Working with a PEO company can be a very beneficial experience for your small to medium-sized company. However, it’s important to read the fine print of any PEO agreement before signing. Read on to learn more about PEO agreements and terms you should know before you sign any binding documents.
Terms to Know Before Signing a PEO Agreement
The following are tens terms you should know before signing a binding PEO agreement.
Termination
One important term to know before signing a PEO agreement is termination. In PEO agreements, clients have the option to leave at any point in the relationship while being required to give a 30 to 60 day’s notice.
However, there are a few PEO companies that require you to stay in your plan for a minimum of 12 months without being able to terminate the relationship. Always read over the fine print for stipulations like these, as early termination penalties could cost your company a pretty penny.
PEO’s Right to Hire, Terminate and Reassign
Just as your company has its own set of rules for hiring, terminating and reassigning employees, so do PEO companies. A PEO can reserve the right not to hire one of your employees onto their platform, just as they reserve the right to reassign an employee you fired in order to avoid a potential lawsuit. All of these stipulations are made to ensure that PEOs can maintain compliance with state and federal co-employment statutes and employment laws.
Recommended reading: 5 Myths About PEO’s
Funding and Credit Approval
For PEO agreements, funding and credit approval are important terms to understand as well. Many PEO agreements will require that your company goes through a credit check to prove financial stability, as PEOs are assuming a large amount of liability for funding your payroll and taking on other HR-related tasks. Note the funding and credit approval stipulations before signing any documents.
Unemployment Tax
Another important term to be on the lookout for before signing a PEO agreement is unemployment tax. Make sure any PEO agreement you sign has clear expectations as to when your unemployment tax rate can be adjusted by the PEO. This is important information to know as a sudden or drastic rate change could prove costly to your company.
Drug-Free Workplace
When choosing to work with a PEO company, you should also know many will require the incorporation of a drug-free policy for your company environment. This means that your employees will be subject to routine drug tests. Read the fine print of your PEO agreement if this type of testing will not fit into your company’s work culture.
Recommended reading: Human Resources: When to Go In-House and When to Outsource HR
Reduction in Force
The term reduction in force is another term to be aware of before signing any PEO agreements. Many PEO agreements will have a stipulation of an additional fee should you have a significant reduction in employee headcount before your contract agreement is up. This could be costly for your company if there is very much fluctuation in the number of employees you keep on with your company.
Service Fee Increases
Before signing a PEO agreement, it is also important to note terms related to service fee increases. There will probably be a section in the agreement that outlines a period of notice in which the PEO company can raise your service fees and by how much. Make sure you are comfortable with these stipulations before signing any agreement.
Pricing Exhibit/Addendum
The term of pricing exhibit/addendum is another one to be aware of before signing any PEO agreements. This term is where stipulations on fees and taxes are outlined. This is where it will be made crystal clear how much your company will have to pay for the PEO services and how you will be charged for these charges. Always make sure you understand these stipulations before signing the agreement.
Employment Practices Liability Insurance (EPLI)
The term EPLI or Employment Practices Liability Insurance is another important term to understand for PEO agreements. Most PEO companies will require your company to maintain an EPLI policy to cover both your company and the PEO company should an employee ever decide to sue for an employment-related matter. Always read over these policies and stipulations before signing a PEO agreement.
COBRA Continuation Fees
If former employees continue to seek medical insurance continuation through the popular COBRA coverage, there is often a fee associated with this continuation. It’s important that your company understand the costs associated with medical continuation coverage before signing any PEO agreements.
How America’s Back Office Can Help
PEO companies have a lot to offer, it can also be challenging to find a PEO company that fits both your company’s needs and its culture. When working with ABO, you can rest assured that you are working with a PEO company that you can trust. As a CPEO, ABO is one of the most reputable and respected PEO companies in the nation. Before signing with any other PEO company, be sure to check out what ABO has to offer.
Are you ready to learn more about what benefits ABO can offer your small to medium-sized company? Contact our team today to schedule a consultation and see how we can help you reach your goals.
