What Is A PEO?
Running a successful company can be stressful, so many business owners turn to Professional Employer Organizations to handle a wide range of administrative tasks.
But what is a PEO, and why are so many small businesses eager to take advantage of their services?
Whether launching a startup or streamlining an established company, you'll find everything you need to know about PEOs in this guide, so keep reading.
What Does PEO Stand For?
Before we dive into what a PEO is and how businesses use one to streamline their operations, let's briefly explain what the acronym means.
PEO stands for Professional Employer Organization, an employee leasing company distinct from administrative services offerings and Human Resource Outsourcing.
So, now that we’ve explained what PEO stands for, we'll break down the details and explore how they can help your business maximize efficiency.
What Is A PEO?
Professional Employer Organizations are contracted by all types of businesses to deliver a range of human resources and administrative functions.
Representing a co-employer of their client companies, PEO services handle everything from payroll and taxes to employee benefits and performance management.
They can also help businesses with risk management and assessments and assist with worker compensation and benefits.
Typically, PEOs work with small and medium-sized businesses, basing their pricing on the total number of employees or payroll.
The range of services varies between PEOs, with many offering legal compliance assistance to ensure the client doesn't violate state or federal laws.
Other PEO services can include handling talent management and company culture and further streamlining HR functions around employee training.
As such, the variety of PEO services gives you plenty of options when choosing one that offers the most relevant functions.
As such, the best PEOs for startups will deliver different services to those committed to supporting large, established companies.
This lets you step back from time-consuming HR tasks and focus on developing business growth and innovation.
If you’ve already partnered with a PEO provider and want to contribute a review to our website, get in touch, and we’ll share your insights.
How Do PEOs Work?
As optimism for the future success of small businesses continues to rise, company owners are increasingly searching for an edge over their competitors. To help gain an advantage, small and medium-sized businesses have begun using the services of a Professional Employer Organization (PEO). Once you adopt the services of a PEO, the PEO becomes the legal employer for your company when handling its administration. Taking on legal and tax-related duties allows the PEO to negotiate for more favorable outcomes that save you additional money. PEO services then bring in their in-house HR administration team, which performs a broad selection of tasks, including:
Payroll
PEO services take on the basic tasks of a payroll company, processing payroll and automated deposits for full- and part-time employees, contractors, and vendors. Some PEOs will integrate payroll with time and attendance data and produce payroll management reports.
Taxes
Closely linked to their payroll management services, PEOs also assist with correctly filing state and federal employment taxes, ensuring they are paid on time. A certified PEO can also mitigate other issues, such as waiving the wage base restart and handling Internal Revenue Service (IRS) reports.
Legal Compliance
Drawing on a pool of legal experts, a PEO offers access to compliance experts who can protect you from penalties and fines. This compliance assistance can cover anything from payroll and taxes to workers' compensation and industry-specific regulation.
Benefits
Employee benefits have expanded over the years, covering everything from life and disability insurance to health insurance, commuter benefits, and retirement plans. You can use PEOs to access highly competitive benefits packages that attract the best possible talent to your organization.
Workplace Risk Management & Safety
In addition to helping with workers' compensation and insurance, some also offer PEO risk management and safety audits to limit the number of potential claims. This can include assisting with Occupational Safety and Health Administration (OSHA) inspections and designing employee training programs.
Many PEO companies also offer additional HR tasks for your company that further free up time to focus on building their business. Such perks can include providing access to mental health support, creating onboarding training material, and assisting with business planning and research. At the same time, a PEO isn't a replacement for your internal HR team; it assists them and provides valuable insights. If you have personal experience with a PEO provider in these areas, you can submit a review, and we’ll share it with our readers.
Advantages of Using PEOs
Running a company is stressful, and Human Resources and administrative As with all types of business operations services, there are pros and cons of PEOs to consider before you decide which one is right for you. Let's take a look at some of the core advantages PEOs offer small businesses:
Saving time and money
Professional Employer Organizations deliver exceptional client cost savings by handling HR outsourcing, payroll taxes, and other employer responsibilities.
These savings represent a return on investment averaging 27.3% while improving growth rates and lowering turnover.
Improving the employee experience
Expanding employee benefits gained from using a PEO service can lead to stronger levels of engagement and performance that create higher employee retention.
By helping to strengthen trust in the company's growth and practices, PEOs allow you to foster a healthy company culture.
Protection from legal risks
PEOs are dedicated to offering risk protection and HR compliance assistance that insulates you from fines and the repercussions of mistakes.
In addition to implementing compliance policies and procedures, PEOs can also deliver employee training and education and further minimize legal risks.
Attracting and recruiting top talent
Combining employee benefits and additional performance management services allows clients to attract high-quality candidates looking for the best benefits administration possible.
PEOs can also provide services for recruitment and offer the best hiring practices oriented toward acquiring top talent.
Rapid growth rate
Working with a PEO allows small businesses to quickly scale their organization without becoming swamped by the expected increase in employee paperwork and other administrative responsibilities.
