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How to Choose a Professional Employer Organization (PEO)

Human Resources

When choosing a professional employer organization (PEO) to serve your business in 2017, there's a strong business case to back up that decision. Studies show that companies using a PEO grow 7-9% faster than their peers. They're 50% more likely to stay in business, have 10-14% less employee attrition, and reduce admin costs by $450 per employee.

The benefits are clear. So how can you choose the right PEO for your needs in the year ahead?

Examine Accreditation, Auditing, and Performance

PEOs are a highly regulated industry, as their clients are turning over critical information, significant funds, and control over their businesses. Your first line of due diligence when choosing a PEO is to ensure they are as well run as possible. You might consider:

  • Are they a member of the National Association of Professional Employer Organizations (NAPEO)?
  • New regulations issued by the IRS create a voluntary certification program for PEOs under the IRS. Find out if the organization you're considering has applied for certification or is considering applying in the future.
  • Are their financial statements and operations verified by an outside source? Wherever possible, ensure the PEO's financials are reviewed and approved by an objective auditor.

Expertise in Compliance

Compliance tops the list of executive concerns this year, and choosing a PEO with expertise in compliance can help mitigate those worries. Compliance changes happen rapidly, with new mandates coming down monthly from federal, state, and local authorities. Non-compliance can have expensive and time-consuming consequences for your business. A PEO should have the knowledge to help you with your compliance concerns and the ability to support you as you develop systems and processes that make compliance easier, from monitoring changes to better ensuring compliance with regulations.

A PEO should have the knowledge to help you with your compliance concerns and the ability to support you as you develop systems and processes that make compliance easier.

Range of Benefits

Another important area to consider is what benefits the PEO offers. A major reason companies choose to work with PEOs is to obtain access to better benefits and a wider array of options. Take the time to learn what programs the PEO offers, how those programs compare with your current offerings, and what the costs will be. Does the PEO offer value-add solutions such as pet insurance or employee assistance programs which could be valuable additions?

Client and Professional References

Ideally, you want to work with a PEO that has an established track record working with companies like yours. The factors to consider could include industry, company size, or specific goals and business challenges. Look for case studies that can demonstrate how they'll solve your challenges – and then speak to customers, references, and business partners to get an outside perspective on their performance. By getting another opinion, you'll be able to better verify the information you've gathered in both your conversations with PEO reps and by doing background research.

Service-Level Agreements and How They'll Help Your Team

Since the service-level agreement (SLA) is the operating document that drives the entire relationship, it's critical to understand its contents. In addition to the services provided, an SLA also provides insight into how much assistance, consulting, and guidance the PEO will provide your team. It will define the responsibilities of each of the parties, and it will outline which responsibilities your PEO will take over for you.

Choosing the right PEO can take your human resources, payroll, and capital management efforts to the next level--resulting in happier employees and better benefits. However, capturing these benefits requires partnering with the right PEO. Consider these best practices to help choose the right PEO that can deliver on your most important needs.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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