PEO vs. in-house: Who should handle your employee benefits?

Offering health insurance to your employees sounds simple enough. Pick a plan, pay your share, and bask in the glory of being a great boss. But then open enrollment rolls around. One person has to add a new spouse, someone else is asking questions about deductibles, and you’re desperately trying to figure out the payroll deductions. Suddenly, you’re the HR department … and questioning why you started a business in the first place. 

Managing employee health insurance comes with plenty of administrative work. The question is, are you handling it all in-house or does it make sense to bring in a professional employer organization (PEO) to tackle the extra work?

Should you hand the headaches to a PEO?

A PEO is a company that provides outsourced HR services, including benefits administration, payroll processing, tax reporting, workers’ compensation, and compliance assistance. 

Most PEOs operate under a co-employment arrangement. Basically, this means your business and the PEO share certain employment responsibilities according to your agreement. 

Don’t worry. A PEO isn’t going to show up Monday morning and start running your business. You’re still in charge of daily operations, employees, and major decisions. The PEO just handles the HR and administrative duties outlined in your agreement. 

If you’re a smaller business without a dedicated HR department, that extra support can be a lifesaver. Depending on your agreement, a PEO might coordinate benefits enrollment, manage changes, handle payroll deductions, and answer employee questions. Some PEOs can also give small businesses access to larger group health plans they might not qualify for on their own. Not a bad deal for a business where the entire HR department is just you and a bunch of Excel spreadsheets. 

Before you start celebrating your newfound freedom from paperwork, there’s a catch. A PEO doesn’t guarantee cheaper premiums or better coverage. You’ll also pay service fees, depend on another company for certain HR tasks, and potentially have less flexibility when choosing your benefits. 

Having someone else deal with the paperwork sounds pretty appealing. But is it worth paying for help with something your business might be perfectly capable of handling itself?

Taking control of your own benefits

Managing benefits in-house is more than just picking a plan and wiring a monthly payment. You’ll be responsible for: 

• Choosing health insurance coverage
• Coordinating enrollment
• Communicating with employees
• Setting up payroll deductions
• Keeping up with state and federal requirements, such as Affordable Care Act reporting and COBRA

That’s a lot to keep track of, especially when you have an actual business to run. Do you really want to field questions about copays five minutes before an important meeting? We didn’t think so. 

You don’t necessarily need a full-time HR manager, but someone has to take ownership of these responsibilities. And mistakes can create extra costs (not to mention some understandably unhappy employees). 

Of course, all that work comes with one major advantage: control. You get more say in plan selection, employee communication, and how benefits fit into your business. And you don’t have to go at it completely on your own, either. You can purchase group health insurance directly from an insurer or work with a broker to find coverage. 

And if you’re not interested in either extreme? You can outsource specific tasks, like payroll processing or enrollment assistance, without committing to a full PEO arrangement. This can take some of the weight off your shoulders without requiring you to give up more control than you feel comfortable with. 

What’s it all going to cost?

Now for everyone’s favorite part: figuring out how much all of this is going to cost. 

PEOs usually charge a flat monthly fee per employee or a percentage of payroll. Health insurance premiums, setup costs, and additional services may be billed separately. If you go this route, ask for an itemized breakdown. Nothing says “great deal” quite like discovering your all-inclusive package doesn’t include half the things you thought it did. 

If you opt for the in-house option, you’ll avoid those PEO fees. But you’ll still have expenses, including payroll and benefits software, outside professional assistance, and administrative resources. There’s also the cost of staff time. Hours spent on benefits aren’t free just because they don’t show up on an invoice.

A PEO might be worth the expense if your business needs HR support or doesn’t have the resources to manage everything efficiently. But if you already have capable staff and reliable systems, keeping things in-house could make more sense. 

And before signing with a PEO, find out what happens if you leave. Breaking up is hard enough without an unexpected exit fee or having to look for new health coverage.

So before making your decision, look at your current workload, available resources, and insurance options. If you’re leaning toward a PEO, get at least two itemized quotes, review contracts, and make sure you know exactly who’s responsible for what. 

You don’t get an award for doing everything yourself, and outsourcing isn’t automatically money well spent. The smartest choice is the one that actually works for your business.