varying differences from one employer organization to the next.

Understanding what a professional employer organization is would best be explained in two major categories; regional providers, and national PEOs. For the intent of this article, we’ll provide a basic definition for each type of provider, list their advantages and disadvantages, and explain in detail what kind of companies utilize each one.

Regional Professional Employer Organization Providers

A regional provider is a PEO headquartered in the same state where 80% or more of their clients are domiciled. Most have anywhere from 1,000 – 5,000 worksite employees, and average 50-250 individual clients. Some of the oldest PEOs in the country are regionally based; note that 20 years experience in the PEO industry practically makes one a pioneer. Many regional PEOs we’ve surveyed have a client retention rate of 92% or better, which far surpasses that of most national providers. Two great examples of long-term regional PEOs include Alcott Group, and Landrum Professional. Positives:
  • Flexibility - For those with familiarity in dealing with or competing against the 800 pound gorilla, you understand that although strict obedience to policy can support scalability, it can also lead to some clients getting left behind. Regional Professional Employer Organizations are usually more flexible and can fit the specific needs of a client.
  • Proximity - In a service that has so many moving parts, proximity to your service team, the ability for them to be on-site quickly, and access to upper management has tremendous value, arguably the biggest reasons why regional PEOs retain clients better.
  • Geographic Specificity - Regional PEOs are most familiar with the HR regulations pertaining to their home state. They will also have very competitive benefit packages within their state’s borders.
  • Industry Specificity - Some regional PEOs cater to only one industry, a huge value if you’re in that industry.
  • Big Fish, Small Pond - When considering vendors, would you rather make up 5% of their revenue, or.05%? How will that effect how you’re treated as a customer?
  • Geographic Specificity - Look familiar? The same factor that strengthens them within their own state is a weakness when servicing clients that have employees in multiple states.
  • Limited Size - Although great for customer service, a Professional Employer Organization without critical mass will have less economies of scale, this likely means more expensive insurance products than national PEOs.
  • Limited Resources - when you’re servicing 100,000 work-site employees, it makes sense to invest $10 million in an IT system that allows for greater client self-service. For regional PEOs, their IT systems may be weaker, but on the flip side, they are forced to rely on their people to deliver service – which do you prefer?

National PEO Providers

National PEOs are Professional Employer Organizations that do business as seamlessly as possible throughout all 50 states. There are only a handful of national PEO providers, most have anywhere from 20,000 to 150,000 work-site employees and 1,000 to 8,000 clients. Most national PEOs have a long history, but many have grown through inorganic growth, which there is much debate about in the PEO industry. Getting a true client retention rate from national PEOs is not easy, but from our research we estimate it to be anywhere from 80%-90%. One example of a national provider is Administaff, which is publicly traded, and Alphastaff, a privately owned PEO. Positives:
  • Critical Mass - Since national PEOs have thousands of clients, they have a lot of buying power, and can usually provide a savings to clients for all insurance products, including medical insurance.
  • Multi-State Presence - For employers with their workforce spread across multiple states, a national PEO is likely a great option.
  • Strong IT Systems - Although this can vary, most national PEOs boast a robust IT system that allows for a high level of client self-service – for example, the ability for payroll solutions to be integrated with general ledger software. However as IT systems become more affordable, many regional PEOs offer similar technology.
  • Bells and Whistles - Again, the critical mass of national PEOs often enables them to offer peripheral services that many find appealing. Examples include services such as employee discount programs and online skills training tools.
  • Lack of Flexibility - To remain scalable, national Professional Employer Organizations must rigorously maintain policy and structure, which allows them to provide services at a good price point, but often strict interpretation of policy can be constraining for servicing small companies with specific needs.
  • Another Brick in the Wall - This coincides with the first negative of national PEOs, if you don’t fit into their mainstream approach, and your business makes up.05% of their revenue, they’re not going to bend over backwards for you.
  • Call Center Service Delivery - Although most will tout otherwise, the service delivery approach for most national PEOs is driven through case numbers and process, rather than personalization and relationships. Again, this is a matter of the consumer’s choice.
Thomas Farrell is the founder of PEO Spectrum , the nation’s first free resource for shopping and comparing multiple HR Outsourcing and Professional Employer Organization providers simultaneously. PEO Spectrum has relationships with the nation’s top HRO & PEO vendors, and provides unbiased guidance as to which one is best for their clients. PEO Spectrum offers a free analysis to compare your company’s current labor costs to what can be done through various vendors.

If you’d like to find out more about how PEOs can help you provide great benefits and payroll management at less than you are paying now, contact us today for a free consultation.

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