HR Mistakes Kill Profit and Funding (Use a PEO to Get Compliant and Bankable)

Are you doing HR the hard way, then wondering why costs are up, employee retention is down, and funding conversations feel harder than they should? Today we're breaking down professional employer organization, PEOs, with real clarity, real numbers, and a decision framework you can use. Welcome to the Small Business Credit Minute with S.E. Day, the podcast helping business owners build stronger business credit and real profit growth without the confusing finance speak. In minutes, you'll learn how lenders actually evaluate you and how to align the 3 pillars that decide approvals: business credit, cash flow, and compliance. I'll break down underwriting signals in plain English, show you what's hurting your fundability, and give you one clear action you can take immediately. If you want to become lender ready to receive business loans and business credit cards, stop wasting credit applications, and build bankable business strength the right way, then this is your Credit Minute. Qualify first, apply second. Let's get you funded. Stay tuned. I'll be right back. In today's competitive world, your business deserves more than just hard work. It deserves the financial freedom to grow. Building business credit is the key to unlocking opportunities. With strong business credit, you can expand faster, invest smarter, and reduce your personal risk. Start building your business credit today. Because your dreams deserve the chance to grow, just like your business. Secure your spot at the next Small Business Credit Survival Bootcamp. Welcome back to the show. Today I'm joined by Guillermo Triano. He's the founder and CEO of PEO Marketplace, an online marketplace that helps business owners compare PEO options for HR outsourcing benefits and workers' comp. Guillermo, welcome to the show.

Hey, S.E., thanks for having me.

Absolutely. Absolutely. So exactly, um, what we're going to talk about today, we're going to tie this back to everything that I talk about when I talk about the 3 pillars: compliance, cash flow, and business credit. These are the pillars, the pillars that make your business fundable. So as we dig in, Guillermo, what exactly is a PEO? And how does it work?

Yeah, great question. You know, the term PEO, if you ask like the average business owner on the street, they'll look at you and they say, what is that? I've never heard of that before. It's, it's a— I like to say it's a best-kept secret weapon, right? For certain businesses, not all businesses. But basically what a PEO is, it stands for Professional Employer Organization. And basically, it's— think of it like a provider company that helps you offload some employer liability by handling the hard parts of having employees. So things like managing payroll, benefits, HR, and compliance. So you as the business owner, especially if you're a small to mid-sized business, you don't have to build out an entire internal HR department, right? So If you kind of think about it, the PEO is almost like a partner with you in the business, right? Although they have no ownership control, because obviously, you know, you as a business, you still run and own your business, manage your team day to day. The PEO handles all of the behind-the-scenes stuff, right? That's time-consuming, that could be confusing and risky. You know, so basically the PEO lets the business owner spend less time on the admin work and more time and focus on growing the business. So basically, they're experts in the business of employment so you don't have to be.

That's excellent. And again, tying this back to the pillars I just spoke of, this is underwriting translation. When payroll tax administration, um, uh, and your HR compliance are sloppy, lenders see operational risk. A PEO can tighten those signals if it's the right fit. Now, Guillermo, you know, as every small business owner is going to ask, because we are looking at the, at the bottom line, at the dollars, at the digits, how much does a PEO usually cost?

Well, that's, that's actually a very common question and it's a loaded question. Okay. You have to first understand kind of how the PEO looks at potential clients, right? Because just because a business owner may have the money to purchase a PEO service doesn't necessarily mean that the PEO is gonna bring on that business as a client, okay? So it's a mutual two-way evaluation. Why does that happen? Well, because the PEO is fundamentally different in the way they service clients, right? So they're very different from an HR software or a traditional payroll provider or even third-party consultants. You know, it's not just payroll that they're doing. It's not just advice they're giving you. They are sharing in the responsibility for managing your workforce, okay? So that's, That's a very big task, right? And that's why when PEOs look at clients, they want to evaluate, hey, is this the right client for us? Do they have everything that we're looking for? Some PEOs only specialize in specific industries, right? So they look at, from a pricing perspective, they look at how large are you, employee count size, right? Are you a small employer, maybe, you know, right around 20 employees? Are you a little bit larger, right? Maybe around 100 or 120 employees. You know, where do you operate? What states are you in? Okay. What industry are you in, right? Because as we probably both know, S.E., different industries carry different risk and different operational requirements. And then, you know, what does your workforce demographic look like? From an insurance perspective, right? Because one of the values that PEOs bring is, you know, the group buying power for the insurance, specifically the benefits and the workers' comp. So they look at all that and, you know, they try to price you as, you know, as fairly as possible. But really, if you're looking for a ballpark, you're probably looking at anywhere between You know, say $1,200 to about, you know, I'd say $1,600 per employee per year, okay, to purchase PEO service. Now take that with a grain of salt, okay, because it varies widely, and this is a very general ballpark figure I like to give just to give business owners that are interested in PEO services kind of like A starting basis point to kind of understand and figure out, okay, is this something that I want to do that's within budget? If it's out of budget, you got to take a look at everything, zoom out and look at what the PEO is actually doing and what you're currently doing and see the full picture and the bottom line. That's what I would say on what a PEO costs. I know a little long-winded, but I wanted to preference and educate a little bit.

