Is Your PEO Licensed? It Better Be

In the Human Resources field, September is significant for more than just the Labor Day holiday. For PEOs, it’s also the deadline for renewal of State of Michigan licenses.

Professional Employer Organizations operating within the state are required to receive their licenses by September 1 in order to remain compliant and to avoid an escalating range of significant penalties. Since the PEO licensing law took effect in 2012, the net effect has been a steady reduction in the number of PEOs doing business in the state. Increasingly stringent requirements and the need to maintain over $100,000 in working capital have forced many smaller and less reliable companies from the market.

While the numbers of less stable, less established PEOs have diminished as a result, a considerable number remain – including some that try to sidestep licensing, and the licensure requirements, altogether. Such companies typically work with a small number of employees and clients, and do their best to remain “under the radar” where regulations are concerned. They manage to maintain stable, longstanding relationships with their established clients – until suddenly they don’t.

When an unregulated PEO fails, the ripple effect can affect many people outside of the organization – most notably the PEO’s client. Apart from the considerable and immediate legal ramifications, a company can suddenly find itself saddled with a wide range of unforeseen obligations and burdens – liability issues, unpaid wages, unpaid premiums, unfiled paperwork, and more – that can put its very existence at risk.

The 2012 licensing law was enacted in an effort to prevent such scenarios. In the wake of some catastrophic PEO collapses prior to regulation, there was a broad consensus that something had to be done to protect workers and businesses alike from underfunded, incompetent, or unscrupulous outsourcing firms. The 2012 regulations sought to establish a baseline capability and quality standard for professional employer organizations, and the annual licensure provides a measure of protection for companies that entrust their vital human resource functions to outside providers. Companies that can’t or won’t meet the licensing standard undermine that protection.

Companies operating within the law have advanced the PEO industry, and have provided immeasurable benefit to the business community. Today’s best PEOs have helped their clients improve efficiency, improve compliance, and cut costs, helping to strengthen the business community as a whole. But “Caveat Emptor” – “Let the buyer beware” – still applies; where non-licensed PEO’s continue to operate on the margins, there is still the potential for disaster for client companies that neglect to do their due diligence.

Sure, the prospect of saving a few dollars, cutting a few corners, or not disrupting an established business relationship can be appealing – but an unlicensed PEO can be putting your business at mortal risk. Now more than ever, it’s essential to check a PEO’s licensing status before starting – or continuing – a working relationship. The licensing standards aren’t just some arbitrary bureaucratic hassle; they’re a vital layer of business protection, and can literally make the difference between stability and insolvency. So check out your PEO, and make the switch to a stronger, more stable, licensed company if you need to. The business you save may be your own.