lot of deep expertise and knowledge and ecosystems to support that. Ultimately, we want to help you scale or grow or support your business at whatever stage it's at, along with just dealing with the complexities of an ever-changing regulatory and employment and hiring and labor market. And also give you peace of mind and give you time back in your day.

We know that running a business is an incredible achievement, but it's also something that's really risky and really difficult. And so having people who can support you, that have your back and that you can trust, you know, is something that is kind of top of mind for a lot of business owners and people that we speak with.

So again, if you have any questions, we are doing the Q&A after. Please feel free to reach out to us or reach out to a sales consultant or HR specialist here at TriNet that can help answer some additional questions for you. Again, thanks so much for your time and I hope you have a great rest of your day.