Is a PEO the Right Fit for Your Small Business?
For small businesses, managing employee benefits and retirement plans is a critical but challenging responsibility. These tasks often fall to HR administrators, who already juggle multiple roles, making it difficult to dedicate the time and resources needed to handle these functions effectively. Without proper oversight, businesses risk non-compliance, employee dissatisfaction, and operational inefficiencies.
One popular solution is outsourcing to a Professional Employer Organization (PEO). A PEO offers a co-employment arrangement in which it takes on core HR responsibilities such as payroll processing, benefits administration, regulatory compliance, risk management, and HR consulting. This partnership allows small businesses to streamline their HR operations and focus on growth while maintaining control over day-to-day management and employee roles. However, while PEOs provide significant benefits, they also come with potential drawbacks that businesses should consider before committing to this model.
The primary advantage of working with a PEO is the significant reduction in administrative burden. By automating routine HR tasks, PEOs free up time for small business owners and HR managers to focus on strategic priorities. Additionally, PEOs often negotiate better rates for benefits and insurance due to economies of scale, providing small businesses with access to affordable, high-quality benefits typically reserved for larger companies.
However, there are downsides to consider. PEOs can limit flexibility and control over critical processes, such as making adjustments to benefit plans or payroll systems. Additionally, customer service quality can vary, which may result in delays or frustrations when resolving issues. Businesses relying heavily on a PEO may also lose valuable institutional knowledge about HR processes, making it challenging to transition away from the arrangement if needed.
Fred Barstein, CEO and founder of TPSU, recently discussed PEOs with Mead Maney, an HR manager for a company of 45 employees, following a TPSU program on the campus of Marquette University. Mead shared his firsthand experience with a PEO, highlighting both the benefits and challenges.
On the positive side, Mead noted that his PEO significantly reduced his workload by handling HR and 401(k) functions, enabling him to focus on other aspects of his role. However, he also expressed frustration with the lack of control over systems and processes. Even simple changes required navigating the PEO’s procedures, which he found cumbersome. Furthermore, customer service was less than ideal, creating additional hurdles when seeking timely support.
Read the Full Transcript Here:
Fred Barstein:
Greetings. This is Fred Barstein, CEO and founder of TPSU and 401kTV. Just completed a program at Marquette University in downtown Milwaukee. And I’m here with Mead. Welcome, Mead.
Mead:
Thank you.
Fred Barstein:
Okay if we ask you a few questions?
Mead:
Yes.
Fred Barstein:
Very good. Before we do, tell us a little bit about yourself and the size of your organization.
Mead:
Yeah. My name is Mead and I am a human resources manager for a company of about 45 people.
Fred Barstein:
45 people. Great. So one of the things you talked about is you use a PEO, which includes the 401(k) as well as all the HR. Why’d you pick a PEO?
Mead:
Well, I was actually hired after the company had selected a PEO, so I kind of inherited it.
Fred Barstein:
Right. But have you ever worked with a PEO before?
Mead:
No. This is my first experience.
Fred Barstein:
Okay. So what are the things you like about a PEO and what are the things that you didn’t like so much?
Mead:
Well, what I like about a PEO is you kind of set it and forget it. They do a lot of things behind the scenes that take a lot of work off of my plate. But with that, there’s a greater lack of control. I have very little control over what I can do in their systems. Making any changes, anything like that is very difficult.
Fred Barstein:
Right. Communication may be a little bit limited on that.
Mead:
Yeah. Yeah. Customer service is not the best.
Fred Barstein:
Right. So yeah, I mean, you give up stuff by not having to do the work, but then you lose control on it, so. And there are more and more what are called pooled and player. It’s like a PEO, but just for your 401(k).
Mead:
Correct.
Fred Barstein:
To do that, so. Well, great. Well, thank you for your time here, but tell us a couple of things you learned here and why a plan sponsor might want to attend a TPSU program.
Mead:
Yeah, coming here, obviously looking for something other than a PEO, I wanted to learn a little bit more about what’s current and what other companies like mine are doing in the area. And it was refreshing to hear and meet a lot of professionals, whether they’re plan sponsors or advisors, and just really dig into this information and learn a lot about what a fiduciary is responsible for and the serious role that it is within the company.
Fred Barstein:
Great. Well, thank you for your time again. And thank you for watching 401kTV. Please stay tuned.
Mead:
Thank you.
