The most convincing sales force for a certified professional employer organization (CPEO) might be those PEOs that, let’s just say, aren’t the best the industry has to offer. Axcet HR Solutions, a CPEO, has listened to plenty of horror stories over our 30 years in business from small companies who came to us after working with unreliable PEOs.
Last week, we heard another nightmare story from a prospect who originally chose a different PEO that isn’t IRS certified. Now, two months later, this is what the prospect shared when its representative called Axcet:
- Not a single payroll was accurate. Problems included missed deductions and incorrect time and attendance calculations.
- Payroll reports were late.
- “Dedicated” account managers were unresponsive.
- The PEO’s human resources consultants didn’t answer or return calls about benefits questions from the prospect’s employees, so the small business had to tell its workers to contact the insurance carrier directly.
The prospective client said comparing the other PEO with Axcet HR Solutions is akin to comparing The Dollar Store with Nordstrom.
While we’re happy the prospect may soon be an Axcet client, we’re sad the small business endured two painful months instead of experiencing the benefits and ease of working with a reliable CPEO from the beginning.
How can you avoid choosing an untrustworthy PEO? Watch out for these five warning signs that the PEO you’re considering might not be your best business ally:
1. The PEO Balks When You Ask for References
A trustworthy PEO should be able to quickly and comfortably hand over names and contact information for several current clients (both relatively recent and longer-term), a former client and service providers, such as a bank, insurance representative or attorney. In fact, the PEO you want as your partner will welcome your due diligence, because it is confident about what you’ll hear from its references.
Have a list of questions ready for the references, such as:
- Has the PEO been responsive to your requests and to your employees’ requests?
- Has your payroll been timely and accurate?
- Has the PEO made an effort to get to know your business and build relationships with your team?
- Have you received benefits options that are relevant to your company and valued by your employees?
- Has the PEO delivered on what it promised?
- Is the support team degreed, certified or otherwise credentialed (SHRM, CPP) in their respective fields?
- What’s the depth of the team? Is it one person or many in the different disciplines?
- What challenges have you run into, if any?
- If you had it to do over, would you choose this PEO again?
2. The PEO Resists Giving you Information About its Financial Condition
Most PEOs are private companies and, unlike public companies, aren’t required to share financial information. But you should still ask for and be able to receive audited financial statements, which will provide you with a fair assessment of the organization’s financial health. Audited financials also may reveal vulnerabilities, such as weak internal controls and insufficient cash reserves.
Audited statements cannot reflect the entire financial picture, but a sound PEO’s information will demonstrate that the company is stable and that its financial statements are complete and accurate according to accepted accounting conventions.
The IRS certification process includes a review of the PEO’s audited financial statements, so you can be confident in a CPEO’s fiduciary responsibility and steadfastness even without seeing its financials.
3. The PEO has a Short History
A McBassi and Associates study released in 2015 showed that the PEO industry has added about 100,000 worksite employees and 6,000 net new clients in each of the preceding 30 years. That means the PEO industry has added the employment equivalent of the entire U.S. utilities industry every five years. It also means newer PEOs that have jumped on the growth bandwagon may not have the same staying power or deliver the same quality of work as those that already have stood the test of time.
Make sure you know the tenure of the PEO partner you’re considering. Ask:
- When was the company founded?
- How long has the PEO offered the specific services your company needs?
- What are the PEO’s mission, values and business philosophies?
- Has it experienced consistent leadership?
- Does it have an office dedicated to your area?
- How many clients and employees of client companies does the PEO have?
- Is its staff size adequate to handle your needs?
The PEO you choose should have not only a durable history but also business practices and values that align with your company’s. This includes honesty and transparency when there’s less-than-favorable information to communicate. A trustworthy PEO is committed to a no-surprises, mutually beneficial relationship that will help your company grow.
4. The PEO Can’t Assure You of Data Integrity
Hackers are increasingly sophisticated, and securing data is a constant fight. The PEO you choose should have multiple levels of security in place to protect your company’s data. It should be able to explain the encryption, firewall, password protection, identity validation and other cybersecurity measures it takes. The PEO also should maintain and retain full control over its own cloud environment and multi-layered cloud security.
Further, the PEO should require its employees to undergo intensive security training and randomly test them afterward to ensure they’re meticulously following cybersecurity protocols.
5. The PEO Isn’t IRS Certified
In many ways, you can draw a similar Dollar Store-vs.-Nordstrom comparison between PEOs and certified PEOs. A CPEO designation is issued by the Internal Revenue Service only to professional employer organizations that complete an exhaustive review. Of more than 900 PEOs in the United States, fewer than 90 have met the IRS requirements, which include a documented history of federal, state, and local tax compliance, financial responsibility, and organizational integrity. Axcet has held this designation continuously since 2017, the year the IRS certification program began.
The PEO you partner with will process payroll, manage your employee benefits, provide workers’ compensation coverage and handle numerous other financial and human resources tasks. If the PEO drops the ball or, even worse, goes out of business because it isn’t financially stable, the negative impact on your business and your employees could be enormous.
CPEOs have met the requirements of the industry’s most rigorous background check. The certified PEO designation assures your company that it will receive the highest-quality guidance, expertise, and reliability.
According to a September 2017 white paper released by the National Association of Professional Employer Organizations, businesses that use PEOs have 40% higher revenue growth and 14-16% lower turnover rates – and they are 50 percent less likely to go out of business than companies that do not use a PEO. There’s a high return on investment for small and mid-sized businesses that work with PEOs – as long as they choose a PEO that is trustworthy and has the smaller company’s interests at heart.
* The IRS does not endorse any particular certified professional employer organization. For more information on CPEOs, go to www.irs.gov.