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Top 5 Things to Know Before Joining a PEO

Giselle Solorzano
Posted by Giselle Solorzano on August 5, 2020

UPDATED 5/24/21

You started your medical practice to help people, but you've probably often found yourself buried in administrative work. This is such a hassle that you may have considered outsourcing several tasks in your office. If that's the case, you've likely come across the term 'professional employer organization' (PEO).

These firms create a form of co-employment relationship with small and medium-sized businesses to help them manage administrative tasks that range from payroll processing to benefits administration. Whether it's letting a chiropractor's receptionist get back to greeting clients or a dentist that no longer has to take an hour off every day for paperwork, PEOs can be beneficial.

Unfortunately, they also have their drawbacks and may not be the best option for your practice—especially in terms of financial and operational variables. If you're unsure whether it's cost-effective to work with PEOs or if they can meet your practice's need, contact HR for Health today for a better solution.

Consider These 5 Things Before Using a PEO

PEOs have their place in the business and medical worlds. Of course, they're not all created equally. Even the best professional employer organizations take a one-size-fits-all approach that can alter your entire practice. This makes sense to them thanks to issues related to IRS compliance, the need for quick onboarding, and meeting employer responsibilities. 

Unfortunately, this methodical approach sometimes results in a loss of control over key benefits and HR functions. This can make you less competitive, so make sure you consider all the following issues before jumping into the world of PEO.

1. You may be stripped of your employee-related benefits of being a “small business owner”

As reported by SBDCNet, the U.S. physician industry includes approximately 225,000 offices. The report lists about 75 percent of these offices as "small." If your medical or dental practice falls into this category— employing between 1-10 people—you are subject to different regulations compared to larger businesses. 

Once healthcare employers partner with a PEO, all their employees will essentially get “terminated” and then rehired by the PEO. The professional employer organization becomes the “employer of record” for tax purposes. An administrative services organization (ASO) performs the same PEO functions without taking your employees, so that's certainly something you should consider. 

Imagine a medical office getting tax benefits for only employing a doctor, registered nurse and a receptionist, and then suddenly having them stripped away because they become part of a PEO with 1,000 employees. This can cause increased regulations and costs.


2. You will face increased legal liability 

Losing control over things like salary, onboarding and the termination process might be worth it if you're able to shield yourself from all labor-related legal liabilities. Unfortunately, that’s not how this works. 

While many PEOs will pitch insulation from legal claims, this is near impossible to achieve while running a medical practice. For example, your contract will most likely state that if you or the PEO get sued by an employee, you will be responsible for attorney fees and any associated settlements. 

This means you may still need employment practices liability insurance (EPLI) when using a PEO. You will remain legally liable for all employee litigation—whether it involves compensation or harassment. The PEO industry isn't quick to disclose this.

3. PEO fees can be shockingly high 

These organizations typically make money in one of two ways. The most common method is by charging a fixed cost plus additional fees based on your payroll. These fees are percentage-based, so if you keep employees happy by paying them more, that means your PEO fees will be higher. 

For example, most PEOs offer pricing between 3 to 15 percent of your gross payroll. It is also not uncommon to receive a bundled quote which results in additional fees for services you thought were included. Although you may own and operate your practice, it is not uncommon for professionals in your position to end up being paid through the PEO. 

You will essentially become an employee of someone else, and after crunching the numbers, you'll often find that you are spending more money than necessary.


4. Performance doesn't dictate raises in salary

Providing health insurance and other benefits is a great way to keep exceptional employees. For retention and overall morale, though, offering salary increases to team members who excel at their jobs is the way to go. Unfortunately, using a PEO turns your practice into a client company where the organization is in charge of awarding raises. 

This means the medical secretary who goes the extra mile may never get noticed by the folks who control raises. Remote PEOs do not know what goes on in your practice. That's why HR software services like HR for Health—which assist in administrative duties without taking over—are often the way to go. 

If you want your best employees to get the recognition they deserve, don't cede power to an outside organization. Contact HR for Health and we'll explain how we can help your practice succeed without losing control. 

5. You may still be responsible for payroll, employee benefits, and more

Even if you found the best PEO within the National Association of Professional Employer Organizations (NAPEO), you wouldn't suddenly be free of handling payroll, benefits and certain other administrative tasks. Employee benefits, payroll taxes, COBRA and complying with regulations may still be your responsibility because of eligibility management requirements and other nuances of local, state and federal law.

Consider Your Options Before Going With a PEO

While a PEO might sound great on paper, many medical offices would be better off working with a team of HR professionals that doesn't act as an employer. More often than not, PEOs will only lead to a loss of control and increased costs over the long run.

You could lose everything from the ability to choose your workers' compensation carrier to selecting HR solutions that are better suited for your practice. We understand this could be difficult since you’ve worked so hard to open and operate your medical practice. At HR for Health, our goal is to keep money in your pocket and control at your fingertips.

Schedule an HR consultation with us today to learn how we can help your practice achieve its goals.  If you are a current HR for Health client and have additional questions, please reach out to our team by calling 877-779-4747. Please keep in mind that due to an influx in questions related to the COVID-19 outbreak, our response time may be slower than usual, but we will get back to you as soon as we can! 

If you are not a current HR for Health client and have additional questions, please schedule an HR consultation with us by booking time here or calling us at 877-779-4747, option 1.


Learn more about the PEOs with the experts at HR for Health. Contact us by phone at 877-779-4747 or by emailing today.

HR for Health is one of the nation’s leading Human Resources Management Systems (HRMS) used by small to mid-sized practices. 

Quick note: This is not to be taken as legal or HR advice. Since employment laws change over time and can vary by location and industry, consult a lawyer or HR expert for specific guidance. Learn about HR for Health's HR services.

Topics: HR Tips, general hr, peo, human resources, hr services

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