You are here:Home/Neighborly®/PEO Model vs. the Comp and Check Model: 5 Helpful Decision Factors
Your guide to understanding this apples-and-oranges comparison.
We’ve been a preferred PEO vendor for ProTradeNet® franchisees for the past 8 years. During this time, we’ve been asked about the difference between our solution versus combining a payroll only service with a pay-as-you-go workers’ comp policy.
This article will help you understand this “apples and oranges” comparison and discover which is a better fit for your business. There is a misconception that it is cheaper to try to stitch together a few payroll, work comp, and benefits vendors, than going with a PEO. At the end of the day, when doing a true side-by-side comparison, the price is much closer than you might think. But, the resulting value to your business is very different. Let’s explore how.
Vendors like us, in the Employee category of the PTN vendor directory, help you deal with the unique challenges that come with having employees. What you might not know is that when it comes to this area there are two main service models.
There are two service models to choose from when it comes to employee solutions
The PEO model
The Comp and Check Model
Let’s start with some basic definitions…
The Comp and Check Model:When we say a “comp and check solution” we are talking about when a business owner chooses to work with multiple vendors like a basic payroll service from a company like ADP Essential Payroll or Paychex payroll and then a pay-as-you-go work comp policy with someone like Berkshire and Hathaway, AmTrust, Travelers, a separate benefits provider etc… AND sometimes a benefits provider broker/vendor is added to the mix.
The PEO Model: This solution provides a similar set of services, plus a slew of other useful services, but you only have to deal with one vendor. AND the most important difference is that the PEO model offers co-employment (not to be confused with staff leasing). Some example PEO companies are Employers Resource and ADP Total Source™.
Co-employment: This means the PEO actually “co-employs” your employees and becomes their employer of record. We are your administrative employer who shares your liability. Does that mean your employees would be working for Employers Resource and not your company? No. You are their boss; you hire, fire, write-up, and reward wins. We do all the paper pushing, HR, payroll, and benefit stuff that gets in the way of what you do best. It’s important to understand this big difference as it introduces many unique advantages for a business with a PEO partner. For example, since a PEO is a co-employer of thousands of employees around the nation, we can offer SMALL employers access to BIG employer solutions at large group discount prices. More on this below.
Alright, now that you have a general understanding of what these two models look like, let’s move on to how you will figure out which model is the best fit for your franchise.
Which model is the best fit for your business?
This decision can have a huge impact on the stability of your business, the satisfaction of your employees, and the overall success of your business. After working with Neighborly® franchisees for the past 8 years, we’ve found that the decision is commonly made using 5 common factors. We’ve summarized how each model would score on a scale of 1-10 to help you make the comparison.
5 common decision factors that franchisees use to decide which model is best for them
The Price Factor: Is this the most cost-effective solution?
The Fit Factor: Does this vendor align with my beliefs and values?
The Focus Factor: How well does this solution save time and help me focus on growing my business?
The Risk/Liability Factor: How well does this help me manage and minimize my risk?
The Talent Factor: Will this solution help me recruit and maintain the talent I need in order to be successful? Will my employees be happy with the solution?
Let’s look at how each model compares in these 5 areas to help you decide which is best for you.
1. The Price Factor
Besides not having to hire an HR professional at $150-200k/year for a tiny company, and not hiring a payroll clerk, let’s start with some other basic advantages that both models offer. The primary focus for most who choose one of these solutions is payroll. Both of these solutions provide cost effective payroll processing. Companies with less than 50 employees dramatically benefit from cost savings when outsourcing payroll. Costs drop from an average of $3268 per employee to $388. That’s big savings.
If you’re making your decision based solely on price, there’s something you should know — the price you’re quoted for your basic payroll processing and work comp policy in the comp and check model is not the bottom line price you will pay at the end of the year.
You must consider all of the other additional fees you will accrue during the year, the added value of PEO services, and the additional time and focus required of you. It is very important to consider which services you will need to use and which you will not before making your decision between these two models.
You could be charged for:
Corrections and Off-cycle checks
Compliance assistance programs
What’s really included in that HR bundle? The devil’s in the details.
