Have you reached the point in your business where you need to hire employees? Does the thought of employee taxes, benefits, insurance issues, figuring out vacation, and more give you a headache? You don’t always have to hire the traditional way. Many employers are turning to a Professional Employer Organization (PEO) to solve their hiring issues. In fact, U.S. Department of Labor Statistics predict that by the year 2020, more than half of American employees will be employed by a PEO.

Sometimes called an “employee leasing company,” a PEO takes the hassle of personnel activities such as payroll processing, employee benefits administration, and other human resource administration off your hands. Other benefits of using a PEO include offering your employees better insurance options, since PEOs can group several companies together to get bigger discounts.

However, once you sign up with a PEO, realize you will no longer have any employees, including yourself. Everyone will be employed by the PEO. You still have employee decision-making power, but paychecks are issued by the PEO, and you may not have any say in what health insurance and other benefits are offered.

When deciding on a PEO, here are some guidelines to follow from the National Association of Professional Employer Organizations (NAPEO):

  • Know what you are looking for. Before contacting a PEO, make a list of your human resource and risk management needs.
  • Go to the source. Be sure you can meet with and talk to the specific people who will be representing you. You want to be sure you can trust them to help you meet your goals.
  • Ask for client and professional references. When you contact them, make sure you ask about how the PEO handled certain problems and situations. Were they quick to return phone calls? Were they easy to get in touch with?
  • Investigate the PEO’s history and reputation. How long has it been in business? Use social networks, do online searches and talk to other business owners in your region and industry who use the PEO.
  • Check to see if the company is a member of NAPEO, the national trade association of the PEO industry.
  • Investigate the company’s administrative and management expertise. What experience does their staff have?
  • Understand how the employee benefits are funded. Is the PEO fully insured or partially self-funded? Who is the third-party administrator?
  • Understand how the employee benefits are tailored. Determine whether they fit the needs of your employees and what options you may have.
  • Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out? What guarantees are provided? Under what situations can you or the PEO cancel the terms of the contract, and are there fines or penalties for doing so?
  • Make sure that the company you are considering meets all state requirements.

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