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PROS & CONS of Using Professional Employer Orgs (PEO)

I'm helping some small companies set up their infrastructure and ramp up operations, sales, etc. These companies are hiring bulk of their staff in one location, but they also have sales staff spread throughout the US and some small pockets of R&D in other locations. Setting up payroll and benefits under the company is a lot of work (filing in each state, payroll filings by state, negotiating small company benefits coverage in today's ACA climate, cutting payroll by state, etc). So I'm considering a PEO like Trinet or Insperity (formerly Administaff). I know they employ my staff under their legal entity and it's a co-employment set up. From what I see, the benefits are that I don't need to file in multiple states, transact payroll and withhold by state, set up benefits plans by state or region, go get Employ Practices Liability Insur, get Workers Comp insur by state, etc. Their fees are fairly steep, but if I only have 15-20 staff, they save me a lot of hours and avoiding errors. And I notice that although their health insurance plans are not always with the best carriers, the premiums that they offer are sometimes 20-30% lower than what I can negotiate as a small company where the carrier will age band my premiums. This sounds too good to be true. What downsides and risks do I need to be aware of? Any thoughts are appreciated.

Answers

John Kahn
Title: Owner
Company: CFO Advisory Services LLC
LinkedIn Profile
(Owner, CFO Advisory Services LLC) |

Everything the initial person said is pretty much true. Great group rates on medical benefits, also benefits such as life insurance, plus short and long-term disability. Downside of some of the larger PEO companies though is that you need to EXACTLY fit their sweet spot/customer profile or you can end-up paying the full overall fees without getting everything you need in return. They operate a "package deal" model so the question to ask yourself (and price) is how much of the package would you buy stand-alone and what would that cost you instead. Smaller PEOs can be more flexible but don't have the same buying power. So you have to balance the pros and cons applicable to your particular situation.

Anonymous
(Board Advisor and Investor) |

Thanks. The PEO analogy is like my local gymnasium. They sign up hundreds of members and hope that not all of them use the gym everyday. So it seems that way with the HR services and staff the PEO provides. I did some rough math and if my firm does NOT use the HR services and other sundry services, then the PEO fee per employee is very steep for just payroll, EPLI, workers comp and the discount I get on Benefits premiums. So your point is spot on.

One other issue that I just noticed as I dig thru their benefits plan details is that the PEO's use somewhat generic plans as they probably apply to all types of employees, across many industries and the entire US. My client companies are High Tech in Silicon Valley, so most workers are US$125K-400K engineers, sales, marketing and senior administrative. Not having the flexibility to offer more rich benefit plans may cause issues as job candidates may say that Facebook, Linked-In, Dropbox, Google... are offering "platinum" plans and paying 90-100% of the premiums.

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

PEO's work great for solving your problems and are the ideal solution for managing a virtual company HR and payroll function. Firms like Insperity also bring extensive knowledge of employment laws by state, and helping recruit locally. The main downside is an opaque billing process where it is unclear what you are paying for everything in the service bundle. But that is a small cost to weigh vs. the fantastic benefits of setting up the virtual company you have undertaken. And the savings from a very good benefit plan, workers comp coverage and other services provided.

Stephen Kuchen
Title: Consultant
Company: Integrity CFO, LLC
(Consultant, Integrity CFO, LLC) |

What the above posters say are true. I've worked with Insperity at a number of clients and find them to be excellent. The opaque billing is one downside but one way to overcome this is to ask for the COBRA rates. The rest are taxes and fees and they will tell you their fees as well.

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