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Paychex Review: Best PEO for Startups

Our 2017 research and analysis of professional employer organizations (PEO) leads us to again recommend Paychex as the best PEO for startups. We chose Paychex from among the dozens of PEOs we considered. To understand how we selected our best picks, see our methodology and a comprehensive list of PEOs on our best picks page.

Paychex offers a complete collection of human resources services that startups can take advantage of before ever hiring their first employees. The company also has an easy-to-use online human resources management system and excellent customer service. Here is a breakdown of why Paychex is our best pick.

From hiring and training to payroll and benefit administration, Paychex offers a comprehensive array of services that startups will find valuable. Most of those services come in one standard package. Rather than letting you pick and choose what you want, Paychex likes to include everything it has to offer to all of its clients. While you might not take advantage of all these services immediately, Paychex believes having the option to use them at anytime is an advantage to growing businesses.

We like, however, that there are times when Paychex can make an exception. A representative told us that if there is a major portion of the services you truly don't want, such as health care, Paychex can carve that piece out of the plan for you.

Editor's Note: Looking for information on PEOs? Use the questionnaire below, and our vendor partners will contact you to provide you with the information you need:

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The PEO services Paychex offers include:

  • Benefits administration: Paychex professionals help with enrollment and setting up the infrastructure of your benefits program.
  • Insurance plans: You have the ability to offer employees medical, dental, vision, life, and short- and long-term disability insurance.
  • Section 125 plans: You can offer employees the option to pay for out-of-pocket medical expenses with pretax dollars.
  • 401(k) retirement plans: You can offer a variety of retirement savings plans, including traditional, safe harbor and owner-only plans.
  • Payroll administration: Paychex handles all payroll and payroll tax responsibilities.
  • Safety programs (OHSA): You have a dedicated safety-control representative in order to assure you are complying with safety regulations.
  • COBRA: This allows you to offer certain employees and their qualified beneficiaries the option to continue their group health-insurance coverage following termination, loss of hours or other qualifying events.
  • Workers' compensation: Paychex helps you choose the right policy for your business and provides advice on effective ways of managing it.
  • HR services: Paychex also conducts employee and management training, creates employee handbooks, develops job descriptions, and handles pre-employment testing and risk assessments.

The other PEO services Paychex offers include recruiting and applicant tracking, employee screening, and the onboarding of new staff members.

What makes Paychex so attractive for startups, especially those that haven't yet launched their ventures, is the ability to use some human resources services as part of the company's administrative service organization (ASO) plan. While many of the specific services are the same, the ASO differs from the PEO in that there is no co-employment arrangement. Since startups still in the creation stage likely don't have any employees, they can use the ASO services, such as the ability to create employee handbooks and develop job descriptions, that will be needed immediately when employees are hired.

This allows startups to outsource some human resources tasks that will help ensure they are set up for success, without having to pay for some of the services that are only needed once employees are brought on board. Those could include payroll and insurance. Not all of the PEO providers we examined offered this option.

Since pricing varies for each business, we can't say what your costs with Paychex will be. However, we do know that its pricing is determined on a per-employee basis. The costs are the same for each employee and don't vary based on title or salaries. We like this cost structure much better than pricing based on a percentage of payroll. Basing pricing on payroll, which some other services do, doesn't allow you to get a good handle on what your PEO costs will be each month. For example, if any of your employees are paid via commission, your PEO costs will fluctuate each month depending on the amount of sales each employee makes.

To really understand what Paychex's costs would be, you need to have a formal proposal written up that outlines pricing based on your specific needs.

One aspect of Paychex we were particularly impressed with was its online portal. It gives workers and company leaders quick and easy access to payroll and benefit information.

The online portal, which you can log into from any computer with Internet access, is a cloud-based platform that features an integrated suite of services that manages time and attendance, payroll, HR administration, and benefits.

The system allows employees to check vacation balances, view online pay stubs, access W-2 forms, review 401(k) accounts and access insurance information. We like the amount of access employees have with this platform. Rather than forcing employees to turn to someone else to gather the information they are looking for, this online portal allows employees to easily do it on their own.

The system also provides a number of benefits for company leaders. Those in charge can use the online portal to share organizational directories, automated notifications and reminders with their employees. The system also allows leaders to view and track benefit enrollments, and employee and employer costs. Additionally, the online system helps manage the onboarding process for new staff members.

