There are various HR outsourcing models to choose. All have their benefits and detractors. One of the most obvious detraction for PEO (professional employer organization) is the fact that under the “co-employment” arrangement that a client agrees, all tax reporting is done under the PEO’s tax identification number. Thus, an entity, such as a not-for-profit, that enjoys certain tax deferrals, will be “taxed” by the PEO as the PEO is responsible for paying all taxes.
Be sure that the benefits and cost savings are worth paying these taxes. Sometimes the savings in workers compensation insurance and benefits cost outweigh the loss of these tax breaks, but sometimes not.
Some PEO’s are astute at hiding their true admin costs to their clientele. Basically, they often subsidize their health plans with admin charges, then show their clients a bundled rate, that is harder to decipher than the DaVinci Code.
If you receive a quote from a PEO and they refuse to break down your rates for taxes, workers compensation, admin and benefits, then they must be hiding something. Your sales rep or a PEO broker should be able to help you break the code to see if you are getting shafted.