The Comp and Check Model: 8
The comp and check model has an attractive sticker price. But, we often see franchisees attracted to this model because of a low upfront cost, and then get disappointed when they discover that they will be nickle-and-dimed for a bunch of other services they need throughout the year. When doing a price comparison, make sure you factor in all costs and savings for all the additional services you may need during the year, not just the upfront costs.
“You come in with them at a real low rate per employee. But, then you’ve got everything else they start back charging you for. Every piece of paper they fill out for you, to set up your files right, do your employee handbooks. After all those side deals and what you pay up front, it’s quite expensive. At the end of the year, with all the things that you get, you may balance out where ADP would be the same price, but I’ll tell you right now, you won’t get near the service you get with Employers Resource.”
The Employers Resource PEO Model: 9
The biggest advantage of the PEO model here is simplicity. In this model you know that your one simple payment per payroll cycle to the PEO covers everything you might need during the year. We do not nickel-and-dime our clients. Our experts are there when you need them. There aren’t surprise additional costs. If you do an apples to apples comparison, and then consider all the added value offerings of the PEO model when it comes to the extra peace-of-mind, time and focus saving, and a much more proactive partner for your business, the PEO model is very attractive when it comes to the price factor. Here’s a few other advantages of the PEO model for this factor:
Economy of Scale – Passing large group discounts on to our clients
Simple, no hassle, all-inclusive pricing
Transparent billing – See exactly what you’re being charged for
“Employers Resource may be a few more dollars upfront, but in the long-run, at the end of the year, you’re gonna pay a whole lot less than you would with these other guys. Everything about Employers Resource is helpful, but without charging you extra.”
2. The Fit Factor
How do you know if a vendor is the best fit for your business? This one is the hardest to judge, but possibly the most important. Does this vendor align with your beliefs and values? Business owners do business with people who have similar views of what a business relationship should look like. Why? Well, that’s the key. Why indeed. Why you do what you do affects everything. If you’re in business for the same or similar reasons as your vendor, it means you’ll both expect the same out of each other. You’ll make decisions in the same way. You’ll share the same standards. You’ll be paddling in the same direction.
The Comp and Check Model: 5
You’ll have to ask the other vendors in the category about this factor, since it varies greatly. Ask them why their company exists. Ask them about their values and their beliefs. If they don’t align with yours, with theNeighborly’s, it’s going to affect the fit factor. Savvy franchisees understand the importance of this factor when choosing a strategic partner for their business for the long-term.
The Employers Resource PEO Model: 10
We’ve found that our most successful relationships have been with clients and vendors who share our beliefs and values. Why we do what we do affects every relationship we have. So, we are careful to seek out and maintain relationships with these clients. We love how our beliefs align with the Neighborly’s, so we take special care to create relationships with their franchisees.
We are a great fit for innovative employers who believe in building their American Dream with integrity, hard work, and with freedom from state and federal compliance burdens. We believe that the American Dream of entrepreneurs like you is one of the greatest dreams that exists, but it’s under attack. We believe in doing everything we can to help protect this dream for small business owners around this great country.
We’re guided by 4 core values of:
Do the right thing
Have an attitude of gratitude
We don’t think business owners should have to place their business into a corner that’s impossible to get out of. We are so confident that you’ll love our services that we offer a 90-day guarantee 100% satisfaction guarantee. If at any time in the first 3 months you regret your decision, we’ll give you a full refund and help pay for the setup of your next solution.
3. The Focus Factor
The biggest advantage of both of these service models is that they help you save time and focus on profit-producing tasks rather than non-profit producing tasks related to employee details and paperwork. This factor is all about how well the model allows you to do this, worry and stress less, and do business more efficiently. These employee solutions help in this area by normalizing cash flow, taking employee paperwork off your plate, simplifying processes, and just making your life easier.
The Comp and Check Model Rating: 7
The comp and check model is great at getting payroll processing and related tasks off your plate to allow you to focus on your business. Payroll processing vendors make payroll quick and simple. And, when it comes to pay as you go work comp carriers, there will not be additional premium payout surprises at the end of year based on miscalculated premium from payroll. The cost is regulated on a per payroll basis. The premium raises and lowers throughout the year according to the current payroll. This helps prevent surprises at end of year and cash flow issues.
