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December 14, 2020 | Human Resources | Posted by Ascentis Thought Leadership

6 Signs Your PEO Isn’t Living Up to Expectations

Employing a Professional Employer Organization (PEO) makes good sense for a lot of organizations, especially mid-sized and small businesses. Contracting a third-party company to handle your HR and benefits is compelling. However, there are also plenty of cases where the added steps of filtering your HR operations through a PEO actually create more confusion and inefficiency, more or less defeating their original purpose. Here are a few key PEO challenges to look for if you suspect it may be time for your business to move away from your current PEO.

Your PEO doesn’t do as much as you expect

It’s a common PEO misconception that employing a PEO means that all of your company’s HR needs are taken care of from there on out. In reality, most PEOs provide a limited range of services that still leave plenty up to the employer. Generally speaking, you – as the employer - are still responsible for:

  • Recruiting, hiring, and training new employees
  • Managing most aspects of benefits administration
  • Tracking time and attendance
  • Managing payroll
  • Ensuring compliance

While your PEO will assist with aspects of all of these functions, it likely won’t be the “set it and forget it” solution many employers assume it will be. That can lead to not only added work for your staff, but also conflicts between your internal workers and your PEO.

Your PEO doesn’t understand your needs

Working with a large-scale PEO can be a bit of a catch-22 for small business owners. While larger providers tend to have more resources and a deeper well of services available, they are also more likely to have a one-size-fits-all approach to helping you achieve your individual strategy. Small businesses frequently run into trouble with PEOs that don’t fit well with the expectations surrounding their specific industry, or whose standards don’t match their company culture.

Your PEO doesn’t play well with your HCM

Companies that employ both an in-house HR team and a PEO sometimes find themselves in a culture clash. Regardless of your company’s intentions or financial realities, it’s only natural that some resentments will arise when a third party is brought in to handle functions that internal staff think of as their responsibility. Organizations need to carefully weigh whether the benefits of PEO services -- paying to outsource some or all of their HR functions -- will be worth the internal strife that may result.

Your business has outgrown your PEO

As noted earlier, there are many instances where a PEO makes sense, especially for smaller businesses that may not have the resources to devote to a full-time internal HCM team. As your company grows, however, your HR needs change. Keeping track of the tax requirements, benefits packages, and certifications of more employees and locations may require more complex technology infrastructure than a PEO can accommodate.

Your communications aren’t what they should be

One of the biggest benefits of an in-house HR solution is knowing who to look to for answers when problems inevitably arise. When those operations are in the hands of a third-party service with multiple other clients, speedy resolutions aren’t always the norm. When it comes to important employee services like payroll and benefits, delayed responses or confusion about getting in touch with the right account manager can have serious impacts on employee morale, which in turn can make it harder to retain quality employees.

Your PEO doesn’t save you as much money as expected

Cost savings are one of the biggest selling points for PEOs. While it’s generally believed that the per-employee expense of hiring a PEO will drive cost savings compared to hiring in-house staff, the economics are not as clear .In the long run, many employers find that the cost savings are not as significant as they’d hoped. That has to do with a lot of the reasons outlined above — the costs of culture clashes, lack of personalized service, miscommunication, and other incompatibilities add up over time.

Especially for smaller businesses, the per-employee costs often prove to be significantly higher than a self-managed solution. And by the National Association of Professional Employer Organizations’ own estimates, only about 175,000 U.S. businesses currently employ a PEO, a relatively small percentage of businesses compared to those who opt to keep things in-house. Ultimately, it may be more cost-effective to keep things in-house by investing in a reliable suite of HCM software that streamlines your day-to-day functions, empowers your HR team and enables autonomy to allow you to run your business.

If you’re questioning whether your PEO is measuring up to your expectations, it may be time to explore an unbundled solution. Look into the many ways the Ascentis suite of HR solutions can ease your workload.

Ready to calculate your current costs on a PEO? Collaborate to complete this PEO ROI Calculator with your HRIS technology partner and/or trusted benefits broker to clearly identify your current investment in a PEO vs. what your organization’s savings (or spending) would look like to bring human resource functions in-house. Check out the calculator here.

With more than 35 years of experience in providing Software as a Service (SaaS) solutions, Ascentis thought leaders have become a respected source for insights, tips, and innovations in the Human Capital Management (HCM) space.