Quality of PEO payroll and HR services

I'm based in Silicon Valley. So maybe the tight job market is compounding this situation. I'm an advisor to several tech start up companies, most of which use PEO providers like Trinet, Insperity, ADP. A couple use outsourced accounting firms which also manage the payroll. I've noticed that the quality and response time of a few of the PEO staff are poor --- they make errors on manual paycheck/severance payments; they forget to follow up on an action item; they provide inaccurate information. Which is shocking as I would think these large PEO's have system automation, quality checks and manager review. Apparently not. Given the signficant fees they charge ($145 -220 per employee per month, plus extra fees for various one-off activities), I think it's more cost-effective and as good or better quality to have a small or regional bookkeeping/accounting services firm manage payroll. I'm also finding that the health benefits are not that much savings with a PEO, particularly as they group all the employees among their client base and charge average rates for benefits. Most startups have younger demographics, so we end up paying more for health insurance than if we got a broker and bid it out. Have others in Silicon Valley or elsewhere seen the same issue?

Answers

Wayne Spivak President & CFO • May 19, 2016

Given the sophistication of SAAS based accounting systems and Payroll, the automation between a payroll run and IRS/State tax payments, why not have PR done in house?

I have also found that these SAAS accounting payroll modules are immensely easier to manage than some of the PEO's. Customer support for the system I use, Xero, is top notch (and I had some issues when I started my payroll system up - solved very quickly).

As far as healthcare, weigh the different between what a broker can find you and the additional costs of the PEO and see if the ROI is equivalent.

Questions, contact me through the Proformative messaging system.

Anonymous Board Advisor and Investor • May 19, 2016

thanks. I agree that the interfaces with standard accounting software are making it easier. I'm taking the route of bringing PR in house at all my startups. Only hesitation I have is with Xero. My start ups are all revenue generating with inventory, supply chain and sales via direct and channels. I used Xero about 2 years ago and it seemed too basic, similar to Quickbooks online, with limited master file setups, controls and workflows. My start ups use either Quickbooks Enterprise w Manufacturing module, Microsoft Dynamics, or Net Suite.

EMERSON GALFO CFO • May 19, 2016

Anon, in my point of view, it boils down to a capital/resource allocation and most especially "value" (not the dollar) decision. Some would rather pay/outsource and focus on what is important "now". Then it is a decision of who to outsource it to and for what advantages (and disadvantages....tradeoffs?) they get.

I agree that PEOs don't necessarily mean cost effectiveness....and the same goes with regional accounting/benefits firms. I think it is more a function of what "stage" the startup is and the "value perspective" of it's management team and board.

Anonymous Board Advisor and Investor • May 19, 2016

thanks. I agree with you that cost is not the major driver for my start up companies. It is quality, customer focus and response time. The PEO's seem to be cookie cutter operations with average staff who can support a typical company that has recurring, not-time critical issues. But, since I deal with startups, hiring, firings, other HR matters tend to be more time sensitive and get the attention of the E-staff. The CEO's of the start ups set a high bar even on HR matters as they are owner/founders and micro managers who are 24/7. They get frustrated at the PEO's taking 24-48 hours to respond, not having innnovative solutions, and putting "B-team" players on the account, etc. Hence lot of start up CEO's that I deal with would rather have HR brought in house so they are part of the team---as communication, culture issues are mission critical to a start up. I've run into start ups where we hire an "HR specialist" who actually doesn't have much experience. But the staff may have graduated Summa Cum Laude from Stanford or Harvard, worked 2-3 years at a consultancy or I bank and now wants to try a start up. I've seen some of those staff become a Director/VP level within 4-8 years..

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