If you are using a PEO or are thinking about one, it’s easy to do it once and forget. A PEO arrangement isn’t “set it and forget it.” Your company evolves, legislation evolves, and the quality of service you receive from your partner will also change over time. That’s why having a formalized PEO review in place is necessary.
Only too frequently, business leaders revisit their PEO decision after something has gone awry, such as payroll mistakes, compliance issues, or increasing benefits costs. But routine check-ups can head those disasters off at the pass. With over 900 PEOs active in the U.S., competition is fierce, and not all providers stay current with best practices.
This step-by-step guide takes you through eight straightforward, actionable steps for measuring your PEO’s performance. You’ll know what metrics to monitor, what questions to ask, and how to determine whether or not your existing partner is still the best fit.
A PEO ought to save time, minimize risk, and enhance benefits and payroll accuracy. If it’s not doing those things or if your business has changed size, moved into new states, or introduced remote workers, you must know. Research by industry indicates that businesses utilizing PEOs have higher growth rates and employee retention compared to similar firms, making it worthwhile to measure your PEO’s contribution.
Do at least a yearly evaluation, and again following major events: a payroll mistake that impacts numerous employees, an increase in workers’ comp claims, or benefits renewal. And now for the steps.
Pull your contract and any service-level agreement (SLA). Compare promised deliverables to reality:
Record any missed SLAs and request remediation plans and timelines from the PEO. Agreements tend to contain penalties or exit friction—catch them now.
A solid PEO performance evaluation focuses on data. Track these KPIs for the review period (quarterly and annual):
If your metrics aren’t being tracked today, begin gathering them today. Request from the PEO the same metrics—quality providers will provide dashboards or exportable reports.
Complex or opaque billing is one of the top causes of dissatisfaction. For a rigorous peo analysis, request and review:
Compare apples to apples with your internal cost baseline: benefits spend, payrolling processing time, and HR headcount expense. If the PEO cannot demonstrate clear line items, make them do so before the next renewal.
Compliance is a central PEO promise. Confirm:
If you have operations in more than one state, confirm multi-state payroll processing and nexus assistance. A PEO should decrease, not increase, exposure.
One of the biggest reasons companies use a PEO is the benefits. Ask:
Gather employee survey answers related to payroll, benefits, and HR assistance. A good employee experience is a direct ROI driver: happier employees remain, reducing turnover expense.
Your PEO should make daily work easier, not create extra steps. In your PEO evaluation:
If your PEO’s tech is clunky, the cost in wasted time quickly outweighs the fee savings.
Numbers tell one story; people tell another. Gather:
Look for patterns. If managers complain of delayed HR case resolution and employees complain about payroll errors, that’s a red flag that requires escalation immediately.
After collecting data, benchmark your PEO’s performance against peers and market expectations. Ask for:
Industry studies indicate PEO clients tend to expand at a higher rate and have a lower rate of failure compared to similar companies, but results depend on the provider, so benchmarking is crucial.
If you’re not performing well, request a remediation plan with deliverables. If the plan is inadequate or trust is lost, initiate an RFP based on the best PEO assessment checklist you currently have.
Use those deliverables to validate the PEO’s verbal claims.
Your PEO performance review should always lead you back to one question: Is your partner enabling you to meet business objectives—such as quicker hiring, better benefits, reduced HR administrative burden, and reduced compliance risk? If the response is no, it’s time to insist on improvements or consider an alternative.
The most powerful companies don’t treat PEO assessment as an isolated activity. They have ongoing check-ins, measure value through data, and engage with partners who also mature along with their changing needs.
At OEM America, a NAPEO Member and a BBB Accredited Business, we assist companies to save money, mitigate risk, and drive growth. Schedule a consultation with an expert today—up to 4 hours of free assistance, a personalized study that can save you $1,000 per employee, and a clear plan to recapture your time. Call 860.528.5555 or complete our contact form to begin.
Q: How often should I conduct a PEO evaluation?
A: At minimum once a year, and after major events like payroll failures, benefits renewals, or multi-state expansion.
Q: What are the most important KPIs in a PEO performance evaluation?
A: Payroll error rate, accuracy in paying payroll taxes, ticket resolution time, frequency and cost of workers’ compensation claims, benefits enrollment error rate, and turnover.
Q: What documentation should I request from my PEO during an evaluation?
A: Itemized bills, payroll and tax filing confirmations, workers’ compensation loss runs, SLA reports, and example reports/dashboards.
Q: Will switching PEOs mid-year cause payroll tax problems?
A: It may, based on your provider and if they are a certified PEO (CPEO). Plan payroll tax transitions with tax specialists and demand a clean data handoff.
Q: What technology features should I expect from a modern PEO?
A: Advanced PEO platforms today need to provide mobile-first design, employee self-service portals, real-time analytics, API integrations, and compliance monitoring automation. If your PEO technology is antiquated, it likely is.