Professional employer organizations (PEOs) provide businesses with comprehensive HR solutions, including payroll and insurance benefits, simplifying the human resources needs for small and mid-size businesses. However, the cost benefit of outsourcing these services becomes outweighed once a company reaches certain milestones.
Below are 6 of the milestones to consider as reasoning to transition from a PEO to independent payroll and benefits:
- Size Matters – Once your company reaches a size where the cost benefit from the healthcare savings is less than the PEO admin fees, it’s time to make a switch. There are numerous options for groups 50-99, and then most 100+, that are more cost-effective than a PEO. Favorable demographics play a big factor. The proper benefits consultant can guide you through the evaluation and transition process.
- HR Employee Hiring Time – A cost-benefits analysis is important here, but it’s likely if you are paying the salary of an HR hire that can manage processing payroll and overseeing benefits you will want to consider transitioning off the PEO.
- Establishing a Health History – Once your company is no longer community rated (sharing the same rates as companies with a similar size) you begin to aggregate a “claims history” for your organization. If you are a relatively young, healthy population, the sooner you start the better. Otherwise, regardless of your company make-up, if you become too large the insurance carriers will see you as the “800-pound gorilla” and will be unable to provide reasonable rates.
- Inability to Customize Healthcare – PEOs provide a breadth of healthcare options but what they have is what you get. There are no options for customization to address specific corporate needs.
- Investment Control – Companies do not have the same decision making power for investment options in 401(k) plans administered by a PEO. If this is important to you and your employees you may consider rolling off. Alternatively, you can outsource a 401(k) plan while on a PEO, however this means additional costs for your company.
- Building a strong “on-brand” corporate culture – PEOs are not known for “white-labeling” their technology or health insurance cards. Employees will be interacting with the PEO brand for their health insurance, payroll and benefits rather than yours which can create some confusion for them with your brand identity.
Deciding to transition from a PEO is a significant undertaking, however with the right guidance it can be a relatively seamless process. All company needs are different and a proper cost benefit analysis should always be completed.
Our team at MBL is available to provide insights and suggestions on the topic of PEO transitions and always available to help you manage all of your benefits needs. This includes evaluating, selecting and implementing health insurance, voluntary benefits, workers comp and other insurance products such as employment practices liability insurance (EPLI). Our strategic relationships in the payroll, benefits and HR industries guides organizations to make the most strategic decisions for their team and company.
