Open-plan office with employees working at stations at long tables.
When choosing a PEO, you'll want to consider many qualities, such as whether the organization is familiar with your business's industry and if it has been audited. — Getty Images/Luis Alvarez

Once you decide to move forward with a professional employer organization (PEO), it's time to find a service provider. You have hundreds of options, yet not every PEO serves your geographical location or industry. Before choosing a PEO, decide what services your small business needs and what standards prospective organizations should meet.

Ensure a fruitful relationship by sidestepping common pitfalls and understanding your agreement. You can use our list to find PEOs and begin your vetting process. Follow these steps to get started.

Questions to ask when choosing a PEO

Get together with decision-makers to compile a list of questions to vet PEO companies. You should involve your human resources, accounting, and legal team members. Since your company is entering a co-employment relationship, it's vital to do due diligence and thoroughly research each aspect of prospective PEO organizations.

Compare PEO service providers by asking the following questions:

  • Has the organization been independently audited? Look for third-party assessments of financial statements by certified public accountants (CPAs) or risk management practices from the Certification Institute. The Employer Services Assurance Corporation (ESAC) audits PEOs for financial reliability and best practices.
  • Can the PEO support your locations? Not all PEOs work nationwide or internationally. If you have several business sites or remote employees, speak with prospective PEOs to see where they can legally operate.
  • Is the PEO familiar with your industry? If your business model or sector is less common, working with a PEO that’s previously dealt with similar companies is especially important. Ask for references, testimonials, or examples of organizations with comparable revenue, workforce size, and industry specifics.
  • What are your customer support options? Consider PEO services with 24/7 support across multiple channels like live chat, phone, and email. Also, ask if you have access to specialized team members who can offer specialized advice, not generic customer service.
  • How are employee benefits funded? PEOs may offer fully insured or self-funded plans. The employer responsibilities differ for each model. But in each case, the third-party administrator (TPA) or carrier should be reputable and authorized to provide insurance in your state.
  • What types of benefits and plans do you offer? Since benefits are a critical reason for choosing a PEO, you want to be sure the company provides top-notch choices. Ask about their partnerships with carriers and ensure availability for employee locations.
  • What are the contract length and renewal terms? While some PEO providers require a one-year agreement, others request a longer period. Remember to ask about the cancellation policy and related fees. In addition, the company should be transparent by telling you how much their prices have increased historically.
  • Can I demo the employer and employee technologies? Most PEO services include human resources software and employee portals. These tools must be user-friendly and mobile-responsive. The PEO should walk you through the technology stack or explain how they work with your existing tools.

[Read more: Managing Your Own Payroll & Benefits? Why It Might Be Time to Consider a PEO]

PEO features and services to consider

On a basic level, most PEO providers handle payroll processing and employment tax filing. Dedicated experts administer your benefits and may help with onboarding, developing employee handbooks, or managing risk. Some tailor plans for your company, allowing you to choose the services you need now and add features as your business grows.

PEO companies can assist in the following areas:

  • Workforce recruiting and hiring.
  • Employee benefits administration.
  • Staff payroll services, including federal, state, and local payroll tax filing.
  • Unemployment and workers’ compensation administration.
  • Compliance management for labor and workplace safety laws.
  • Employee training, development, and performance management.

PEO providers should willingly offer an example service agreement and a detailed breakdown of fees. Hidden fees or a lack of transparency do not bode well for a co-employment relationship.

Potential pitfalls to watch out for

PEOs can be hands-on with an office nearby, where you meet in person frequently. Others operate entirely online. No model is better than another, as it depends on your preferences. However, there are certain red flags to avoid.

For instance, the PEO service should provide its staff support ratio. This metric tells you how many service members they have compared to the total number of client companies’ employees. A low staff support ratio could mean a poorer level of customer support.

When looking at reviews and testing the software, pay attention to the user experience and level of support offered. Complex onboarding and workflows can hinder buy-in and increase training time. Both cost more money in the long run. And employees want an excellent, user-friendly portal accessible from their cell phones. If a PEO’s technology stack is outdated, you might question if other aspects are also behind the times.

PEO providers should willingly offer an example service agreement and a detailed breakdown of fees. Hidden fees or a lack of transparency do not bode well for a co-employment relationship. Also, consider the company’s overall reputation and leadership.

The bottom line is that partnering with a PEO means aligning your brand with this company. Anything they do as a corporation reflects on you. If you choose poorly, you could lose employees and customers or have a harder time attracting new team members. Check out Glassdoor reviews and ensure that the PEO’s mission and values match your corporation’s.

[Read more: PEO Facts for Business]

Find a PEO for your small business

You must complete an application or supply the organization with your business information to receive a quote. Typically this includes your workforce total, payroll register, and an overview of your current benefits. Often PEOs will ask for basic data and follow up with additional questions.

Here are three places to begin your search:

  • Consider choosing a NAPEO member company: NAPEO encourages PEOs to follow a code of ethics and best practices. The organization represents hundreds of PEOs. Use NAPEO’s search tool to find a PEO.
  • Look for IRS-certified PEOs: According to the IRS, a certified PEO (CPEO) “has met the background, experience, business location, financial reporting, tax compliance, and bonding requirements described in the statute and regulations.” See this list of active CPEOs.
  • Check with state and local agencies: Many states have online tools to see a PEO’s license or registration status, often through a Department of Licensing and Regulation. Also, you can verify the company’s information with local and state chambers of commerce.
  • Review best-of guides: Several publications compare PEOs and discuss the differences between pricing, features, and benefits. Check out Business News Daily’s Best PEO Service Providers or Forbes Advisor’s Best PEO Services.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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