What is a PEO?A PEO, or Professional Employer Organization, is a third-party company that provides HR services and support to small and medium-sized businesses. PEOs can help businesses save time and money by handling tasks such as payroll processing, benefits administration, and compliance with employment laws and regulations. By partnering with a PEO, businesses can focus on their core operations and growth, while leaving the HR responsibilities to the experts.
Professional employer organizations (PEOs) offer significant benefits for small to medium-sized businesses (SMBs) by simplifying and enhancing their human resources operations. Managing HR and ensuring compliance in-house can be a complex and time-consuming process. By partnering with a PEO, businesses can consolidate these aspects, such as payroll, benefits, and HR compliance, into a single, convenient vendor relationship. This allows business owners and leaders to focus on core revenue-generating activities while reducing administrative responsibilities associated with being an employer. Studies by noted economists Laurie Bassi and Dan McMurrer show that businesses that use a PEO grow 7-9% faster, have employee turnover that is 10-14% lower, and are 50% less likely to go out of business.
What PEO services can you expect?
Some PEO services include only basic HR administration, while others also include strategic consulting and analytics. In general, a PEO will handle most, or all, of the tasks commonly associated with the HR function, including:
Payroll and tax filing. Perhaps the most common service utilized, a PEO can handle the payroll for your company, and it can also pay federal, state, and local taxes as needed. Some companies will incorporate payroll with time and attendance to reduce the chances of errors and duplicative effort.
Employee benefits administration. A PEO provides your employees with access to a variety of employee benefits, such as health insurance and retirement perks, while also managing the administrative aspects like enrollment and claims processing.
Compliance. PEOs can help you avoid regulatory penalties and fines by ensuring that your company is following proper procedures in areas like workers’ compensation claims, payroll tax compliance, and unemployment insurance requirements. In fact, in the last 12 years, the PEO industry has quadrupled in size as the regulatory landscape gets increasingly complicated and more and more businesses turn to PEOs for back-office assistance.
Workforce Management. Some PEOs provide end-to-end talent management solutions, such as strategic hiring, employee training, and performance management.
HR Outsourcing and Support. Most PEOs can supplement or complement existing teams or HR personnel in meeting organizational goals and yielding the most efficient and effective HR operation possible.
How Does a PEO Work?When you sign up with a PEO, a contractual relationship known as “co-employment” is established. In other words, the client company and the PEO become co-employers of the employees. The client company maintains direction and control of the business, while the PEO becomes the employer of record for things like taxes etc. Most PEOs bill based on a flat monthly fee or a percentage of payroll, though this can vary a lot between different PEOs.
What are the advantages of using a PEO for HR outsourcing?
A partnership with a PEO can provide your company with many advantages, especially if you’re a small business that lacks specific expertise in HR.
Improve Employee Benefits. Competitive pay and benefits packages are critical to attracting and retaining top talent, as well as meeting larger business goals. PEOs can help employers design competitive compensation packages while offering a variety of enterprise-grade benefits at accessible, economy-of-scale price levels.
Maintain Compliance. PEOs can help with compliance-related peace of mind by navigating the complexities of state and federal employment laws on your behalf. PEOs can ensure that you properly classify your employees and follow all applicable employment laws.
Reduce your employer’s liability. Being an employer immediately creates potential liabilities that can be confusing and challenging. The PEO can help minimize or eliminate these liabilities, and in some cases help to defend against potential claims or regulatory actions.
Save Time and Money. Perhaps most importantly, a PEO can help free your time, so business owners and leaders can focus fully on growing the business without distraction. Companies that partner with a PEO report an ROI in cost savings alone of more than 27%.
CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our ability to create a strategic HR function in your business that drives business growth potential, contact us today.