But no, that's actually very good. I've actually, um, several years ago in one of my companies, I had employees and I actually brought on a PEO service. And I can tell you, it is worth its weight in salt if you have the right PEO partner. Uh, because what, what business owners quickly realize when they, when they bring on employees— I'm not talking about contractors, I'm talking about actual W-2 employees, um, you actually pay a whole lot more than what that stated salary is for that employee. And these are things when you're talking about, uh, paying Social Security, uh, the tax— you're paying that tax, the employee is paying its 3%, but you're also paying that 3% for that employee. And trying to do that at the end of the year For tax purposes is a nightmare for the employer because it's not their job. My job is to actually get out and do the service that I do. This administrative work is not the work that I do. And when you think about a comparable cost, you can actually save money instead of having a full-time staff— staffer there, uh, to actually take care of that line of work. for your company. So, I totally get it and I agree with you. So, you touched on a number when you said around 20 employees. What is the threshold? Is under 50 employees worth its weight?

Under 50 employees is absolutely worth its weight. Really, there's no hard threshold. For when a business should consider a PEO. It's really situational, right? So a couple common trigger events, right, where a business or a business owner might look at a PEO. The first big one that comes to mind is, you know, trigger around— trigger event around benefits, health insurance benefits, group employee benefits for the staff. You know, could be that maybe they're currently offering benefits, open market benefits to their staff. And then, you know, something common that we see all the time is, hey, they received a high renewal, you know, for their upcoming year, you know, from their broker on the benefits. And, you know, now, you know, it became something where it's not sustainable and they're looking for a solution. A PEO might be able to help out in that, in those situations. Other trigger events, something relating to workers' comp, whether it's, you know, and we see a lot of this, we see a lot of this with, you know, construction, property management. Workers' comp is a big line item for them. Again, maybe they got a big renewal, or maybe they got a notice of cancellation from the carrier for too many claims.

We don't know.

There's a number of scenarios. And then, third most common trigger is HR compliance, right? You know, maybe the, you know, the employer, the business owner, or the business in this case may have some gaps around compliance, HR, maybe because they simply don't have the manpower internally to dedicate the resources to that, right? And they're exposing themselves. Or, you know, maybe we've seen that they're operating in multiple states, They've got employees in different parts of the country, in different states. We see a lot of that with remote organizations. And as you know, you probably know, Essie, each state has their own nuances, right, with how they like to handle their taxes, their state, local, federal, even maybe municipal taxes, right? So if you're an employer operating out of, let's say, Florida, And you've got, you know, employees in different states. Like now that's your responsibility to know that, right? And and it's tough when your primary business, like you were saying, is hey, I am a for example, I'm a you know medical office. I I do medical. But now because you have employees, now you have a secondary business—the business of employment. So that that that's where kind of the value of the PEO shines. And why, you know, more and more businesses today are uncovering PEO and starting to really figure out if this is a fit for them or not.

Got it. So, through a decision, Lynn, listen, business owners, if your growth is the goal, a PEO can help you be an operational accelerator. If stability is your goal, it can be a risk manager. Either way, you tie it back to your return on investment. Now, Guillermo, this is one of those questions that I asked many years ago, and a lot of business owners will ask, will I lose control of my employees when I bring on a PEO?

