5 More PEO Myths. Are They True or False?

Jun 10, 2019
| The Extensis Team
5 More Myths About PEOs

One year ago, we wrote an article that explored a few myths about professional employer organizations. Most of these myths started due to the growth of the PEO industry and the number of small and medium-sized employers choosing this type of HR outsourcing solution.

Fast-forward one year, and the industry doesn’t appear to be slowing down. A study from the National Association of Professional Employer Organizations (NAPEO) found that from 2008 to 2017 alone, the number of worksite employees (WSEs) employed by PEOs grew at a compounded annual rate of 8.3%. This percentage growth in the PEO industry is 14 times higher than that of employment in the United States economy as a whole.

Given the continued growth and awareness of PEOs, we thought it would be a good idea to go over 5 more common myths that exist today about PEOs and answer an important question – are they true or false?

Myth 1: A PEO Can Hire and Fire a Client’s Employees

False. In our first PEO myth blog, we explored how some business owners believe they lose control over day-to-day business decision making if they partner with a PEO. And while this myth has been busted, another similar misconception exists – that a PEO can hire and fire a client’s employees.

However, this isn’t the case. In a PEO partnership, all talent management responsibilities stay with the owner. This means they get to make all hiring and firing decisions, along with any promotions or raises that are given to employees.

Some PEOs do offer recruiting services to their clients, helping them to attract and hire new team members. But the decisions to interview and ultimately hire a candidate stay solely with the owners, not the PEO.

Myth 2: My Business is Too Big or Too Small for PEO Services

False. Research conducted by NAPEO found that the average size PEO client has around 22 or 23 full-time employees. This has led to some business owners and leaders to believe that their company is either too small or too big to utilize PEO services.

However, most PEOs will work with clients who have a wide-range of employees. And while the exact employee number will vary depending on the PEO, some will work with start-ups who have just 1 full-time employee to medium-sized companies with upwards of 1,000 workers.

In some cases, PEOs even work with companies who exceed 1,000 employees. Because PEOs work with companies of all sizes, this popular myth is 100% false.

Myth 3: A PEO Won’t Help Reduce HR Costs

False. One reason that business owners give for not exploring PEOs is that they are too expensive and won’t save money or reduce HR costs.

But reports from NAPEO have shown that working with a PEO saves small employers on average 35% on HR administration costs.

And that’s not the only area where a PEO can help reduce costs. Working with a PEO can help small business owners save considerable amounts on health insurance, often in the double-digit percentages – all while gaining access to higher-quality, tailored healthcare options that help with recruiting and retention.


Myth 4: Co-Employment Will Hurt the Employee Experience

False. The most common myth that exists about co-employment is that it is the same as employee leasing. But we’ve debunked that a long time ago.

Another myth that pops up about co-employment is that it will negatively impact the employee experience. However, in most cases the employee experience actually improves because of the services and solutions offered by a PEO.

By being co-employed by their company and a PEO, employees will be able to choose from enhanced employee benefits that include:
  • Tailored health insurance
  • Voluntary benefits
  • Complimentary benefits

Additionally, clients gain a valuable HR partner that helps to improve all practices and strategies, helping to streamline processes and providing technology that makes HR much easier for all employees.

Not only is this myth debunked, but a PEO can actually help boost the employee experience for small and medium-sized employers!

Myth 5: ESAC Accreditation and IRS Certification are Not Important

False. Two of the most important factors to look for when exploring potential PEO partners are designations and accreditations. The most popular are ESAC accreditation and IRS Certification.

In 1995, the Employer Services Assurance Corporation (ESAC) was formed to become the official accrediting agency of the professional employer organization industry. PEOs that are accredited by ESAC meet the gold standards for industry best practices and financial reliability.

Then in 2017, the Internal Revenue Service (IRS) began designating select PEOs as Certified Professional Employer Organizations (CPEO). This established an additional benchmark for PEOs to reach, and another assurance to companies who partner with PEOs that they are working with a best-in-class organization.

Both of these distinctions are important characteristics business owners should look for in a PEO. They provide business leaders with additional financial assurance and peace of mind, resulting in another debunked PEO myth.

Don’t Let PEO Myths Stop You From Exploring this HR Outsourcing Solution

Myths and misconceptions about PEOs stop some small businesses from exploring and choosing this HR solution, despite the benefits and value it can provide to employers.

Yet many of the most common PEO myths have proven to be false – and in some cases the complete opposite is true!

That’s why it’s important for business leaders to research PEOs and work with their brokers to find the one that is best-suited for the specific needs of their business.

As PEOs have grown in demand by business owners, so too have the number of myths that exist about them. But are they true? Our latest eBook explores 12 of the most common PEO myths and explains why they have been busted!

12 Common PEO Myths