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The Smarter Startup

PEO for Startups: Save Costs & Improve Benefits

Reviewing PEO options for cost savings and employee benefits is more complicated than many startups realize and requires a thoughtful approach.

What is a PEO?

A Professional Employer Organization (PEO) allows its participants to outsource many of their human resource functions, share employment liability, and, often, gain economies of scale to bring an improved benefits package to their employees.

What are the Benefits of a PEO for Startups?

For startups, attracting and retaining employee talent is a priority. By partnering with a PEO, startups can give their employees access to a wide range of medical, dental, vision, life, disability, and supplemental insurance plans. A PEO can also enable startups to offer additional employee benefits like commuter benefits, travel discounts, and remote office benefits. A PEO can provide cost savings around these benefits and the technology platform for the startup and its employees to manage benefits.

PEO Renewal

Q4 is the time of year when numerous PEO health plan renewals take place. Startups using a PEO generally consider the renewal period the most convenient time of year to validate where their business stands with its existing PEO provider or to implement a change to that relationship.

Is your startup reviewing PEO options for cost savings or for meeting new employee needs?

This endeavor can be a lot more complicated than startups realize and usually requires a more thoughtful approach to dealing with an existing PEO provider relationship, the healthcare renewal, and a company’s go-to-market strategy.

You may have some ideas on where to start and what the process entails. Still, my experience has shown me that most startups continue to struggle to understand PEO, know which PEO is the right fit for the right reasons, and underestimate the work and time that goes into researching the broader PEO market.

Approaching a PEO vendor review with a few specific goals in mind, like comparing your partnership’s service delivery, reducing costs, new offerings, or making sure your health benefits are in line with industry peers, will help validate the value you receive for the dollars you spend.

PEO Renewal Challenges

Challenges in the PEO renewal process can pop up, and being prepared to address them is important. What if your health insurance renewal increase is sufficiently high enough to be a cause of concern from competing PEO firms? How will this impact the results you may see? Risk underwriting is also a reality in the PEO world and should be considered prior to the beginning of renewal. Also, if a change in partnership is the goal and your startup is larger than an average PEO client, state unemployment tax re-starts can make that more difficult to justify outside of January 1st. This can also help with new vendor negotiations quite a bit via credits or free administrative fees.

Most PEO review projects are generally oriented to bring on this new service, validate an existing PEO partnership, or find a more suitable PEO partnership. A common real-world go-to-market example I have seen many times goes something like this: Due to limited industry knowledge and lack of time, a startup will end up reviewing two PEOs they happen to know through name recognition. One, a highly marketed, tech-driven, and self-service style PEO. The other, a very large, nationally recognized PEO. In many ways, this is comparing apples to oranges due to differing service models, pricing, and corporate culture. This startup is missing suitability in their overall due diligence and most likely won’t end up with the most optimal PEO partner.

Many times during the PEO renewal process, the startup lacks an in-house HR presence. For many startups, resource evaluations around HR technology, benefits, payroll, retirement, etc., might fall on the finance officer’s shoulders, whether outsourced or not. This affects two critical items, knowing exactly where the process should begin and what is realistic about expected results which will impact company goals.

It’s far too easy to start off on the wrong foot in the PEO renewal process and to not understand all the intricacies in the often-misunderstood PEO world. Burkland’s strategic People Operations practice now offers a dedicated PEO team. This team is poised to alleviate the strain of validating, selecting and implementing this important client partnership. Part of this new suite of services is a focus on helping clients analyze and improve existing PEO vendor relationships, as well as select and implement new PEO service provider partnerships when needed. Different HR resources and technology including PEO can have positive implications for startups. Burkland makes the PEO vetting and selection process easier, helping to improve financial outcomes and build the best HR systems to help our clients scale.