Yeah, that's a great question. And that's a very common question. The short answer is no. Okay. The PEO is not interested in taking over your business. They're not interested in taking any shares in the business, right? So the full ownership and the current structure that you have in place with the business remains unchanged when you decide to onboard to a PEO or use PEO services. So they're not in the business to take over your business, okay? They are in the business of employment and to make sure that, you know, as a client of the PEO, you know, you're doing things the right way to avoid any of those compliance exposures. You know, missed gaps in benefits, right? Or missed payroll filings, right? Because ultimately, That's part of what I was mentioning, Nancy, that the employer shifts liability to the PEO. The PEO obsesses over the HR compliance and everything related to that because they're on the hook for that. If something comes back, you know, a misfiling or an IRS letter, Hits your mailbox, ultimately, based on the agreement, the PEO would be responsible for that, and that's part of the value. So that's why I was saying in the very beginning, it's a mutual evaluation between the PEO and the business. They want to make sure that you know they're partnering with a business that wants to do things the right way and will will follow the recommended guidance that the PEO is providing. Right. Got it. Yeah, they're not, they're not twisting your arm. Hey, you have to do it this way. But best practices, it's smart to listen to the PEO, especially if, you know, you want to make sure you're not exposed from an HR compliance benefit standpoint.

Absolutely. Absolutely. So if you would, Guillermo, could you hit those core services? Spell out the services of what a PEO typically covers.

Yeah, so PEOs typically covers, I mean, starting from your payroll processing. They do everything from filing the payroll, remitting the taxes, federal, state, local, municipal. You know, they typically have that whole payroll engine in, you know, in their technology platform that they offer. P.E.O.s offer benefits, right? Employee benefits for, for health insurance, 401, wellness perks, right? Which is very popular nowadays. A lot of employees like that. Some P.E.O.s even offer pet insurance, right? Which is really—

Really?

I mean, I, I have a dog, and obviously, you know, we wanna make sure they're taken care of. Yeah. Workers' comp insurance is a big service as well. Risk management specific to the workers' comp, and this is a big one for, you know, our blue-collar trades, right? They want to make sure that, you know, during their operation, they minimize their exposure for any workplace-related injuries. There are some PEOs out there that will actually go on site with you, do a walkthrough, and make sure and point out, you know, perhaps, uh, different, um, you know, different exposures that, that your workers may have on the job site. And the whole reason behind that is to minimize the claims that are, that arise from workers' comp claims. Okay, um, and then, you know, and then you have different, uh, different services like, uh You know, EPLI, employment practice liability insurance. Most businesses don't know what that is, but it's very important to have. And and you know the nice thing about it is that on top of all that, the PEO wraps around the client with an actual what I like to call an outsourced HR team, right? And that team, and this is table stakes with any PEO, that team includes. A client account relationship manager, right? Usually a direct point of contact. An HR business partner, which is someone that is certified in HR, formally certified in HR, that'll work with the business with all of their HR planning and processes, right? A benefits analyst. So every time open enrollment comes for renewals or employees have questions around health insurance or they have a life event, hey, you can rely on that benefits liaison from the PEO to service your team. So now you're giving that big business experience, that Fortune 500 experience to your employees without having to be a Fortune 500 company.

Absolutely.

That allows you as a small employer to punch above your weight class a little bit and compete for those really good employees that are out there that you want to work for you and help grow your business. Those are kind of the table stake services that, you know, many PEOs offer nowadays.

So underwriting translation people, clean payroll, clean taxes, clean insurance coverage, and consistent HR documentation reduce red flags. It does every time. So Guillermo, Kenny, Can a PEO help with compliance and labor laws?

Oh, absolutely. That's what they're built for. So, give you an example. There are several PEOs that actually lobby in Washington. Okay, so they have folks that work for them that their job is to go to Washington, go to the Capitol, and be on top of any new legislation that would affect the employer, right? So as you can imagine, there's different legislation coming out all the time, right? So the PEO's job is to make sure that they are informed with the latest information so that they can be proactive and protect their clients from any new legislation and Give them the heads up saying, hey, you know, this is changing with, you know, payroll taxes, right? Or this is changing with ERISA on the benefits. So now that's part of the value prop. So now the business owner, the business can, you know, feel a little bit more at ease knowing that the PEO is on top of this stuff so that they can go focus on what they do best.

So with benefits usually being the headlines for employers, small business owners looking to bring people How does PEO health insurance, um, options compare to, say, me as a business owner going it alone? I have 5 employees. How do, how do PEOs' health options actually, uh, compare?

