In consulting, to compete for top talent, benefits are a must-have. Yet, where do you start and how can you possibly afford to do so when you don't have the size to negotiate rates?
I'll let you in on a secret I've shared many times. Use a PEO, or Professional Employer Organization. This solution will not only allow you to provide employee benefits, it will ensure you are compliant with labor laws and an extensive list of other HR-related needs.
How a PEO Helped My First Consulting Firm
Before I started my supply chain technology consulting firm, and sold my shares five years later after hitting $10 million in annual revenue, I worked for a large 3PL (third party logistics) corporation. While they had presence in Europe and Canada, they had no true presence in the United States at that time so we leveraged a PEO to provide benefits for our fledgling US-based management team.
Fast forward to the start of my consulting firm, we were reviewing the competitive landscape and discovered the majority of our closest competitors were not offering benefits, or if they were, the options were limited and less than generous.
When you're recruiting six-figure talent, benefits are expected.
Thanks to my past experience, we knew where to turn. My consultancy partnered with a PEO and it immediately helped differentiate our firm for those first few, critical hires. When you're recruiting six-figure talent, benefits are expected. This infusion of talent was one of several reasons we were able to out maneuver our competitors and grow into a reputable consulting firm at a rate of 1900% over our first three years in business.
So, What Is a PEO Anyways?
In a nutshell, a Professional Employer Organization provides small and mid-size businesses with a variety of human resources services. Some of the most common services include:
Payroll administration and processing
State unemployment insurance
401(k) retirement plans
Insurance plans (medical, dental, vision, life, etc.)
As a small consulting firm, you would have access to all or many of these services based on your needs and the individual capabilities of the PEO.
The twist here is that, in most scenarios, the PEO would be the employer of record for each employee to enjoy the services offered. However, your consulting firm would handle the day-to-day management of employees. It's sounds complicated yet, in practice, it's not.
According to a recent study from McBassi & Company, businesses that use a PEO have 40 percent higher revenue growth, 14-16 percent lower turnover rates, and are 50 percent less likely to go out of business than companies that do not use a PEO. This feels like a no-brainer to me.
There are many national level PEOs yet I wouldn't completely count out regional ones given they may very well offer high-touch services that do not scale as well and are often easier to interact with if in-person meetings are important to you and your team.
If you have employees in multiple states or in multiple countries, there are PEOs that specialize in the unique challenges that stem from these arrangements. Namely, the government and tax compliance challenges that would be likely overwhelming for a small consulting firm.
According to NAPEO, PEOs provide services to between 156,000 and 180,000 small and mid-size businesses, while employing between 2.7 and 3.4 million people. As you can see, they have the scale to negotiate excellent terms and the breadth and depth to handle complex employment situations that a typical small business would not have on its own.
Typically, a PEO arrangement is the easiest way for your consulting firm to offer Fortune 500-quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits.
Pros and Cons of a PEO
While the PEO concept is an attractive option for small to mid-size consulting firms, it's not without pitfalls. With any path, there are positives and negatives to be considered.
Reduced administrative drudgery: If you partner with a PEO, all the boilerplate human resource tasks will be outsourced. This gives you more time to focus on the day-to-day operations of your business where you can add the most value.
Expanded and higher value benefits: Your consulting firm will have the opportunity to enroll in benefits that are usually only available to large corporations. Your employees will routinely have access to health plans at lower costs compared to dealing directly with insurance companies. This means better healthcare, retirement and workers' compensation coverage for your firm and employees.
Better talent acquisition: With better benefits and more robust HR policies, you should be able to more easily attract top talent in your industry. And, if you need help hiring, onboarding or even terminating an employee, those topics are covered by most PEO offerings. Your PEO may also provide other resources for posting job openings online and managing the interview process.
Legal compliance and protection: PEOs are experts in ensuring your business complies with state and federal regulations. This includes tax structures, HR law changes, worker safety compliance and other risk compliance factors. In fact, you're partnering with a larger company that can provide resources in legal battles as well as provides civil defense and employment liability insurance in case a former employee sues your consulting firm for discrimination or wrongful termination.
Giving up control and responsibility: If you likes to have your hands on every part of your business, partnering with a PEO may be a tough adjustment. PEOs are organized to lift some of the weight of your business off your shoulders, so be aware of where you will and will not be needed once you bring a PEO on board.
Health insurance changes: While you will have access to better health benefits, you and your consulting firm may be limited by what the PEO offers. Depending on what state you operate in, your insurance provider could change throughout your contract with a PEO - they are always on the lookout for the best deals.
Impersonal: The hope is that the PEO you use treats your company and employees as if they were its own. While this is great in theory, many PEOs are still very large companies that serve thousands of small businesses. It's possible that your business and workers could be lost in the shuffle at some point. As you look for a PEO, get a sense for the company's commitment level and how present it will be in providing you with services. Remember, you can usually cancel your services if you provide the proper notice.
Setup and transition: When you bring in a PEO, some of your business operations will have to change. It could take time for you and your employees to adjust to the new methods and processes. I would recommend taking advantage of training material.
What to Look for in a PEO
There are a lot of PEOs out there so get ready to do some homework. It's important to understand your own needs first to have an idea of what you want once you start talking to different companies.
If you've already done so and are evaluating several companies, here are a few questions and considerations to keep in mind as you mount your search.
As your business grows, will the PEO service be able to grow with you? What kinds of services can you add on as you grow?
Is it an industry-accredited PEO? There are two main types of accreditation that prove the PEO is in good standing financially and has the resources to offer you good service: IRS certification and Employer Services Assurance Corporation (ESAC) accreditation.
Does the PEO have positive referrals? Combing through online reviews and talking with other business owners can help you understand if the PEO practices what its sales team preaches.
How can the PEO tailor services to fit your business's specific needs?
What support channels does it offer? Some PEOs offer live chat and FAQs pages in addition to email and phone support. Which communication method works best for you?
What is the contract structure and cancellation policy? Does it require a long-term contract or let you cancel anytime?
Does the PEO have a team that's trained to know federal, state and local labor laws? This is especially important if your team is spread across the country.
What kind of user access does the PEO offer? Is there an online payroll portal or mobile app? For me, self-service options are hugely important.
What does the overall cost structure look like? Does it charge per employee or take a percentage of your total payroll?
What kind of customer service does it offer? Will you have personal access to a team of skilled professionals? Is there an IT support line you can call in case you have technical problems after hours?
I’m sure there are many more considerations yet wanted to get you started. Please share your thoughts in the comments below so others benefit as well.
The Bottom Line for Consulting Firms
For the vast majority of consulting firms, a PEO is an excellent option to help you grow. You get access to professional HR resources and can effectively compete for talent with much larger consulting firms.