Going out for HR? Due diligence is key in selecting a professional employer organization.

• Author: DeWitt, Lyle
• Position: HUMAN RESOURCES

While overseas service providers have transformed the meaning of "outsourcing" in our lexicon, for decades businesses have outsourced various job functions to increase efficiency and reduce costs.

Though businesses have outsourced to third-party payroll providers for years, some smaller companies are outsourcing services--such as group benefits purchasing and administration, workers' compensation compliance and administration, COBRA and HIPAA compliance--to compete with larger employers and offer better benefit packages at lower prices.

DO YOUR DUE DILIGENCE

Following are some tips on what to look for in a professional employer organization or human resources outsourcer:

Privacy is king. Use professional literature and state and federal laws to ensure that any outsourcer is providing appropriate security measures to safeguard against theft or improper sharing of personal employee data, such as Social Security numbers, banking information and dates of birth. Likewise, compliance with HIPAA requirements guarantees that health-care histories remain protected.

Check client and professional references. Don't just skim the surface, but dig deep:

* Check with the PEO's essential vendors. For example, confirm insurance coverage and ask if the policy is new or has been renewed. Ask the PEO for references from inside their carriers.

* Find out how the PEO's insurance carriers are rated by A.M. Best or other insurance rating organizations.

* Ask for customer references, both from current customers and those who terminated their service. Find out why former customers terminated their service.

* Do a Google search on the PEO and see if anything negative (past fines, pending litigation, etc.) pops up.

Voluntary membership can mean a lot. Check to see if the provider is a member of the National Association of Professional Employer Organizations and is accredited by the Employer Services Assurance Corporation. NAPEO membership suggests a company's dedication to high standards and professionalism. ESAC, in addition to providing financial stability assurance, offers accreditation for risk management, payroll and benefits administration.

Never overestimate a provider's financial standing. Reminding CPAs to check on a prospective partner or vendor's bank and credit references may seem like preaching to the choir, but no business can afford to overlook this step.

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