Is it Time to Switch PEO Companies? 5 Questions to Ask Yourself ​

Hiring a professional employer organization (PEOs) can take many administrative burdens off your plate. However, is yours best-in-class when compared to a list of best practices? To find out, you need to ask key questions of both your current and potential new PEO. 

Here are five key questions to ask about your own PEO as well as potential replacements:

Question #1: Does Your PEO Lack Flexibility?

Your PEO should be open to what you need to have done. Unfortunately, some out there do a "one size fits all" structure that won't work for everyone. Any PEO that thinks this generically should be tossed aside.

Above all, asking for flexibility should be a top priority question to ask any PEO on your shortlist. Every business like yours is going to need only specific tasks done unique to you. The PEO should be open to working within your guidelines based squarely on the specialized tasks you need to be done now and accurately.

Question # 2: Does the PEO Have IRS Certification?

The IRS never makes any claims on which PEO is better over another. However, IRS certification does carry some guarantees that cannot be replicated by PEOs without certification.

Once you know a PEO has certification, you'll know it has been properly audited. Certified PEOs (CPEOs) require thorough auditing every year. Audit checklists are frequently available online under the different work categories PEOs offer. For instance, you can find out if they've been audited for payroll, workers comp, or handling employee benefits.

The other benefits to using a CPEO include:

Some Wage Base Tax Restarts Eliminated - Due to the successor employer status of CPEOs for federal payroll taxes, clients that contract with them will not be subject to double taxation from the Federal Insurance Contributions Act (FICA) or the Federal Unemployment Tax Act (FUTA).

Tax Liability Clarified - Federal employment taxes for worksite employees become 100 percent the responsibility of the CPEO, not their client. 

Tax Credit Eligibility - Businesses that partner with CPEOs are still eligible for certain federal tax credits.

Question #3: Does the PEO Have Unexplained Charges?

Some PEOs charge businesses for services without explanation, leading to conflict in the PEO/business relationship.

Before deciding on your PEO, ask them if they're prone to lumping together unexplained costs under "administrative costs." This is a tricky maneuver some of them use while still trying to convince you their initial service is a bargain until you see receive your invoice and it shows differently.

When discussing the services the PEO will give you, find out exactly what you'll be paying for every month. Getting that in writing will make a big difference in preventing any future surprise bills in the future..

Billing should always be transparent.

Question #4: Is the PEO Truly Focused On Your Business Goals?

Every business is unique in what they need to do to keep competitive in their fields.

Most PEOs go beyond merely giving you a necessary service like payroll and also deal with HR legal compliance. However, they also should work closely with you to reach your ultimate business goals.

When working closely with them, they'll have a better grasp of what your real business goals are. They should be flexible enough to wrap their skills around this to help you achieve security and clarity.

Question #5: Do They Offer Pay-As-You-Go Workers Compensation Coverage?

Many workers comp policies that you buy on your own will require you to give them a down payment to gain any service. Going through a PEO will give you access to their policy that already involves a down payment.

In other words, you're getting a pay-as-you-go system. Having this should become a standard, so be sure to ask if the PEO you're considering has this in place.

Grade Your PEO

These five questions will not give you a complete picture of whether the PEO is really giving you above-average service. To determine whether your PEO is best in class, average, or sub-par, download our free Grade Your PEO scorecard.