Yeah, so when it comes to the benefits, PEOs pool all of their clients together in what they call a master health policy. Okay. And what that does is now that 5-employee company that you were mentioning, when they go under that PEO umbrella, now the insurance carrier, right, depending on which, which, which insurance carrier the PEOs work with, that insurance carrier now looks at your 5-man group as a 500,000-man group, okay? Because now you're joining that pool with all of the other PEO's clients, business clients. And what that does is very interesting because for the rates, for the medical premium rates, now it's based on that 500,000 group versus that 5-man group, right? And more often than not, comparing the benefits to the open market, right, where if you were to go straight as a 5-man group, the medical premiums through the PEO master plan tend to be more competitive than that open market rate. There's obviously— there's exceptions to the rule, but the majority of time that's the result. And I also like to preface that You know, PEO could be a good solution for the medical, especially for companies that are looking to offer medical for the first time, or, you know, are looking for something a little bit more cost-effective. But you gotta step back a little bit and look at all the other services that the PEO is offering aside from the insurance, because the PEO is not a pure insurance solution. There's a lot more that comes with it. And PEOs will not sell a client an insurance policy standalone. That's not what they do. That they're not— that's not their model. Right. So, you know, business owner has to account for all the other services and all the other costs that are associated with the PEO.

Gotcha. And benefits, as we all know, impact retention. You know, and retention impacts margins. You know, people don't talk about that enough. So let's get into contract length. How long are typical PEO contract agreements, or, you know, those things they put in place, the policies or agreements?

Yeah, so it, it really depends on the terms that you enter in, uh, initially with the PEO. Um, most PEOs will offer You know, a two-year contract, right? Where they say, "Hey, you sign. You promise to stay with us for two years, and in return, we're going to give you more favorable pricing." Right? Some PEOs do it that way. The standard is usually, you know, a year, where the PEO wants you to stay on board for a year. And honestly, you know, most clients stay for much longer than that just because. You know, it's, it's, um, it's the PEO offers a lot of service. So if you want to uproot and move to somewhere else, you got to uproot your payroll, your benefits, your HR, um, any other perks, 401s to leave the PEO. So most clients, if the PEO is doing a good job, they stay with the PEO for, you know, averages 3 to 5 years plus. You know, we've talked to clients that have been with certain PEOs for, you know, over 10 years.

Right.

You know, and that has to stay. That says a lot with the relationship between that employer, that business, and the PEO.

Well, since you brought that up, let's talk about leaving. So, what happens if, you know, I've done 2 years with you guys and now I'm ready to go, I'm ready to take my company out of this. What happens when— what to a company when it leaves a PEO?

Yeah, so what ends up happening is when a company starts to leave that PEO, first thing first is, you know, you kind of always got to look at your terms that you initially signed. And within those terms, there are— there's a termination or exiting language, right? Some PEOs You know, we'll have in there that if it's a premature exit, they charge, you know, exit fees, right?

Mm-hmm.

Or cancellation fees. But then sometimes initial— when you initially enter into the contract, as long as you ask and you know how to ask, PEOs are okay with a 30-day notice of cancellation. And usually, you know, you walk away without having to pay an exit fee after that. You got to do that at the very beginning. So that's a little pro tip there.

Got it.

But when you actually leave the PEO, so a couple things happen. Number one, you are reassuming your old tax ID, your old federal tax ID, right? Because during the time of the PEO, you're reporting and you're doing everything under the PEO's tax ID. Okay. Which is how they're able to kind of layer that umbrella of liability because it's under their tax ID. Once you leave, you assume your old tax ID, right? And then now you've got to plug in the gaps that the PEO left, right? I kind of mentioned it a little earlier. You got to get a— you got to know what you're going to do for payroll, whether it's going to be in-house or you're going to use a platform. You got to have your benefits lined up, especially if you were using a PEO that was offering benefits to your team. You have to, you know, make sure that that's cleared and ready to go on for the employees ready to enroll as, you know, once they exit that PEO, because, you know, benefits is important for employees to have.

Mm-hmm.

And then, you know, all the other services, the HR compliance, you know, the workers' comp insurance. So the PEO will leave a massive gap, right? But the trick is being proactive and making sure that you have solutions lined up to turn on the day that you finish with the PEO. You turn off the PEO and you flip the switch with your, you know, the new way you're doing things in your operational background. Hopefully a good broker is gonna help you with the benefits. And that's kind of, you know, in a very condensed form, what it means to leave a PEO.

Got it. So now, this is a big one. How do I choose the right PEO for my company?

Yeah, that's— it's definitely a big one. And it's part of the reason why we're in business. That's what we do. We're called PEO nerds. There right now in the US market, there are over 500 different PEOs. And each of those PEOs have their own nuances. Each of those PEOs work with certain industries and may not work with others, right? So it's from a Google search, it's very difficult to figure out if that specific PEO that you're looking at is going to be a fit for your business, right? Because as we all know, bigger doesn't always mean better.