PEO can handle the additional workload and allow you to focus on delivering employee satisfaction.
These powerful advantages can provide a comprehensive solution for your company's HR processes.
The ability to tailor PEO processes depending on the size and nature of your business lends them additional flexibility and appeal.
Disadvantages of Using PEOs
While there are many advantages to using PEO services, the co-employment agreement does relinquish some control of the business.
Here are some potential downsides to be aware of before hiring a PEO for your HR and administrative services:
PEOs can be impersonal
A lack of control over internal processes
Just as PEO clients may feel their employees aren't receiving close attention, so too can using a PEO take away a degree of control over their HR processes. This can be countered by partnering with a PEO that offers customizable HR solutions and retains a degree of control over some internal processes.
Delays in conflict resolution and communication
Liability for administration mistakes
Lack of support for international expansion
Not all small businesses are impacted by these potential downsides, but you should carefully consider them before establishing a co-employment relationship. As such, you should also assess the potential return on investment based on the number of employees you hire and the PEO service. Business owners who have encountered these issues can submit a review and help others avoid these problems when choosing a PEO provider.
How Much Does A PEO Cost?
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PEOs rates are based on various factors, typically charging by payroll percentage or number of employees. For example, a fixed fee per employee can cost around $1,000 annually, while the percentage of payroll may range between .5 to 3%. Alternatively, a PEO might assign the per-employee, per-month (PEPM) model, with a monthly fee for each employee between $40 and $160. When choosing a PEO, you’re expected to provide information on the size of your workforce and existing and desired benefits. Most reputable PEO companies provide a breakdown of the costs and how these are allocated to payroll, workers' compensation, and other services. Additional in-depth services, such as data analysis and talent management, will also be included in their overall pricing. Once you have received this breakdown of services and fees, you can effectively determine how much a PEO costs and the potential ROI.
What Is A Certified PEO?
While small businesses enjoy many benefits from working with a PEO, they also require peace of mind when it comes to financial oversight. This can be achieved by partnering with a Certified Professional Employer Organization (PEO) that meets the financial and operational requirements of the IRS. Certified PEO providers are subject to ongoing IRS reporting requirements and bonding audits that allow them to maintain stringent standards. The PEO industry also works closely with the Employer Services Assurance Corporation (ESAC) to verify their reliability through verification. As an independent, non-profit organization, the Employer Services Assurance Corporation works to establish and maintain ethical standards. The ESAC also offers notification programs to assure PEOs, their clients, and government agencies that standards have been met. By partnering with a certified PEO, your company's human resources processes are guaranteed to meet the applicable requirements. Before choosing a provider, check out our blog to learn more about everything to do with PEOs.
How To Choose A PEO
There are several questions you should ask before hiring a PEO to ensure they have a proven track record of delivering the services you require. Here are some steps to use when choosing a PEO to help determine which will produce the best results:
Verify Accreditation & Certification
When choosing a PEO, research certified Professional Employer Organizations (PEOs) and select one that passes eligibility.
This will ensure the interests of the company's employees are properly managed and will deliver maximum benefits and ROI.
Read Reviews & Testimonials From Previous Clients
PEO services can be chosen by reading through PEO reviews, assessing their performance, and approval from previous clients.
These reviews will highlight any client issues and highlight PEOs capable of consistently delivering excellent results.
Request A Demonstration Of Their Internal Software
When businesses work with PEOs, the PEO often uses in-house tools to help manage employee paperwork and other administrative duties.
Before choosing a PEO, ask for a demo of their HR information system to see if it's compatible with internal HR staff processes.
Factor In Business Growth
While the PEO model is typically applied to businesses over a certain number of employees, company growth is also a factor.
As a business expands, PEOs may offer discounted rates or other requirements to consider before adopting their services.
Check For Industry Specialization
Some PEOs offer services dedicated to niche industries, and small businesses in this category will need a PEO that reflects this specialization.
This will ensure the appropriate expertise in compliance assistance and regulations, delivering a PEO relationship that covers all bases.
PEOs For Small Business
Most small business owners lack the time and expertise to handle the full range of Human Resource tasks expected when running a company.
This makes PEOs for small businesses vital for alleviating the stress of compliance requirements and employee paperwork, freeing up time for business growth.
Newly established small businesses can use PEO services to focus on expansion and develop the culture and core competencies that matter.
If you’re a small business owner, PEOs can also assist you with the following:
FAQs
We've covered all the crucial information about what a PEO is and how small businesses can use it to reduce their HR expenses. However, these answers to frequently asked questions about PEO services will clear up any other concerns about PEOs and exactly how they work.
Who Is The Employer With A PEO?
Does A PEO Replace My HR Department?
What Doesn't A PEO Do?
What Are The Three Types Of PEO?
What Is The Difference Between ASO And PEO?
Summary
Professional Employer Organizations have revolutionized how business owners handle daily operations to save valuable time and money. Following this guide, you now understand what a PEO is and can choose one that reflects your business goals and vision. As your business expands with more employees, a PEO will help you scale efficiently and help ensure your company's future success.
