| We will split Professional Employer Organizations into | | | | million in an IT system that allows for greater client |
| two major categories, regional providers, and national | | | | self-service. For regional PEOs, their IT systems may |
| providers. | | | | be weaker, but on the flipside, they are forced to rely |
| For the intents of this article we'll provide a basic | | | | on their people to deliver service - which do you |
| definition for each type of provider, list their | | | | prefer? |
| advantages and disadvantages, and explain in detail | | | | National Providers |
| what kind of companies utilize each one. | | | | A national provider is a Professional Employer |
| Regional Providers | | | | Organization that does business as seamlessly as |
| A regional provider is a PEO headquartered in the | | | | possible throughout all 50 states. There are only a |
| same state where 80% or more of their clients are | | | | handful of national providers, most have anywhere |
| domiciled. Most have anywhere from 1,000 - 5,000 | | | | from 20,000 to 150,000 work-site employees and 1,000 |
| worksite employees, and average 50-250 individual | | | | to 8,000 clients. Most national PEOs have a long |
| clients. Some of the oldest PEOs in the country are | | | | history, but many have grown through inorganic |
| regionally based; note that 20 years experience in the | | | | growth, which there is much debate about in the PEO |
| PEO industry practically makes one a pioneer. Many | | | | industry. Getting a true client retention rate from |
| regional PEOs we've surveyed have a client retention | | | | national PEOs is not easy, but from our research we |
| rate of 92% or better, which far surpasses that of | | | | estimate it to be anywhere from 80%-90%. One |
| most national providers. Two great examples of | | | | example of a national provider is Administaff, which is |
| long-term regional PEOs include Alcott Group, and | | | | publicly traded, and Alphastaff, a privately owned PEO. |
| Landrum Professional. | | | | Positives: |
| Positives: | | | | · Critical Mass - Since national PEOs have thousands |
| · Flexibility - For those with familiarity in dealing with or | | | | of clients, they have a lot of buying power, and can |
| competing against the 800 pound gorilla, you | | | | usually provide a savings to clients for all insurance |
| understand that although strict obedience to policy can | | | | products, including medical insurance. |
| support scalability, it can also lead to some clients | | | | · Multi-State Presence - For employers with their |
| getting left behind. Regional Professional Employer | | | | workforce spread across multiple states, a national |
| Organizations are usually more flexible and can fit the | | | | PEO is likely a great option. |
| specific needs of a client. | | | | · Strong IT Systems - Although this can vary, most |
| · Proximity - In a service that has so many moving | | | | national PEOs boast a robust IT system that allows |
| parts, proximity to your service team, the ability for | | | | for a high level of client self-service - for example, the |
| them to be on-site quickly, and access to upper | | | | ability for payroll solutions to be integrated with general |
| management has tremendous value, arguably the | | | | ledger software. However as IT systems become |
| biggest reasons why regional PEOs retain clients | | | | more affordable, many regional PEOs offer similar |
| better. | | | | technology. |
| · Geographic Specificity - Regional PEOs are most | | | | · Bells and Whistles - Again, the critical mass of |
| familiar with the HR regulations pertaining to their home | | | | national PEOs often enables them to offer peripheral |
| state. They will also have very competitive benefit | | | | services that many find appealing. Examples include |
| packages within their state's borders. | | | | services such as employee discount programs and |
| · Industry Specificity - Some regional PEOs cater to | | | | online skills training tools. |
| only one industry, a huge value if you're in that industry. | | | | Negatives: |
| · Big Fish, Small Pond - When considering vendors, | | | | · Lack of Flexibility - To remain scalable, national |
| would you rather make up 5% of their revenue, | | | | Professional Employer Organizations must rigorously |
| or.05%? How will that effect how you're treated as a | | | | maintain policy and structure, which allows them to |
| customer? | | | | provide services at a good price point, but often strict |
| Negatives: | | | | interpretation of policy can be constraining for servicing |
| · Geographic Specificity - Look familiar? The same | | | | small companies with specific needs. |
| factor that strengthens them within their own state is a | | | | · Another Brick in the Wall - This coincides with the |
| weakness when servicing clients that have employees | | | | first negative of national PEOs, if you don't fit into their |
| in multiple states. | | | | mainstream approach, and your business makes |
| · Limited Size - Although great for customer service, | | | | up.05% of their revenue, they're not going to bend over |
| a Professional Employer Organization without critical | | | | backwards for you. |
| mass will have less economies of scale, this likely | | | | · Call Center Service Delivery - Although most will |
| means more expensive insurance products than | | | | tout otherwise, the service delivery approach for most |
| national PEOs. | | | | national PEOs is driven through case numbers and |
| · Limited Resources - when you're servicing 100,000 | | | | process, rather than personalization and relationships. |
| work-site employees, it makes sense to invest $10 | | | | Again, this is a matter of the consumer's choice. |