MARCH 2024BUSINESSMANAGEMENTREVIEW.COM8IN MY OPINIONAm I the only one who thinks it's an impossible task?"- The Wizard of OzI'm fascinated by the rationale of growing employers surrounding the decision to stay in a professional employer organization ("PEO"). PEOs have obvious benefits such as offloading HR responsibilities and allowing smaller companies to access group health insurance benefits as part of a larger group. It is a neat package that wraps up the administrative aspects of running a business: payroll and benefits administration, worker's compensation, and some HR. The bundle is extremely appealing, particularly in the M&A space where there are so many decisions to be made and terms to be negotiated. A PEO is one solution which solves many of them, so it makes sense, even if it is imperfect. But as your company grows in the number of full-time employees, it is unwise not to consider the Law of Diminishing Marginal Returns. There is a tipping point in terms of number of employees where it makes sense to bring all (or most) of the PEO functions in-house, or outsource to a third party that is not the PEO, because sharing the burden of the overhead with the PEO favors the PEO instead of you, the employer. If an employer understands all of the costs associated with staying in the PEO, and consciously decides those costs are worth avoiding the aggravation associated with the extraction and ongoing administration, then that is what works for them. However, like all misconceptions, I suspect that many employers don't fully realize how high the cost of staying in the PEO actually may be and "No Decision" is still a decision.WHEN IS IT TIME TO LEAVE A PEO?My colleague, Chris Baldwin, Business Development Leader ­ HR Technology Practice, shared the following signs for when it is time to consider exiting a PEO:· Cost & Strategy. A broker can take your census to the market and find out what health insurance plans are available and at what cost. By stripping the overhead of the PEO, the overall rate may be less expensive. Alternatively, a company may need a more robust and competitive benefits offering to attract the quality of talent they need. Meaning that even if it costs significantly more, it is an investment the employer is willing to make to expand their offerings. · Size/Staffing Considerations. The sweet spot for PEOs are usually companies under 50 full-time employees. Of course, there are exceptions to this rule, but once an employer reaches 100+ full-time U.S. employees, it's generally time to consider whether the PEO is the most cost-effective approach.· Control/Data Access. As part of a PEO, an employer likely conformed to the PEO's way of doing business with their rules and their benefit options. The employer may be ready to change this dynamic to have more control, including the ability to respond to employees' needs/interests. Additionally, employers may want access to data and/or analytics that they are otherwise unable to obtain.· No "best fit" options. PEOs generally work with a standard or limited set of service providers, which may or may not be a By Ally Lamson, Area Vice President, Equity M&A, GallagherLIONS, TIGERS AND HOW TO GRIN AND BEAR A PEO EXTRACTIONAlly Lamson
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