Navigating the complex world of professional employer organizations (PEOs) can be daunting for any business. Whether you're a small startup or an established enterprise, choosing the right PEO is crucial for aligning with your business needs.
In this comprehensive guide, we’ll demystify the process, offering eight essential steps to identify the best PEO companies for your business. We’ll also highlight key characteristics that define the top PEO providers, offer tips for avoiding unreliable PEOs, and explore the benefits of partnering with a PEO to streamline HR, payroll and compliance tasks.
Let’s dive into how the best PEO companies can transform your business operations and allow you to focus on core growth.
PEO companies partner with small and mid-sized businesses to manage essential HR functions like payroll, payroll taxes, employee benefits, compliance, risk management and workers' comp.
By outsourcing these responsibilities, businesses can reduce administrative burdens, access better employee benefits and focus more on core growth activities.
When evaluating PEO companies, look for these key characteristics:
Choosing the right PEO for your business can have a high return on investment, especially for small and mid-sized businesses. Follow these steps to make sure you partner with a trustworthy PEO that aligns with your business needs.
Search for PEO companies by evaluating their online presence. Look for reviews, social media activity and feedback from current clients to gauge a PEO’s reputation.
A reputable PEO will have a consistent online presence, a thorough website and a clear HR leadership voice. Try to narrow your search down to your top three preferred PEO providers.
The more information you have on your top three choices, the better, including their business history, certifications, client base and financial soundness.
In addition to online research, check out news stories and review any available court records on the professional employer organization.
In doing your due diligence, investigate the following:
Work with certified PEO companies that undergo rigorous IRS assessment, ensuring financial stability and compliance with federal employment taxes. Check that the PEO’s staff has professional HR certifications such as SPHR, SHRM-SCP or CPP.
Find out if the PEO providers you’re considering are certified PEOs.
A certified PEO has undergone a rigorous IRS assessment process. The voluntary certification process is exhaustive, and not all PEOs qualify. In fact, fewer than 10% of all PEOs in the country are certified.
To earn certified PEO status, PEO companies must include background verifications, a review of their tax compliance history, annual audited financial statements and an independent surety bond guaranteeing payment of federal employment taxes.
Additionally, an independent accountant must submit quarterly assertions that declare the PEO’s taxes are paid and the company reflects a positive financial condition.
Because certified PEOs have been fully vetted by the IRS, you’re assured greater financial protection than you would have when working with a non-certified PEO.
The IRS does not endorse any particular certified professional employer organization. For more information on certified PEOs, visit the IRS website.
Another gauge for finding the top PEO companies is having highly qualified staff. Professional human resources certifications indicate that the PEO providers you’re considering are staffed with experienced HR experts.
Look for PEO team members with designations such as:
For added value, ask if each PEO you’re considering offers training opportunities, such as workshops on popular topics like safety, diversity, conflict resolution and curbing harassment.
Request references from the PEO’s current clients that have worked with the PEO for at least a year. This step will help you confirm whether their services match their claims.
One way to start the conversation is to request that the reference rate the PEO on a scale of 1-10 (with 1 meaning they are going to cancel the agreement and 10 meaning they would never leave the relationship).
Among other questions to ask a PEO reference:
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Because PEO companies manage some employment-related financial responsibilities, such as filing federal employment taxes, it’s important to ensure the PEO has adequate working capital, as well as money in reserve.
PEOs often – and should – have financial audits performed by an independent party. You can request a copy of this audit. It will provide insight into where the company stands financially and show whether the PEO maintains up-to-date and accurate financial records – essential for any reliable PEO.
PEO companies often charge either a percentage of payroll, a flat per-employee-per-month (PEPM) fee or an all-inclusive, flat-rate administrative fee.
Check that the PEO offers comprehensive benefits like PEO health insurance, 401(k) plans, life insurance and disability coverage, making your business more competitive in attracting top talent.
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The best PEO companies assign dedicated team members to their clients with clear, direct communication channels. Having a specific point of contact—such as an HR consultant or payroll expert—ensures that you can quickly reach someone familiar with your business whenever questions or issues arise.
This setup not only helps avoid delays but also ensures more personalized, effective support, making the partnership smoother and more responsive to your needs.
Clear communication is key to maximizing the benefits of working with a PEO.
When evaluating PEO companies, one important factor to consider is whether you want to work with a local PEO or a national provider. Both options have distinct advantages, but the best choice depends on your business's specific needs.
Local PEO companies often provide more personalized service, have a deeper understanding of regional employment laws, and are readily available for in-person support.
On the other hand, national PEO companies may offer broader services and larger networks. However, they may not always provide the same level of local expertise or hands-on assistance that small to mid-sized businesses often require.
Choosing between local and national PEO companies is a critical decision.
For a more in-depth comparison, check out our comparison chart.
Not every PEO offers the same level of service or reliability. Therefore, the choice you make can significantly influence your business' operational effectiveness and financial health.
Here are five red flags to be aware of:
A trustworthy PEO should be able to quickly and comfortably hand over names and contact information for several current clients.
Most PEOs are private companies and, unlike public companies, aren’t required to share financial information. However, you should still 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.
Newer PEO companies may not have the experience or stability of more established providers.
Make sure you know the tenure of the PEO providers you’re considering. Ask the following:
Cybersecurity is a top priority when entrusting a PEO with sensitive employee and company data. The PEO you choose should implement robust security protocols, including encryption, firewall protection, password management and identity validation.
Additionally, they should have a secure cloud infrastructure with multi-layered protection and conduct regular employee training to ensure data is always safeguarded. If the PEO companies you're considering lack these critical security measures, your business could be vulnerable to data breaches.
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Of the 900+ PEOs in the United States, fewer than 10% have earned IRS certification (CPEO), which includes rigorous assessments of tax compliance and financial responsibility. PEO providers that aren’t IRS-certified may lack the financial stability and reliability needed to handle your payroll, benefits and workers’ compensation.
Partnering with a certified PEO ensures you’re working with a provider that has been thoroughly vetted by the IRS, reducing the risk of compliance or financial issues.
By recognizing these red flags, you can confidently choose a PEO company that aligns with your business needs and supports your long-term growth.
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Since 1988, Axcet HR Solutions has proudly served as Kansas City's premier local PEO, dedicated to enriching the businesses within our community. Founded by Jerry Diddle, our team of experienced professionals in human resources, payroll, and risk management has committed to supporting the unique needs of Kansas City's businesses and their surrounding areas.
Emphasizing personal connections, our approach to business is all about building and nurturing relationships with our neighbors, offering the invaluable benefit of in-person consultations and assistance.
Choosing a PEO partner that's right for your business involves more than just evaluating services; it's about ensuring a perfect fit between you and your PEO representative.
The ideal partnership fosters comfort, responsiveness and a deep understanding of your business and HR needs, all aimed at prioritizing your company's best interests.
This understanding is crucial in knowing how to choose a PEO that aligns with your goals.
Axcet stands out not just for our local focus but also for our recognition as a continuously certified PEO by the IRS since the inception of its certification program in 2017. This certification underscores our commitment to excellence and trustworthiness in serving your needs.
If "how to choose a PEO" or "choosing a PEO" has led you here, you're in the right place for a partnership that values and supports your business goals.
Discover the Axcet difference and how we can tailor our services to fit your needs—schedule a consultation today!
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