Certified PEO

One of my great clients is dead set on moving to a PEO (Insperity) as he's rapidly growing from himself and contractors to 5 employees in near future and 10 by next year. He's expecting $1.5M gross next year. We're currently using Gusto for payroll and I said they can do a good job with benefits, but not sure how "full service" they can be with regards to HR vs a PEO may be.
Anyone with experience dealing with PEOs like Insperity for their clients? Pros/cons?

My biggest pauses are:
1) He still needs to be registered as a foreign LLC in all the states where he has nexus (ie an employee working from home) for purposes of "doing business" and for being able to file/pay income/PTE taxes as well as any gross receipts type taxes. So in effect the PEO only solves the "payroll registration in many states" issue.

2) They are indicating he can terminate his current Solo 401k and immediately start a 401k plan with the PEO (ie the 12 month waiting period doesn't apply). That doesn't sound right, but perhaps it is.

If your client has a low SUTA experience rate, he will probably lose out there, as the employees will shift to Insperity and SUTA will be based on Insperity's experience rate. Had one client with about a dozen employees that got hit quite hard on that.

Ditto for the workers comp

One of my great clients is dead set on moving to a PEO (Insperity) as he's rapidly growing from himself and contractors to 5 employees in near future and 10 by next year. He's expecting $1.5M gross next year. We're currently using Gusto for payroll and I said they can do a good job with benefits, but not sure how "full service" they can be with regards to HR vs a PEO may be.
Anyone with experience dealing with PEOs like Insperity for their clients? Pros/cons?

My biggest pauses are:
1) He still needs to be registered as a foreign LLC in all the states where he has nexus (ie an employee working from home) for purposes of "doing business" and for being able to file/pay income/PTE taxes as well as any gross receipts type taxes. So in effect the PEO only solves the "payroll registration in many states" issue.

2) They are indicating he can terminate his current Solo 401k and immediately start a 401k plan with the PEO (ie the 12 month waiting period doesn't apply). That doesn't sound right, but perhaps it is.

I have a client in a PEO and I'm blown away by the fees. They are absolutely insane and the PEO's customer service is terrible. If he's growing that fast he's going to need a good controller/CFO to oversee the whole financial picture. I advise my clients that are growing quickly to continue using Gusto (they're pretty good at payroll but wouldn't use them for health insurance or other services). I then have them open a safe harbor 401k with Guideline because it integrates directly with Gusto and it's cheap for the service provided. Then they can use an outsourced HR person and health insurance person to handle those items. No sure what else they would get from a PEO? Am I missing anything?

A couple pros (though I also find PEOs generally do not operate very well and have poor customer service).

A lot easier to ramp up and ramp down.

They can hire remote employees in multiple states without worrying about the individual tax and legal complications.

They avoid some of the legal risk associated with employment (i.e. employee lawsuits, though that's certainly not to say that the company can't get sued or brought into a suit).

Also, the ease of "one stop shopping" so to speak.
If you're a small business, you don't have time to deal with all of this stuff if you want to devote your time to the actual business operation. And you're too small to hire someone to do it.
Time is money. Yes PEO fees are high. People calculate it's worth it.

If your client has a low SUTA experience rate, he will probably lose out there, as the employees will shift to Insperity and SUTA will be based on Insperity's experience rate. Had one client with about a dozen employees that got hit quite hard on that.

That's interesting. It's not the same for generic payroll processors right, just PEOs?

For example, Gusto/ADP/Intuit ask the business to input their specific SUTA rate, so I would think that's based off the company's history.

In a PEO the "employer of record" is the PEO and not the actual employer. The W-2s come from the PEO.

ManvsTax, what sjrcpa said. Some contracts mention co-employers (PEO and client) but the 941 etc is in the name of the PEO.

If your client has a low SUTA experience rate, he will probably lose out there, as the employees will shift to Insperity and SUTA will be based on Insperity's experience rate. Had one client with about a dozen employees that got hit quite hard on that.

That's interesting. It's not the same for generic payroll processors right, just PEOs?

For example, Gusto/ADP/Intuit ask the business to input their specific SUTA rate, so I would think that's based off the company's history.

It depends on the state. In most states the PEOs experience rate applies. In a minority, though certainly not an inconsequential number, of states the SUTA rate is based on the PEO's client's rate (i.e., doesn't take the PEOs rate, so not affected by the existence of the PEO relationship, other than compliance).