Thanks to Inc Magazine for this great article.

I have both good and bad examples of business experience with PEO's. As a small business owner I am all for them as they let an owner focus on there areas of strength (which usually isn't HR). Here are the warning signs you should be aware of about PEO's:

Most states have lax regulations on PEOs, warns David West, executive director of the Center for a Changing Workforce, a workers' rights advocacy group based in Seattle. If your PEO is poorly managed, or goes bankrupt, you could wind up with an office full of uninsured workers. To make sure that doesn't happen, watch for these four warning signs while shopping for a PEO.

Lax due diligence
PEOs share liability with clients, so expect them to quiz you extensively about your company's workplace safety and HR policies. If a PEO is looking for a fast deal, think twice about the partnership.

A leave-the-details-to-us attitude
Before signing a contract, ask the PEO for specifics on insurance providers and creditors. Some PEOs will even turn over their financials. A PEO that isn't forthcoming could be hiding something.

A recent name change
This could be a sign that the company has had trouble in the past. To cover your bases, search the Internet for news stories about the PEO--and, of course, ask for references.

The promise of huge savings
Responsible PEOs don't tout cost cutting as their main function. You may save some money by partnering with one, but be suspicious of savings greater than a small percentage.