Selecting a Professional Employer Organization

How to select a professional employer organization

A professional employer organization (PEO) can help a business attract and retain a productive workforce, manage employer risks and relieve owners and key staff of time-consuming administrative and regulatory compliance burdens (see On the Wave of a New Industry, JofA, Mar.98 ).
However, outsourcing these responsibilities to a PEO is not without risks, and choosing the right service firm is critical for success. The following evaluation guidelines will help you or your clients select the best PEO.

Can the PEO meet your specific goals? Remember, sales brochures and fancy proposals may be deceptive. Always ask for client and professional references.

Investigate the competence of the companys internal staff. Inquire specifically about the experience and depth of the staff that will be serving your company.

Check the firms financial background, including bank and credit references. Ask the PEO to prove that it pays its own payroll taxes and insurance premiums in a timely manner.

Make sure the PEO adheres to important ethical, financial and operational standards, such as those established by the Institute for Accreditation of Professional Employer Organizations. The IAPEO standards are listed at .

Is the PEO a member of the National Association of Professional Employer Organizations? Does it participate in industry training opportunities to stay current on industry and regulatory developments?

What specific types of employee benefits can the PEO provide? Do they fit the needs of your employees? Determine whether the benefits are fully insured or partially self-fundedassessing the financial stability of the PEO is vital if the insurance programs are partially self-funded.

Review the service agreement carefully. Are the responsibilities and liabilities clearly laid out? What guarantees are provided? What provisions permit you or the PEO to cancel the terms of the contract?

If your state requires a PEO to be licensed or registered, make sure the company you are considering meets all the states requirements.

Source: The Institute for Accreditation of Professional Employer Organizations, Bethesda, Maryland.


©1998 AICPA


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