Okay? Right.

So you really got to understand first and foremost internally. Okay? What am I looking for internally from either an HR perspective, a benefits perspective, right? That is causing me to look at a PEO. What's the pain? And can a PEO really, you know, fill in that gap for me. Um, then it's just, you know, it's all about, um, you know, doing your research, doing your homework. Um, you know, we're right now, we've got a platform that will kind of aggregate all of that data for you, right? Um, we're, we're close to launching it, and it will take that You know, hours-long research of PEOs, and it'll show you the best fit PEOs or the right fit PEOs for you. You know, in a few minutes, right? It takes into account things like how big are you? How many employees? Where are you located? Where are you operating? What states are you in? What PEO features are important to you? Right? What benefits are you looking for? And what insurance carriers do you prefer, if any? And we've aggregated a lot of this data from many different PEOs out there, not all of them because we, we try to focus on, on the ones that are established and vetted.

Yeah.

Um, and then we'll, we'll show you exactly, you know, what PEOs initially fit your criteria, fit your operation and your industry. So I know it was a little long-winded, but there's no easy way from, you know, a manual search perspective, right?

Well, you know, people, this is a key takeaway. You know, choosing a PEO is an underwriting decision as much as it is an HR decision. You're selecting a partner that touches payroll, benefits, compliance, all the risk Critical areas. Um, before we close out, Guillermo, what drove you to start PEO Marketplace?

That's, that's a great question. Um, so I, so I got my start in the industry straight out of college. Okay. I was probably 21, 22 years old, and I, and I was lucky enough to Have the opportunity to work for the largest PEO and payroll provider in the country, in ADP. Okay. You know, I worked there for many years, and you know, kind of learning through the ropes, right? I've met and I worked with so many different businesses of all shapes and sizes during my time at ADP, and it was very eye-opening. And I loved it, right? I got to hear directly from the business owners. I got to see exactly what they were going through and, you know, how I was able to help. And kind of, you know, during my tenure there, I saw a gap, you know, around the PEO space where, you know, a lot of times business owners were kind of, you know, looking for the right fit, But they didn't really know how to go about it because either number one, they weren't well-versed in PEO, or number two, they've heard of PEO and they wanted to jump on board because, you know, their neighbor was using a PEO. But see, that, you know, that lends to the problem. The way— the same way no 2 PEOs are the same, no 2 businesses are the same.

Exactly.

So it's really It's— we saw an opportunity where we can, you know, help facilitate the evaluations of PEOs to where, you know, the business owner would be able to maximize their investment or their return on investment in the PEO because we did a lot of the heavy lifting upfront to ensure it's the right partnership between that specific business and—

Yep.

the PEO that they chose.

Got it, got it. And I understand that because I can tell you, um, 15, 16 years ago, I wish there were a PEO marketplace, right? I can only go from, you know, ADP was the big dog and it was only a few scattered, but they were normally smaller and you just didn't know how to compare the right PEO. So one action to take today, folks, Write down your top 3 pain points, your benefit costs, compliance exposure, HR drain, workers' comp headache, payroll risk. Then get proposals that specifically address those pain points with clean pricing and clean exit terms. Guillermo, how can we get in touch with you? I'm going to include your information in the show notes where people can look you up. But how can we get in touch with you?

Very easy. peomarketplace.com. That's right.

Hey, if you're looking at the video, he's wearing the shirt. It's peomarketplace.com. Guillermo, listen, thank you for being on the show. I appreciate it. I appreciate your time and your expertise and knowledge into what a PEO is and some of the breakdowns that we as small business owners need to know.

Absolutely. It was my pleasure, S.E.

Thank you, sir. Folks, if you want a simple roadmap to start building business credit the right way, hey, grab my free business credit starter kit at our website, fsbonly.com. It's also in the show notes. It'll walk you through the first steps of getting your business lender ready starting today. And remember, your business credit isn't just a score, it's your company's future. Always apply for— qualify first And apply second. Thank you for tuning in to the Small Business Credit Minute, and I hope you enjoyed today's episode on professional employer organizations. If you got value from this Credit Minute, please subscribe to the podcast, download it, and share with a fellow business owner. Leave a review so many business owners can know how to learn— how to learn how to grow faster and smarter. Until the next episode, your dreams deserve a chance to grow, just like your business.