The “HR packages” that are offered by these payroll vendors vary greatly, so be careful to understand what exactly they will and will not be taking care of and if there are additional fees for certain forms and services. This is why we’ve given a rating of 7 here. This model leaves quite a few administrative tasks related to employees to be handled by you or covered with additional charges. And, instead of just dealing with one vendor for payroll, work comp, HR, and benefits you will have to deal with managing multiple. Again, taking more of your time and focus that could be spent on profit-producing tasks.
The Employers Resource PEO Model: 9
When it comes to saving time and focus, the PEO model gets a high rating in this category because it also takes payroll off your plate, offers the same cost stability/forecasting ability, cash flow normalization, and offers the same time-saving advantages as the comp and check model here. AND you only have to deal with one vendor! One simple payment per payroll cycle will give you a complete employee solution. This makes things simple and your life much easier. We do not use “a la carte” additional pricing for all the HR consulting and services. It’s a package deal. You pay the simple monthly price and you know you’re good to go and you can use our HR expertise as needed, safety training, work comp claims processing, employee handbook assistance, etc — you know you’re always good to go!
4. The Risk/Liability Factor
When it comes to managing your risk and your liability exposure, you should look at:
Where the liability for payroll and tax mistakes lie
How the vendor will help you prevent and manage risk related to compliance and employee safety
Employee lawsuit protection
Workplace safety assistance and work comp claims management
The Comp and Check Model: 3
Did you notice that line of liability in the model comparison graphic? It’s a big deal. Why? Because when you’re in a comp and check model the liability is all on you. Your FEIN, your tax id number, you’re the one that has to answer to (and pay for) any mistakes made. Having your payroll processed by experts will definitely help protect you from fed and state regulation violations, but when something goes wrong, it’s your neck, not theirs. With this model you’re 100% on the hook for any mistakes you make (filings you forget to make, etc.), and a third of businesses get fined by the government each year for payroll and compliance mistakes.
In this model, the work comp vendor will not automatically include safety and risk specialists to consult and help your company. It does not typically provide safety training from on-the-ground experts that create custom plans for your business, they do not actively try to help you lower your mod rate, they do not help you proactively manage your claims and get workers’ back to work. Your risk is much greater, and it’s all yours.
“With ADP and Paychex, they send you all the forms and you have to sign them, release them back to them, to tell them yes this is fine. You have to go back and check all their records and make sure everything is correct before you sign off. Because if you sign off and tell them that this is right, and you’re wrong, when you do that, the liability is on us.”
The Employers Resource PEO Model: 9
Liability. Yeah, that “line of liability” in the graphic above, with a PEO, you don’t have to worry about it! You have much less worry and stress because you know that your PEO will take care of mistakes that are made in their service areas and they share in your liability. PEOs share in your risk as we co-employ your employees. Because we do things on your behalf using our own EIN, it’s in our best interest to make sure you’re fully compliant, otherwise, we’re often liable.
Proactive Safety and Work Comp Support. We have an on-the-ground safety team who is committed to keeping our clients’ workplaces safe, preventing accidents, creating custom safety plans, helping with OSHA compliance, and providing training. Since we handle your workers’ comp it’s in our best interest too. If you do get a claim, our claims management team helps you process them with your best interest in mind. Safety posters, ergonomics, fire extinguishers, forklift training are regular services PEOs provide to ensure a safe working environment.
ADR. Another huge difference in this area is that Employers Resource offers you protection against employee lawsuits through our revolutionary Alternate Dispute Resolution (ADR) program. This is a mediation & arbitration program that protects you from extremely high expenses caused by employee grievances. Learn more about ADR here.
“When the IRS sends us a letter, we let Barrett know, he says ‘send it our way’, and they take care of it. That’s all we ever hear about it.”
5. The Talent Factor
Every year, a new study reveals that attracting and retaining high-value employees is a top concern among employers. Your people are your business, so it is important to look at what your employees’ experience will be like when considering each model, and how it will impact your ability to win the battle for talent.
