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The Top 5 Things to Know Before Joining a PEO

Morgan Heindel
Posted by Morgan Heindel on August 5, 2020

UPDATED 9/6/22

You started your healthcare or medical practice to help people, but you've probably often found yourself buried in administrative work.

With administrative tasks being so tedious, you may have considered outsourcing some of your HR needs. If that's the case, you've likely come across the term “professional employer organization,” or 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 services to providing health insurance plans. 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, PEO services can be beneficial. Top 5 Things to Know Before Joining a PEO

Unfortunately, finding the right PEO company is not always easy and can even be quite time-consuming. In addition, PEOs also have certain drawbacks and may not be the best option for your dental, optometry, veterinary, or other medical practice—especially in terms of financial and operational variables. So, are PEOs really cost-effective options for HR outsourcing? Read on to learn more!

Consider These 5 Things Before Using a PEO

PEOs have their place in the business and medical worlds. However, they're not all created equally. For example, some PEOs are actually certified professional employer organizations or CPEOs. This means they have met all of the rigorous background, financial, and reporting requirements set by the IRS. Therefore, when looking through PEO offers, it's important to look into whether the PEO has received certification from the IRS or not.

In addition, the Employer Services Assurance Corporation, or ESAC, is the Gold Standard among CPEOs. If you're looking to work with the best of the best, you will want to make sure that the PEO has an ESAC accreditation as well. However, it's important to keep in mind that even the best professional employer organizations take a one-size-fits-all approach when it comes to providing services for their clients.

While this makes sense to PEO providers due to issues related to IRS compliance, the need for quick onboarding, and meeting employer responsibilities, this one-size-fits-all approach can alter your entire practice. 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." 

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 could consider. 

Imagine a medical office getting tax benefits for only employing a doctor, registered nurse, and 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.

 

Recommended Reading

HR Awareness Month Compliance Check-Up for Dentists, Optometrists, and Medical Practice Owners

 

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, but, unfortunately, that's not how this works. Top 5 Things to Know Before Joining a PEO

Many PEOs will pitch insulation from legal claims, however, this type of guaranteed risk management is nearly 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. Unfortunately, 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. Therefore, if you keep employees happy by paying them more, this means your PEO cost will be higher too.

You will essentially become an employee of someone else, and after crunching the numbers and looking through the financial statements, you'll often find that you're spending more money than necessary to accomplish your business needs.

 

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4. Performance doesn't dictate raises in salary. 

Providing an employee benefits package and health insurance is a great way to keep an exceptional employee. However, for retention and overall morale, offering salary increases to team members who excel at their jobs is the way to go. Benefits packages simply won't be enough to keep top talent at your practice. Unfortunately, using a PEO turns your practice into a client company where a third-party administrator is in charge of awarding raises. 

This means the medical secretary who goes the extra mile and is continuously working on their professional development may never get noticed by the folks who control raises. Remote PEOs do not know what goes on in your practice or how worksite employees perform. 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. For example, 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 employment taxes and laws.

Recommended Resource

Retirement Tip Sheet Dwnld

 

Consider Your Options Before Going With a PEO

While a PEO might sound great on paper, many dental, optometry, veterinary, and other 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. Top 5 Things to Know Before Joining a PEO

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. However, at HR for Health, our goal is to keep money in your pocket and control at your fingertips.

How HR for Health Can Help

Learn more about PEOs and how HR for Health's all-in-one software can help your practice achieve its goals. Schedule an HR consultation with our HR experts today. HR for Health is one of the nation's leading Human Resources Management Systems (HRMS) used by small to mid-sized practices. 

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

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