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The answer to this oft asked question is "it depends".

 

PEO is less about size and more about trajectory!  Let's take for instance a 3 employee company.  Does it make sense for this company to shop PEOs?  Our answer here at the Distillery is, if you're going to be a 3 person company for the foreseeable future, ABSOLUTELY NOT.  Most if not all PEOs have minimum service charges around 750$-1000$/month that really can't be justified when you could go to Gusto and get Payroll services for $10/month.

 

If however, you are a 3 employee company that just received a round of funding to go hire 8 more people, well then there are some things to consider and perhaps PEO makes sense.

 

The fiscal break even point for when PEO makes sense is typically 10 employees for "good Medical Risk" or "good Worker's Comp risk".  Prior to the 10 employee mark you're usually saving "soft costs" rather than "hard costs", meaning you're not hiring an HR person or burdening your CEO/CFO/Controller with HR and compliance duties. 

 

Okay so, I'm growing and I want to shop PEOs to set the foundation for growth... what are some things to keep in mind?

 

THE PEO AUDIT!

 

If you come onboard with 5 employees you are not going to be getting a good price for when you're 20 employees.  In addition to the service fee, every single employee you add in a new state is going to be getting the "rack rate" on Workers comp... so an audit will bring all the costs back into line and is an exercise in efficiency well worth the minimal investment of time and money we offer it for here at The Distillery.

 

To give you an example of what you can find... we took a 20 person company that came onboard with their PEO 5 years ago, performed an audit, found they were paying 60K more than they would be PER YEAR than if they signed up with that PEO today.  

 

We then showed them how to reset the table with their PEO and capture as much of those savings as possible.