Opinions on PEO (Professional Employer Organizations)

August 09, 2023

by a professional in Dover, NH, USA

For smaller businesses, I'd be interested to hear anyone's feedback on using PEOs to outsource HR functions and reduce costs on benefits. I've done some research, but getting feedback from anyone who has used one would be great, including which PEO and any pitfalls to watch out for.

Here are some things I'm wondering about:

1) What it's like to break up with one when you outgrow their services or want to internalize for more control?
2) Is there contract language to be aware of?
3) Is it better to go with an Administrative Services Outsourcing (ASO) agreement?
4) Is there a PEO companies that currently stand out above the rest?

Thanks!

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Reply by a professional
from University of Michigan in Detroit, MI, USA

In my opinion, it really does depend on your size. If you are too small, your HR needs will not necessarily be that burdensome, and you may as well do them yourself. If you are too large, the perks of the PEO will not outweigh the costs.

Breaking up with a PEO can be tough. Depending on the PEO. Just be mindful of any timeline requirements in their contract. Some require a certain amount of notice, if you want to exist without penalty (fees).

Another thing to keep in mind is transparency. (Some PEOs can be notorious for hidden fees.) Also--please note that lowering the unit cost on health insurance is not the only way to reduce spend. Your rates are ultimately a reflection of your employee population's risk. Improving your risk or avoiding some of it all together is often times a far more powerful tool in cost-control.

Lastly, I am not super well-versed on the costs of an ASOs. But I do know that many full-service, insurance brokers and payroll companies can take care of basically the same admin stuff that ASOs handle.

I hope this helps. Feel free to ping me if you have more specific questions.

Reply by an investor
from University of Pennsylvania in Dallas, TX, USA

Thank you ^^redacted‌ ^^redacted‌ and ^redacted‌ for the tags. Regarding the questions in the original post: 1) Usually there is a notification period of###-###-#### days to terminate a PEO agreement. Sometimes a PEO can have an initial term of 1 year and then after the initial term, the client can terminate with###-###-#### days notice. 2) Regarding contract language to be aware of, you will want to read the agreement carefully as some PEOs can include additional fees in their agreement that you need to be aware of. 3) ASOs can be a great option for a company. One of the key distinctions lies in the insurance. Your medical insurance and workers comp as an example would be through the PEO which can be advantageous or sometimes not advantageous. You just have the run the numbers. 4) www.aspenhr.com :))

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