The Comp and Check Model: 5
Employers using this model typically get benefits for their employees through a broker. There is no advantage this model offers when it comes to employee benefits for your company. You’re on the same playing field as every other business owner. Your payroll vendor will help ensure on-time and accurate payroll, which employees greatly appreciate. You may also have access to software these payroll companies offer to give your employees access to their information, record time, etc.
“After two years of working with ADP, I think we got about one phone call per year. Never see them, never hear from them. They don’t have communication with anybody.”
Payroll – Your employees will love the payroll experience a PEO creates for your company. Your payroll will not only be on-time and accurate, but you’ll be able to give your employees online access to their information, direct deposit, and many other options.
Benefits – Co-employment allows a PEO to form a large conglomerate of thousands of employees for the purpose of purchasing health insurance. This means instead of a 10 person company dealing directly with Metlife, there is a 10,000 person company dealing with them. Your employee benefits will be quality, national, and affordably available for your employees wherever they are: Dental, Vision, Life, Short-Term & Long-Term Disability, HSAs, FSAs, savings programs, employee assistance programs, hospitalization, HRAs and more.
Administration – In addition to getting the most bang for your buck, PEOs make the administration of offering a comprehensive benefits package much easier as they take the lead in insurance enrollments, employee education, and employee-related questions about their benefits.
Employment/Financial Security – What helps employment security better than working for a thriving, profitable company? We will reduce the HR overhead costs of your small company. We help companies stay out of the courtroom, thereby avoiding any catastrophic lawsuits that usually lead to layoffs and employee downsizing.
Safe Working Environment – We share our workers’ compensation insurance policy with you, as well as your claims and premium modifiers. This means we have a vested interest in reducing your workers’ compensation claims, which means reducing accidents in the workplace. Employees appreciate a safe workplace environment.
Access to Retirement Options – Wish you could offer a 401(k) program to your employees? We make it easy. Our Slavic 401k program is an excellent way for you and your employees to save for retirement.
“We’ve never been able to offer benefits until Employers Resource came along. Accidental death is probably something we should have been doing for a long time. Our employees love the savings clubs and having dental and vision.”
BONUS – Hidden Decision Factors:
The Frustration Factor — is this solution comprehensive enough to meet all or my needs as an employer (especially the out-of-the-ordinary ones)? Does it give me the “bandwidth” to flex, and timely access to the expertise that I need when the unexpected happens? A key to success and profitability in business is having the right tool in the toolbox when it’s needed. If time is money (and we all know it is), you don’t want to waste yours frantically searching for a solution to an unforeseen employment issue. And you don’t want to endure the needless frustration and expense of making a bad decision because you didn’t have the benefit of expert advice from a trusted source when you needed it.
The Gotcha Factor — Surprises are awesome unless they are surprises that cost your business money. Here, make sure you consider potential surprise costs that you might incur during the year.
Add up the scores. We think the decision is easy, but you should apply your own ratings and figure out for yourself what’s best for your franchise. It’s important to find a partner for your business when it comes to this extremely challenging part of running a business — employees.
Comp and Check
Employers Resource (PEO)
Reactive service approach
Proactive service approach
Liability is all on you
Liability is shared
Managing multiple vendors
Partnering with one vendor
We’d love to provide you a no obligation custom quote, but no matter which model you decide fits your company the best, keep these points in mind:
Your experience will only be as good as your dedicated service team – the people you interact with on a weekly basis.
Would you like to share your liability with a large employer or be on your own?
Do you want to deal with one vendor or manage multiple vendors?
Do you want to constantly worry about and manage the nickel-and-dime costs each year or just know that you’ve got one simple price that won’t change no matter which services you use?
After hearing many horror stories. Whichever direction you choose to take your business, start strong with one of these models, don’t wait until you’ve found yourself in a mess and it might be too late.
“The only thing I regret now is putting employers resource off for over 10 years. To wait that long and find out what we’ve missed is unbelievable.”
– Harry Grubbs, Mr. Appliance of Montgomery County, TX
Want to receive weekly email updates with useful articles with small business news, HR tips, and expert advice?