13 Questions You Should Ask Every PEO

As the saying goes, it takes only one bad apple to spoil a bunch and this holds true in business as well. As you may have heard, New York based Professional Employer Organization (PEO), Aeden Waterford, allegedly scammed their clients when the company failed to remit payroll taxes and matching employer taxes as required by law. Many of the firms that used Aeden Waterford are currently in collection or default by the IRS, in some cases owing thousands of dollars that they believed that they had already paid. The issue has raised so much concern, U.S. Senator Charles E. Schumer released a letter to the Commissioner of the IRS urging the agency to use all its available resources to aid the small businesses who were allegedly scammed by this unethical PEO.

It’s the news of one bad apple like Aeden Waterford that spoils the reputation of an industry that focuses primarily on helping small businesses. Because the PEO industry is relatively new, there are misconceptions about what the industry does and publicity surrounding an alleged bad operator only adds fuel to the fire. That is why it’s up to legitimate PEOs with high standards like Alcott HR Group and trade associations such as the National Association of Professional Employers (NAPEO) to educate and advocate the industries benefit to the business community and to all levels of government.

When choosing to work with a PEO, due diligence is needed prior to entering into an agreement. We see that many problems that Aeden Waterford’s clients are currently facing could have been avoided if these 13 questions were asked:

  1. Have they complied with PEO-specific registration requirements in the states where you have employees?
  2. Is the PEO accredited by the Employer Services Assurance Corporation (ESAC)? (It is critical to know that the company is serious about providing protection for your monies.)
  3. Are there any Better Business Bureau complaints filed against this PEO?
  4. How long have they been in business? (PEOs need to demonstrate staying power for you to know that they are well managed.)
  5. Have you checked their financial background?
  6. Does your business fit the PEO’s client profile? (You should affiliate with a provider who services clients that are somewhat similar to your company.)
  7. How do they handle customer service? Are their phones answered ‘live’ and are they staffed to handle the incoming call volume? Do you have to navigate through call centers, escalations and so on before you can get a live person to help you?
  8. Does the PEO have an employee/employer self-help website? Is there an integrated payroll and HR information system? How tight is the security?
  9. Do they require their HR and Payroll people to be certified?
  10. Does the PEO offer a choice of medical plans, both local and national? Are the health plans fully insured? Does the overall benefit package fit the needs of your employees?
  11. Does the PEO charge a flat administrative fee per employee or does it base its fee on a payroll percentage? (Flat administrative fees are much easier to understand. Make sure you understand exactly what you will be paying.)
  12. Do you understand their service agreement and what the responsibilities and liabilities of each party will be?
  13. How well does the PEO manage employer risk? Is there a risk management department with trained and certified risk management professional(s)?

Businesses today need help managing increasingly complex Human Resources related matters that have the potential of placing a company at risk. These include such areas as personnel management, health benefits, workers’ compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. Businesses contract with a PEO to assume these responsibilities, which then allows them to concentrate on the revenue-producing side of operations. It allows them to focus on their core competencies to maintain and grow their bottom line. As upsetting as the Aeden Waterford situation is, this one bad apple is not indicative of the majority of vendors in this prosperous and growing industry.



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