>>>How To Choose A PEO?

How To Choose A PEO?

In another article “What’s a PEO?” we touched briefly on what a PEO is, and how they can benefit your business. As mentioned in that article, one of the best benefits of partnering with a PEO is gaining access to the PEO’s more affordable employee insurance rates.

Combined with the other benefits of partnering with a PEO, like payroll services, employee benefits and HR administration; joining a PEO sounds like an easy choice, right?

Maybe in a perfect world. But the world isn’t perfect, and not all PEO’s are created equal.


PEO History Lesson

In the early days of PEO’s, there was very little regulation to the industry, and many PEO’s took advantage of this lack of oversight to the detriment of their client companies. Some PEO executives even went to jail for embezzlement (yikes!).

In the past decade, many new federal and state regulations have been enacted to prevent these shady PEO’s from continuing. Many of these PEO’s were sold off and absorbed by larger PEO’s (yikes again!).


Finally… Regulations!

New federal regulations and institutions were created to provide oversight to the PEO industry.

Many PEO groups were not enthusiastic about these changes.

Some PEO’s (like us) were more than happy to comply with these new regulations, since it provides our clients with peace-of-mind knowing they can partner with trust. The changes also cleared the industry of the less credible PEO’s which undermined the integrity of the PEO industry as a whole.


Ok, So Which PEO Can I Trust?

Outsourcing your company’s payroll and human resources to an outside entity like a PEO requires a lot of trust.

To provide clients with some peace-of-mind, many PEO’s become accredited by an outside agency. There are two major regulatory entities that provide oversight to the PEO industry: ESAC and the IRS. The process of becoming a “Certified PEO” is grueling, and most PEO’s are unable to achieve this, due to the way they’re structured, or because of a shaky history.


ESAC Accreditation

The Employers Services Assurance Corporation (ESAC) is an independent nonprofit corporation that is the official accreditation and financial assurance organization for the PEO industry.

According to ESAC, “Earning accreditation demonstrates a PEO’s financial stability, ethical business conduct and adherence to operational standards and regulatory requirements.” – link to esac.

Here’s a link to every ESAC Accredited PEO in Hawaii: https://www.esac.org/providers/?state=HI


IRS Certification

Only the most trusted PEO’s can get Certified by the IRS. For a PEO to become IRS Certified it must meet tax status, background, experience, business location, financial reporting, bonding and other requirements described in the statute and regulations. Most PEO’s will never achieve this due to the way they’re structured, or due to past history.

PEO’s that are IRS Certified have gone above and beyond the industry standard required financial reporting. With an IRS Certified PEO, you can truly partner with trust, knowing that the PEO must meet these stringent regulatory guidelines.

Not to toot our own horn too much, but HR Hawaii is currently the only IRS Certified PEO that’s based in the state of Hawaii.

The most important benefit of having an IRS Certified PEO is that they have the unique ability to save your unemployment insurance reserve funds.

What the heck’s a reserve fund?

When you’ve been in business a while, your company will generate a reserve fund for your State Unemployment Insurance. Whether you have a reserve surplus or deficit depends on your company history, and whether or not you’ve had a lot of employees collect unemployment. Businesses that do things right generally accumulate a healthy reserve fund surplus that can save them thousands of dollars annually on their State Unemployment Insurance rates.

When joining a standard non-Certified PEO, your company will permanently lose this reserve fund. Poof. Gone forever. Potentially thousands of dollars down the drain.

But with a Certified PEO, you can retain your reserve fund even if you choose to leave the PEO later.

This may not seem like a big benefit, but it’s HUGE! (Seriously.)

You can find a list of Certified PEO’s on the IRS website here: https://www.irs.gov/pub/irs-utl/list_of_CPEOs.pdf


What Services Does The PEO Provide? [And Do You Need Them?]

PEO’s provide many of the same core services, like payroll, employee insurance, and benefits administration.

However, some PEO’s offer more robust services than others, like custom employee handbooks to streamline your new hire training and protect your business from wrongful terminations.

If you own a construction company, a PEO that does workplace safety training and has injury claims investigators might be a good fit, as they can help your employees avoid accidents and keep your workers’ compensation rates low.

Are They Local?

This might sound like a strange question to ask, but PEO’s that are based in other states can struggle to provide services to out-of-state businesses. Each state has different employment regulations and specialize in different industries. It’s often best to partner with a PEO that knows your state and area.

Local PEO’s have also built strategic relationships with local insurance providers, so you may get lower rates.



So there you have it. Now you’re armed with the knowledge to choose a PEO that fits your company’s needs and goals.

As a business owner, there’s a lot to consider when selecting a PEO to help manage your workforce. The most important thing, in our opinion, is whether they’re trustworthy or not.

So remember, the most trusted PEO companies are both ESAC Accredited and IRS Certified.

Besides that, it’s important to find out what other HR services the PEO can provide to your organization and whether or not that aligns with your short and long-term needs and goals.

Most PEO’s, including HR Hawaii, offer free consultations and can walk you through the process of transitioning to a PEO.