PEOs Aren’t the Only Game In Town

August 8, 2017 Zuman

So, you’ve outgrown your PEO.

The bad news is that leaving a PEO can be complex and often involves long-term cost analysis and proper timing. Even with the best-laid plans, there can be a significant adjustment period.

But don’t stop reading yet! There’s plenty of good news too.

No More Hurdles

As of July 2016, the Small Business Efficiency Act (SEBA) made it possible for businesses to leave their PEOs any time of the year without facing double taxation. In addition, the Federal Insurance Contributions Act and the Federal Unemployment Tax Act ensure that wage bases won't restart if a company leaves a PEO in the middle of the year. This freedom has allowed companies nationwide to explore other HR outsourcing options.

Now that the tax penalties have been cleared away, all that’s left is figuring out how to take care of the payroll, benefits and HR functions previously handled by your PEO. 

More good news: There are lots of choices and customization within each option. No longer do you have to conform to the PEO’s way of doing things. You can find a solution that works best for your unique needs.

Technology Only

One option is to purchase an HR software product to be installed in-house. You can choose a product that handles something as specific as recruiting, hiring and onboarding, or something more involved that will handle all your payroll and benefits needs. This is a great way to update after a PEO that might have had 20-year-old software. However it won’t come with HR and payroll expertise, so you’ll need to either hire in-house or find another consulting solution.

With each system there is an implementation process that could take 90 or more days, so you need to plan ahead to avoid major disruption. In addition, this solution requires experts to maintain the system, or an in-house IT department to handle updates, customization, and troubleshooting.

Point Solution

Another option is to decide what you can do in-house, and outsource only specific tasks such as payroll or benefits. This solution gives you more control to choose what you get help with and what you handle on your own.

Problems may arise when you work with more than one technology solution. Changes in employee status that affect benefits, payroll and taxes have to be updated in every system separately, leaving room for error that could be costly if it goes undiscovered.

Also, while the point solution will provide a support line for technical issues, if you have questions regarding labor laws or state-by-state requirements, you may need to consult your attorney, which can become very costly as laws change and new ones are added.

Bringing it All Together with HR BPaaS

HR Business Process as a Service (HR BPaaS) combines the expertise and insight of in house HR experts with a single source technology solution. You retain employer status and hire new employees on your own terms. Your company culture, handbook and benefits are all up to you.

When you use an HR BPaaS outsourcing partner, you get effective HR support from seasoned, certified HR experts. In addition to helping you through every HR issue, they stay on top of local, state and federal requirements to ensure your regulatory compliance.

You also get the latest technology that is completely integrated. An employee status change in one area gets updated everywhere, reducing HR liability and preventing costly litigation. 

There’s no denying that PEOs are a valuable tool for start-ups or businesses with only a few employees, but the magic doesn’t last forever. A strong and competent HR department creates the workforce that will help your business achieve success as you scale. Whichever solution you choose will have to be up to the task.


About the Author


Zuman is the premium solution for HR, payroll, benefits administration delivering superior control, lower risk, and enhanced employee engagement for growing companies.

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