January 07, 2019

PEO Insider: The Increasing Role of Technology In the PEO

By Britt Landrum, III

Ahhh, the good ol’ days…There was a time not so long ago when all an IT professional working at a PEO had to be concerned about was keeping the internal network up and running, providing access to the Internet and email, having a few fax machines available, and most importantly, keeping the payroll system alive! Back then, it was considered a good day if the payroll system didn’t crash or lose checks; if it did, you would have to reprint them—all of them! We could tolerate an employee’s machine randomly rebooting, just please don’t let it be one of the servers! Didn’t get an email? Try sending it again from your home address. If a fax got lost somewhere in the proverbial “black hole,” send it again and we’ll have somebody waiting by the machine this time. The client’s gateway to our online world was a login (usually containing a Social Security number) and a PEO-provided password. The client’s online “experience” consisted of looking up or running reports on paycheck and address information that was generated by the payroll system.


Coming out of the recession in 2011, it seemed as if the client experience and expectations changed overnight, mostly due to the consumerization of IT (courtesy of Apple). “Everybody else has an app; why doesn’t your company?” was often muttered by clients and prospective clients to our team. Clients expected to not only be able to look up information about their employees, but to modify it as well (preferably through the app!). During this time period, the dot com failures had rebounded, and the next generation of disruptors was hitting the streets with online versions of HR, benefits, and payroll platforms, with some even appearing (at first glance) to be free of charge! PEO operators were left scratching their heads and wondering if their years of hard work could really be automated so easily by these new market entrants.

Fortunately, some time passed and proved, once again, that it is necessary to make a profit to stay in business, and the PEO business is no exception to the rule. One of the very few things I remember from college economics class is TANSTAFL: “There ain’t no such thing as a free lunch!” In other words, what appears to be “free” on the surface usually has hidden costs. However, the human resources information systems (HRIS) landscape was changed forever as a result of the explosion of new competitors. Client expectations grew to a greater level than ever. 

Unlike earlier versions, clients now expected an HRIS to look pretty and provide real value. In addition, clients were no longer willing to accept multiple logins to different services, but demanded a single sign on solution to a portal that brings everything together into one cohesive ecosystem (thanks again to Apple!). Fast forward to today, and many clients are filling out digital forms online and/or scanning and sending documents to their PEOs rather than using outdated faxing technology (except for certain industry specific holdouts. What is with these folks insisting on using 1980s technology? For some reason, certain professions have chosen to ride that horse-and-buggy until the wheels fall off! But I digress...). Now, PEOs can use pre-programmed workflows to intelligently distribute documents to the proper departments, thereby increasing efficiencies and lowering internal staff costs.

An important question now facing PEO and payroll companies is whether to build or buy their technology. There are several pros and cons with each option. If you rent your software, you can pay as you go (analogous to PEO client workers’ compensation plans), and depend on someone else to (mostly) keep your system up and running, install upgrades and patches, secure it, and protect it against hackers. The downside is you are literally betting the success of your business on your trust in your software provider. Alternatively, if you choose to build and develop a custom solution, you will get exactly what you want and have full control of the outcome. However, you’ll spend millions of dollars on developers and/or contractors, take years to get up to speed, and will need to maintain your own upgrades and patches, keep up with the latest security breaches, and harden your system to ward off hackers. Most importantly, by the time your software is fully developed, you run the risk of it already being outdated. 

Unless your company originated as an IT firm, most PEOs will choose to rent software and let the vendor worry about keeping up with the technology competition. The problem becomes that you, along with most of your local and regional competitors, are offering the exact same software because the PEO space is very small. You can try to differentiate yourself with third-party add-ons, but those tend to present their own set of integration issues. This is precisely why LandrumHR has selected a hybrid approach. We have in-house software developers, contract with a local development house, and use contractors whenever and wherever possible. No solution is very affordable, so be prepared to fork out the dough if you are going to play in the game at all. 

Some PEOs have chosen to stick to their guns, hunker down, remain with outdated software (thereby sparing the expense), and provide “superior customer service.” The problem with that strategy is that it is a ticking time bomb with an unknown shelf life. For example, many people feel that Amazon provides superior customer service without talking to a single person! The days of artificial intelligence are here, and many service industries are already capitalizing on it. We should always be looking ahead and investing in technology where it makes sense.

Many PEOs have already put strategy, time, and money into modernizing their technology offerings. So, how do we capitalize on our investment in technology with prospective clients? Depending upon the prospect, we have found that the salesperson may need to pull in technical resources to help make the sale. The ability to demo your system so prospects can see the value is critical. Getting away from paper and antiquated processes to realize efficiency is something all decision-makers can agree on. Similarly, the efficiencies recognized in processing on the PEO side of the house cannot be underestimated, which could translate either into lower costs for the client or a return on investment to the PEO through these efficiencies. When clients have HR teams, you must also communicate the value they can realize from using a PEO for transactional HR so their HR departments can focus on engagement and retention. 


PEOs must also decide how aligned they will be with vendors. As mentioned above, some prefer selecting a main vendor and using that vendor’s chosen partner ecosystem of third-party products to round out the HRIS offering. Alternatively, there are PEOs like us that have a vision of building out their own client experiences and therefore pick and choose which best-of-breed products from each respective module to implement within their own ecosystems. (A word of caution here: Please ensure the vendor has experience working with PEOs. Multi-tenant issues tend to arise far down the road with software vendors new to our industry). Some module examples include applicant tracking, onboarding, benefits administration, performance management, and custom workflow applications.

The future of technology for PEOs, and HRIS in general, is bright.  Blockchain technology, for example, has the potential to transform our industry. According to Wikipedia, blockchain is “a decentralized, distributed, and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.” In other words, it is extremely difficult to corrupt data on the blockchain. It is quickly becoming a standard within the human resources industry and many vendors within the business services space are already writing code to implement the technology. It would behoove all of us to pay attention as blockchain and other technologies develop and enlist the help of vendors that are doing the same.

The balance of vendors versus custom in-house development of proprietary software is something PEOs must continuously evaluate. The pros and cons will continue to evolve, but it’s hard to argue the importance of a holistic HRIS for a PEO. The expectation for an integrated technology platform has grown with employers and PEOs must keep pace to remain relevant.

Britt Landrum, III, CEO LandrumHR