As a PEO operator, you will be a trusted advisor to small and mid-size businesses in areas such as payroll, HR, benefits, workers’ compensation, unemployment, technology, and many other areas. As you grow and win more customers, they will quickly become dependent on your processes. Implementing solid processes will aid you in staying efficient and compliant. Here are some critical steps you should consider as you move forward establishing your operations. Relying on and utilizing industry experts will help you succeed.
A PEO CONSULTANT
Value proposition and service offering. This is an important part of establishing your operations. It will be the initial step in determining your staffing needs and what will differentiate you from competitors. Some items you will need to consider are your benefits offering, master health, or individual plans. Do you require clients to enter their own time or use a time and attendance system? Do you require direct deposit/pay cards and charge if live checks are requested? What will be your administrative fee? In the areas you will be competing, can you charge a percentage of gross or per employee fee? These are just a few of the many items you will need to consider.
Timeline. It is important to highlight start and end dates for items such as creating business processes, choosing HRIS and service vendors, purchasing insurance policies, staffing needs, and anything else critical to your success. Be sure to review this on a regular basis for visibility and to maintain accountability within your organization.
Budget preparation. Create a detailed business plan outlining your projected growth, expenses, and revenue streams. It is particularly important to be aware of your projected costs for the first three to five years. This will provide you with an idea of the capital needed to secure adequate funding for staff and to operate properly. Too many start up PEOs think short-term and find themselves lacking the necessary capital after the first year or two.
References. A good consultant has connections in the industry and can refer you to additional resources such as recruiters, attorneys, HRIS systems, etc. In addition to asking for referrals, it is wise to compare multiple options to ensure their product or service fits your specific organization’s needs.
SOPs. Talk with your consultant about developing standard operating procedures. They are a critical piece of an efficient operation.
FROS Survey. A great resource is NAPEO’s Financial Ratio & Operating Statistics survey. Each year, the survey collects a wealth of information from revenue earned, average number of WSEs, years in operations, average number of clients, internal staff sizes, and average pay of worksite employees. The FROS Survey is a great tool to familiarize yourself with and use as a guide as you make operational decisions.
AN ATTORNEY
Licensing requirements. Depending on the state(s) where you will initially conduct business, it will be especially important to complete the registration and licensing requirements. A law firm knowledgeable in the PEO industry can assist you with the necessary steps. There are states that require licensing before you start conducting business and will impose fines if you start operating before becoming officially licensed. Some states may require the PEO to post a bond.
Regulatory Database. NAPEO’s regulatory database contains a wealth of information on the federal, state, and local levels. A good suggestion is to provide all members of your organization with access to this database and incorporate it into your decision-making process.
Customer Service Agreement (CSA). Your attorney will review the states you are going to be operating in and if their statutes are based on the NAPEO Model Act or not. Some states have PEO statutes that can predate the NAPEO Model Act, which will then require specific issues to be included in your CSA. Work with your attorney to ensure you have the necessary safeguards in place. As your PEO grows and enters additional states, it will be necessary to regularly revisit your CSA to remain compliant.
AN INSURANCE BROKER
It is necessary to obtain insurance coverage such as workers’ compensation, general Liability, directors and officers (D&O), errors and omissions (E&O), and employment practices liability insurance (EPLI). Workers’ compensation policies can be challenging for new PEOs and may require additional capital until you establish a good history with the carrier. As mentioned earlier, depending on the states you are or will be operating in, a bond may be required. Choose a broker who will take the time to understand your business and explain all your options for your organization.
A RECRUITER
Seek out one who is active in the industry. PEO knowledgeable recruiters have a good understanding of their candidates’ skillsets/work history. This will aid you in your search for qualified candidates. Poor hiring choices cost businesses critical time and money which can cause you to miss important deadlines. In most cases, a start-up’s first hire will be an experienced operations leader, familiar with the PEO industry, and can take the lead in establishing the groundwork for your operations.
Let’s face it, it will take time and money until you have a full staff for each department. What areas of the operations can you outsource in the initial stages? Take the time to review industry vendors and inquire if their services can augment your operations. Can your benefits third party administrator (TPA) offer additional services until you have a full benefits department? Would it be cost effective to outsource the handling of your unemployment administration?
Refer to your timeline and budget to determine when you need to hire additional staff. In some scenarios, a startup will hire PEO professionals who have experience in more than area of the business. For example, they may bring on a tax specialist who can also process initial payrolls, giving you breathing room to onboard your first couple clients. It is not a recommended long-term solution, so you will want to monitor your timelines and hire additional staff as soon as possible. This will allow you to build your foundation and develop the necessary processes.
AN IT VENDOR
Establishing proper cybersecurity protocols is critical as threats are even more prominent than ever. You need an IT vendor who can maintain your IT infrastructure and be responsive to your needs. Here are a few suggestions to implement to protect your data: Phishing simulations and security monitoring; Email Encryption and SharePoint/File DLP Policies; Cloud Check Printing; and, HIPPA and SOC2 Compliance Assistance. Regular meetings with your IT firm will help to ensure you are protecting your data from current threats. A suggestion is to include your IT vendor in your security discussions with your HRIS vendor.
CHOOSE YOUR HRIS SOFTWARE
Your HRIS software will be the core of your operations, and it is important to carefully vet your choices. Prepare a checklist with questions and have the software vendor respond in writing to your questions.
Schedule multiple demonstrations in each area to get a complete understanding of the software’s capabilities and processes. Some capabilities you should review are: New Client Implementation; Employee Portal/Mobile App; Employee Onboarding; Electronic Benefits Enrollment; Benefits Administration and Reconciliation; Payroll Processing and Multi-state Tax Handling; Reporting and Data Export; and Importing Capabilities.
Also, be sure to ask for references for current and past customers. Other points about an HRIS to consider are:
Pricing/Modules: How does the pricing scale as you grow? Are there modules not included in the base pricing and if so, what are they? Negotiate a cap on price increases if possible.
Service Agreements: Be sure you fully understand the terms of the contract. Ask legal to review and outline any concerns.
Third Party Vendors and APIs: How easy it is to integrate with other vendors and what are the costs?
Implementation Process: Ask for an implementation timeline and be sure to establish a realistic date you will be “live” on the system. How many hours are included and what are all the costs, what options do you offer around training new employees as your organization grows?
Support: How do you contact their support – via email, chat, phone, and/or support cases? What is their Service-Level Agreement (SLAs)? Can your business operate efficiently with the proposed SLAs? What is their process for high priority cases?
Data: In the event of a termination of service, will you receive your data in a readable format, and will there be a fee?
Customer Service: Who will be available for questions outside of regular support? Will you have a CSM assigned to your account?
Take the information you receive from each software vendor and consolidate it into one document. Hold internal meetings to review the information collected. Software implementations are a large undertaking for a PEO and it is best to choose a system that best suits your specific business model and service offerings.
Once you are up and running, remember that setting up a PEO is extraordinarily complex, and growth brings additional complexities. Continuing to stay up to date with changes in laws, regulations, and compliance will be particularly important, as well as continuously improving your services. Choosing partners who best suit your business, providing top-notch customer service, and developing strong processes will be critical to your overall success.
Lastly, the PEO industry is like one big family so ask for help if you have questions. If you are not sure who to contact, reach out to NAPEO and they will gladly connect you with the best resource.
This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs.