When is it Time to Leave a PEO?

November 28, 2016 Andrew Larsen

Businesses that are looking to grow are in a liminal state. Namely, that phase when a business goes from a small startup to a leader in its industry. It’s a time for adaptation and scaling companywide and a PEO isn’t designed to support companies throughout those changes. Choosing to a leave a PEO will become the deciding factor that leads your business to begin investing in its own HR, payroll, and benefits administration. How do you know that you’re ready for this change? 

Here are a few signs:

Growing Beyond 25 Employees
The average client size of a of PEO is 19 and studies show that businesses generally have success with PEOs when their employee headcount is below 25. This is because a PEO bundles together all their products into packages for small to midsize businesses. These set packages create problems for companies looking to expand.

Starting at around 25 employees is when businesses start to develop their own unique culture and goals. As businesses expand, the restrictions of a PEO can prevent a company from scaling to its fullest potential. Since a PEO is designed to fit large groups of businesses across a variety of industries, a company will find itself receiving an impersonal solution.

If you find yourself wanting to stand above the crowd by building a unique business culture, then a PEO can limit your ability to do so.

Want a Competitive Edge
With set plans and complete control over HR, payroll, and benefits, PEOs limit the innovation that HR can bring to the workplace. While a PEO provides a security blanket when it comes to compliance and automated processes, it also keeps HR from adding additional business value to a company.

An innovative HR is one that is introducing new methods and ideas to decision makers. With a PEO’s plan, a business can only offer the same benefits or policies that others are using. To rise above mediocrity, a business needs to be able to mold HR, payroll, and benefits to match its unique culture and goals to help attract and retain top talent; this can be challenging when PEO restrictions prevent unique adaptations.

Want Greater Control
To truly become captain of their ship, business leaders need to have control over the direction their company is sailing. HR, payroll, and benefits are critical components of what guides a company and without control of those areas, businesses are at the mercy of the wind.

Causes for termination, processes for hiring, behaviors that are unacceptable or rewarded and other HR policies are practices that a business leader needs control over. The ability to implement unique company proceedings is essential, especially when unusual circumstances concerning an employee arise. However, a PEO will step in and limit what processes a business can take when handling its employees.

Benefits are key tools for attracting and retaining top talent. Perhaps you want to attract a certain kind of employee and to do that you need the right bait. Determining your own unique set of benefits and perks will be limited by a PEO’s options. Interacting with brokers to find the right plan for your company will be handled by someone else, effectively limiting your control and options regarding the kind of plans you can offer to lure in high-performing employees.

The Liminal State of Business
As businesses continue to expand, they will find themselves wanting freedom from the restraints of a PEO. However, businesses will still need coaching and guidance when it comes to HR, payroll, and benefits, because they may not have the resources to hire an entire HR team to handle processes. This is the liminal state that businesses can be trapped in, they’ve outgrown a PEO, but they’re still not large enough to operate their own in-house HR, payroll, and benefits teams.

Here is where an HR BPaaS model can help. An HR solution that optimizes this model can be adaptable to meet a company’s unique needs. Businesses that use such a solution will have freedom and control, while the solution handles the behind-the-scenes operations.

Before making the switch from a PEO to an HR BPaaS, there are phases of the transition that businesses need to be aware of. Leaving a PEO isn’t as simple as you might think.


About the Author

Andrew Larsen

Andrew is a marketing Communications Specialist for Zuman, the one solution for HR, payroll, and benefits administration that supports growing small to midsize businesses.

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