Besides accessing the system via computers, Paychex also has a mobile app that's available on iOS and Android devices. With this app, employers can submit payroll, as well as review payroll reports, employee check stubs, employee profiles, retirement-plan balances, and health and benefits carrier information.

Employees can use the mobile app to check pay stubs and W-2 forms; review retirement account balances, contributions and loans; access health, dental and life insurance details; and see balances on flexible spending accounts.

Overall, the mobile app was one of the most comprehensive we found when examining PEO providers.

We were very pleased with the service we received from Paychex. To test the customer support, we called the company posing as a small business owner interested in PEO services.

The representative who answered asked us some basic information about our business. From there, she attempted to transfer us to a human resources specialist in our area. However, no such person was immediately available, and we were told to expect a return call when someone was free.

We were a little disappointed when we did not hear back from the specialist that same day. However, he did return our call first thing the next morning. The human resources specialist we spoke to was very friendly and helpful. He initially tried to schedule a time for us to meet in person so he could explain Paychex's PEO services to us face to face. However, after we explained that we weren't ready for a meeting, he was content to listen to our concerns over the phone and answer all of our questions.

For each question we asked, he gave a clear and detailed answer. Some of the other PEO providers we spoke to gave short, one- or two-word answers that left us with an unclear understanding of the company's services. That was not the case with the Paychex representative. We were impressed that he spent more than half an hour speaking with us, even though we said we weren't planning on making a final decision on a PEO provider for at least three more months.

Businesses that use Paychex PEO service are provided with an on-site location specialist who visits each business in person so company leaders know exactly who is handling their human resources services. If you have a problem, you can call your HR professional directly. We like the added personal touch that this provides.

Your personal HR specialist will help you create a custom employee handbook, handle all regulatory and legal compliance issues, take care of your Affordable Care Act documentation, make sure all of your employees are properly classified, terminate an employee if necessary, and conduct onsite employee training.

In addition to a personal HR professional, each business also gets a team of payroll, workplace-safety and insurance specialists who can help with any issues that may arise. 

The Paychex website is filled with a number of resources that small business owners will find valuable. It includes various articles on startups, finances, marketing, management, payroll and taxes, human resources, employee benefits, health care reform, and human capital management.

A big plus about Paychex is its accreditation by the Employer Services Assurance Corporation (ESAC). The ESAC is an independent nonprofit corporation that serves as the official accrediting agency of PEO providers.

The accreditation process verifies a PEOs' ongoing financial solvency and compliance with government regulations and industry standards. Earning accreditation demonstrates a PEO's financial stability, ethical business conduct, and adherence to operational standards and regulatory requirements.

Paychex was originally accredited in 2015 and is currently in good standing, according to the ESAC website. Not all of the PEOs we examined earned this recognition.

The Better Business Bureau (BBB) has also accredited Paychex. According to the BBB website, there were 199 complaints filed against Paychex over the past three years. Of those, 52 were resolved to the satisfaction of the complaints, with 147 still awaiting resolution. It's important to note that nearly all of the PEOs we reviewed had some criticisms levied against them with the BBB. Despite the complaints, Paychex has a BBB rating of A+. The majority of the PEOs we investigated were not BBB-accredited and did not have such a high rating.

One potential downside with Paychex is that its services aren't available on an a la carte basis. Some of the other PEO providers we looked into gave customers the option to pick and choose the services they wanted to use. Since we weren't able to obtain exact pricing, we aren't sure how this model affects costs. However, it could mean that you end up paying for something you aren't using.

Another issue that gave us a bit of concern was the large quantity of BBB complaints.  However, it is important to take into consideration how large the company is and how many customers it has. Paychex serves more than 500,000 small to medium-size businesses nationwide. When you factor in how many employees each of those businesses has, the number of complaints is small.

In addition, not all of the complaints are in regards to Paychex's PEO services. The BBB complaints include all of those filed against the company, which offers a variety of other services in addition to PEO. However, if the complaints do give you pause, we would encourage you to consider using Insperity, our choice as the best PEO for small businesses. Insperity had only a handful of BBB complaints.

Want to know more about choosing a PEO? Here's a breakdown of our full coverage:

Editor's Note: Looking for information on PEOs? Use the questionnaire below, and our vendor partners will contact you to provide you with the information you need:

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Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.