5 Risks To Be Aware Of When Choosing A PEO
Many small and mid-sized businesses find it challenging to manage a human resources department and all of the tasks that come with it. Tasks such as employee onboarding, benefit analysis and payroll management require a high level of skill and attention. To be proficient in all these areas, you’ll need extensive information and support that can be tough to obtain. Many businesses collaborate with a professional employer organization (PEO) to aid with this.
Undoubtedly, the PEO model has helped businesses focus on their core business function and growth by taking these HR burdens off their shoulders. However, despite the evidence and statistics supporting that PEOs can provide numerous benefits to businesses, there are also certain drawbacks.
Before turning over your HR functions to an outside service, it is important to understand the risk associated with using a professional employer organization (PEO). Here are 5 of those risks to carefully consider before choosing a PEO.
1. Employees may have limited access to HR
No matter the size of a business or industry, employees within an organization may likely face difficulties in the workplace ranging from issues associated with employee safety, to withheld benefits and so on. When that happens, employees may need to reach out to the HR department to help them navigate those issues.
Recent studies have shown the importance of the role of HR in clarifying employee identity within the work environment. Outsourcing HR functions to a professional employer organization (PEO) may result in very limited access to HR by the employees since the PEO may be serving several clients with various employees.
Your employees may have to endure communication delays when the human resources department –in this case, the PEO– is not immediately accessible. You could risk making them feel frustrated and insignificant to your organization. Employee morale is usually affected as a result of this.
In cases like this, the employer’s reputation is perceived as bad, as is your company’s. In fact, 50 percent of employees say they wouldn’t work for a company with a bad employer reputation, even for a pay increase. Similarly, more than 80 percent of job seekers admit that a company’s reputation factors into their decision to apply for a job.
So, working with a negligent or hard-to-reach PEO may limit your access to the best talents. Ironically, that’s the reason you hired a PEO in the first place.
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The best PEOs can manage practically every human resource responsibility, saving you time and effort. However, it may come at the expense of your ability to control the narrative of your workforce.
Executives may relinquish too much control over the business’ human resource responsibilities after outsourcing to a PEO or become overly reliant on the PEO service provider. This can be not comforting to some business owners who are particular about how their employees are treated.
For businesses that seek complete control over their HR processes, PEOs aren’t the best option. However, one approach to get around this is partnering with a PEO solution that allows customization rather than predefined service bundles. This allows you to keep control of some procedures while getting the assistance you need in other areas.
3. Delayed communication and issue resolution
PEOs serve a large number of employees which allows them to provide reasonable insurance plans and perks that small businesses might not be able to provide. According to NAPEO, PEOs provide services to over 173,000 small and mid-sized businesses, employing 4 million people in the U.S. This large number of employees and clients makes it difficult for them to pay quick and close attention to certain employees and clients when needed. As a result, communication and conflict resolution are delayed and frequently ineffective.
50 percent of employees say they wouldn’t work for a company with a bad employer reputation, even for an increase in pay.
Some PEOs do not offer client-dedicated support. Instead, client companies have to communicate with whichever representative is available. This can cause a huge communication gap. Also, time-sensitive matters can get complicated with this approach.
To avoid this, it is essential to clarify with your prospective PEO if you will be assigned a dedicated HR service representative upon contract agreement.
4. Risks of Information Leaks
Leading PEO brands to comply with data privacy laws, including GDPR and CDPA. However, they must share employee and client data with third-party organizations to ensure effective integration and interoperability with other software providers. While this is done with the utmost caution, there is still the risk of employee information leakage.
In HR, privacy and confidentiality are crucial for many reasons. Not many people are comfortable disclosing their salaries, bonuses, and benefits. Their personal address and medical records may also reach the public eye in the case of a leak. This can severely damage the reputation of your company as well as the PEO’s.
Nevertheless, these leakages and privacy breaches are not entirely the PEO’s fault, nor is it your company’s. Hacks happen, even to the most fortified tech companies. And when such catastrophic hacks hit a PEO for reasons that may not be directly linked to you, your employee data will be accessible to people with a wide range of malicious intentions. Studies have shown that keeping these hackers at bay is a growing challenge in this age.
There is no doubt that the PEO will be responsible for any data breaches and may have to pace the regulatory penalties solely. However, your employees will be negatively affected and you may lose their trust and loyalty.
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5. Resistance from Employees
New studies have shown that employees are more resistant to change than managers and business owners initially imagined. . When you find out that you may need to hire a PEO to handle the growing HR needs of your business, some employees may find this change a bit distressing.
When your business is growing and encountering several HR challenges, you may have to sell your employees the idea of a PEO. This will require some effort on your part. You will have to educate them about how PEO can help them and the business.
Assuring them they can still come to you with their concerns can significantly ease the tension. However, it would help if you kept that chip for the last because you are hiring a PEO in the first place to take them off your shoulders. So, only give them that assurance when you have to.
Also, you may need to decide to let some ununderstanding and troublesome employees go, especially if they are not worth the trouble.
Conclusion
Businesses opt for the best PEO services to relieve some of the burdens of HR management., That makes it easier to focus on keeping your business running smoothly. By partnering with a PEO, you gain access to a team of seasoned HR professionals and a wide range of support that would otherwise be out of reach for small businesses.
When choosing a PEO, however, you need to clean your spectacles and measure the risks that you might face. Are the rewards (cost, talent access, compliance, and time saved) worth the huge risks addressed above?
Business needs vary. You understand your business better than anyone. So, that’s up to you to figure out. This is where I get to wish you good luck.
Ciao!
But before you go, take a moment to check out our list of top recommended Domestic and Global PEO providers and a guide on choosing the right PEO for your business.
