PEO Pros & Cons – What PEOs Mean for Healthcare Plans

As your organization grows your HR needs change. If hiring more people to take on the added workload in your HR department isn’t an option, you might consider using a PEO. Professional Employer Organization allows you to outsource your HR role, to assist with all aspects of your HR needs. This includes your healthcare plan.

Here we look at the pros and cons of PEO and what they mean for your organization’s healthcare plan.

What is a PEO?

PEOs provide services to manage and maintain your HR needs including:

• General HR management
• Payroll
• Benefits
• Workers’ comp
• Compliance

When you use a PEO you have more time to focus on operations and let the PEO take care of your HR needs. This ensures employees’ needs are met, while also remaining compliant.

How Does a PEO Work?

When you work with a PEO, it creates a co-employment model. This means the PEO is the employer of record. As a result, they become responsible for liabilities associated with your company’s HR role. Your payroll operates under the PEO’s tax ID numbers which means they carry the risks. It also means you lose control of this function. This becomes more evident, as in this partnership, you’ll be expected to comply with their policies and procedures.

These might differ from what your employees are used to and in turn should you face employee issues, the PEO will only help if you’ve adhered to their guidelines. Right now, you’re only worrying about following federal, state, and local laws. Many organizations prefer finding a solution that allows them to maintain complete control and follow their own HR policies and procedures. You also maintain your own HR management strategy and your company culture.

What are the PEO Pros?

So what are the positive impacts a PEO has on your organization and healthcare plan?

1. Purchasing power: This is where the real impact can be seen on your healthcare plan. Because PEOs are larger, they have buying power which can provide far more competitive benefits and health insurance plans for your team. They negotiate the best rates and can provide an exceptional healthcare plan that can help attract top talent in your industry.

2. Liability assurance:  Because the PEO takes on risks and liability they have strong teams of licensed HR professionals and attorneys. In the case where issues arise, you have access to these professionals to mitigate common risks associated with employment.

The biggest impact you’ll see is that you could offer your employees a far more enticing healthcare plan.

What are the PEO Cons?

On the flip side you will have to weigh the cons of a PEO:

1. Cost: PEOs charge a percentage of payroll, which not only gets expensive but can also make it hard to tell what you’re paying. PEOs tend to invoice everything together, so you aren’t sure what makes up their administrative fees and what money actually went towards things like payroll and taxes, workers’ comp, and EPLI. There are also set-up fees to consider and then they charge a rate per employee.
   
2. Stuck with their Healthcare plan: Although these companies do have buying power, it doesn’t always mean they’ll use it for the healthcare plan your employees need. This can lead to inflexibility as the insurance plans tend to come from one or two carriers. So your team is at the mercy of their selections without any say in the process. This can lead to limited plans that fail to provide adequate coverage.

3. Customer service issues: PEOs don’t just serve your employees. They provide support to every employee for each of their clients. This can lead to less than personal service for your team, as well as a loss of engagement your own HR department shares to help employees feel important. There are no real relationships nurtured which can lead to employee dissatisfaction with your company.

If you feel the cons outweigh the pros, it makes more sense to look into HR management software. The software helps perform the same duties as a PEO, without taking away control or forcing specific, inflexible healthcare plans on your team.

About The Author

Ingrid is the Content Marketing Manager at Paypro, managing both inbound and outbound marketing initiatives for the company. She has 15+ years’ of extensive marketing communications experience, leveraging brand awareness and strategic partnerships to increase sales revenue for a diverse group of B2B brands.