Are Professional Employee Organizations worth it?

If you’re like most businesses, your company has one core capability.

You manage investments, negotiate contracts, design buildings, etc.  It’s what you do best.  It’s the reason your customers come to you.

You also do some things that aren’t a part of your core competency.  For example, marketing, bookkeeping, payroll, and IT are all functions that every business must perform.  Some of these you outsource (hopefully IT to us), and some you do yourself.

Human resources was something we did ourselves.  Sure, we outsourced our payroll, but when it came to managing benefits, choosing health insurance options, tracking days off, and dealing with personnel issues, we figured that the cost of outsourcing HR would never pay off for a small business.

Boy, were we wrong.

Last year, after our health insurer dropped out of the New York market, our office manager convinced me to listen to pitches from PEOs – professional employee organizations.

For the uninitiated, a PEO can sound like a scam.  These organizations, with names like TriNet and Insperity, essentially co-employ your people.  This sounds a lot scarier than it is, and the benefits far outweigh any perceived risks.  By pooling employees from many different businesses, PEOs are able to offer your employees healthcare and other benefits that are only available to huge companies.  And since the IRS has recently launched a certification program for PEOs, you know you’re are covered from a tax perspective.

PEOs offer a host of other HR services such as recruiting and consulting.  They charge according to the number of employees you have and the services you chose, although we found a wide variability in pricing.  We chose JustWorks, a fairly new entrant into a space dominated by big players.  We liked the fact that they offered a more a-la-carte service and lower fees than the others.

The transition to a PEO isn’t trivial.  You’ll find a few things that were easier before.  For instance, the JustWorks payroll service isn’t nearly as flexible as the one we used from ADP.  However, we can now offer quality health insurance for half the price, and give employees other benefit options they never had like a vision plan and pre-tax flexible spending accounts.  And the best part is that even with the PEO’s fees, our total HR costs are about the same.

If you’re frustrated with either the benefits you offer, or with all the HR work you’re having to do, check out PEOs.  It’s worth your time.