The Hidden Cost of Doing Business With a PEO

There are many reasons a company might opt to use a professional employer organization (PEO) here are three:

  • Saving money on benefits 
  • Reducing employer liability
  • Simplified business operations

If you’re not familiar with PEOs at all, here is a little synopsis to bring you up to speed:

“A PEO is a firm that provides a service under which an employer can outsource employee management tasks, such as employee benefits, payroll and workers' compensation, recruiting, risk/safety management, and training and development. The PEO does this by hiring a client company's employees, thus becoming their employer of record for tax purposes and insurance purposes. This practice is known as joint employment or co-employment.”*

Now that you’re familiar with PEOs and what they can do for a business, let’s talk about the unknown waves they can create. These are the lesser known nuances that come along with the relief in workload for a business owner. 

Segmented Workforce

A large problem with the PEO structure is one of its biggest strengths as well; you are not actually a part of the company who you work for day in and day out, but are actually employed by the PEO itself. So why is this a problem? It can be hard for individuals to know where to pull direction from; the position they hold at the company, or the actual PEO. Whose rules do you go by? This creates friction between management at the filler company and the employee sent by the PEO.  

Choice is Limited - If At All

As an employer who utilizes a PEO you don’t get to hire the candidate you think best fits the job. You simply receive an employee that the PEO sees fit. This is troubling for many reasons.

  • First, is the employee going to represent your company well?
  • Are they familiar with your area of expertise?
  • Is there a possibility of them being replaced suddenly?

If you’re interested in doing business with a PEO, make sure it is one you trust to do your hiring. Check references, shop around, and ask questions. 

Benefits are Off-Hands

As healthcare prices rise, workplace benefits grow in importance. Typically, companies tout their handsome benefits package to attract (and retain) top-talent. In the case of a PEO this is not true. This isn’t to say a PEO can’t have a great benefits package, but it is now out of the employers hands and completely up to the PEO. Your “employees” can grow unhappy with their benefits package and leave. Again, you are placing the control in the hands of another business. 

If you are seriously considering using a PEO make sure to do your research, ask questions, weigh the benefits, and know how much you will actually be paying. In some cases you could save more by using a PEO, but likewise it could also end up costing you more. To get a glimpse inside the price structure of a PEO, take a look here.

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