When researching the benefits of working with a PEO, make sure you also understand potential disadvantages. Like in any industry, all PEOs are different. MidwestHR continually collaborates with clients to understand and address any concerns so we can offer the best possible solutions. Typical issues or frustrations experienced with other PEOs, don’t happen with us.
Limited Choice – PEOs are able to leverage their buying power to secure competitive pricing on health insurance. While many PEOs offer a wide variety of plans, the challenge is that they are from one carrier chosen by the PEO. The PEO may also change carriers without notice, forcing your team to scramble and check on whether or not their providers are in network. This could be very disruptive if any employees see a specialist. If carrier flexibility is important to you, there are PEOs that offer multiple carrier options. MidwestHR offers many carrier choices, including traditional market providers, as well as non-traditional programs for health insurance.
Bundled Price – Frequently PEOs bundle services together and charge a flat rate. That means you may end up paying for services you don’t want. This lack of price transparency can be very disturbing for companies looking for a trusted partner. Ask for an itemized list and explanation of everything included in the package. Another option is to look for a PEO that offers a la carte packages, like MidwestHR. That way you can select the exact services needed. Plus with our focus on price transparency, you can get a detailed explanation of charges.
Tax Liability – When you contract with a PEO, the PEO is responsible for administering payroll and paying federal employment taxes. The IRS, however, is not bound by any agreement between your company and a third party (the PEO). If, for any reason, the PEO doesn’t pay employment taxes, your company is still liable. While unlikely, it’s an important factor to consider. The IRS initiated a voluntary program in 2017, IRS Code 7705, that Certifies Professional Employer Organizations (CPEOs) that meet the rigorous qualifications. Working with a CPEO protects clients because they are the designated “agent” for your company and solely responsible for payroll taxes and penalties. As a CPEO, MidwestHR prioritized securing this certification right away to give our clients guaranteed protection against tax liability.
Double Tax Payment – Any business switching mid-year to a PEO will trigger a “wage base restart” which requires employers to pay taxes again. Reason being, every employer has a federal employer identification number (FEIN). Taxes paid under the employer’s FEIN cannot be transferred to the PEO’s FEIN. To avoid this issue, CPEOs are considered a “successor employer.” If a company switches to a CPEO mid-year (as opposed to a PEO), the taxes paid will be transferred to the CPEO’s FEIN and the wage base restart problem is eliminated. Another reason why MidwestHR became one of the first PEOs to be certified by the IRS.*
Poor Customer Service – When companies have an HR crisis, they need answers fast. Clients don’t want to waste time in a telephone cue or explaining the issue to someone who doesn’t understand their business. By virtue of their large size and turnover rate, this can be an issue with larger PEOs. When interviewing prospective PEOs, ask who will be your designated client contact, how long they’ve been with the company and if your employees will get direct access. One of our core values is “Perfect 10” Level of Customer Service and clients of MidwestHR can expect direct access to a tenured, dedicated account contact.
As a top Chicago PEO, MidwestHR is always looking for ways to evolve to meet clients’ needs. It differentiates us from other PEOs and makes our client’s and their employees’ lives easier. That’s a win-win in our book. Give us a call at 630-468-9286 to learn what is a PEO and how it can benefit your business.
