Imagine forging a business partnership that could make your company more profitable and more likely to succeed. Every day, more and more small- to midsize businesses are finding that a PEO partnership is providing them the tools for more growth, more profitability, and more success.
If you’ve been wondering what a PEO is, what kind of PEO services are available, and how a partnership can benefit your business, keep reading.
We’ve got the answers to your biggest PEO questions.
What Does a PEO Do?
A PEO (professional employer organization) provides human resource services for their small business clients. In short, a PEO provides an opportunity for a business to cost-effectively outsource the management of payroll, human resources, employee benefits, and workers’ compensation.
How Does a PEO Partnership Work?
When a business is ready to partner with a PEO, a co-employment relationship is formed. This co-employment relationship is a contractual allocation and sharing of employer responsibilities as outlined in a contract known as a client service agreement.
With a typical client service agreement, the PEO is responsible for the “employee management” portion of the business. The PEO will typically remit employee payroll, payroll taxes, and issue W-2s. As a co-employer, the PEO typically provides a complete human resource and benefits package for employees.
Does a Business Owner Lose Control in this Arrangement?
Consider a PEO partnership like outsourcing the employment-related tasks issues for your business. When you enter into a PEO partnership, you still retain ownership of the business and you’re responsible for its continued operations, sales, marketing, product development, etc. The business is still yours and you’re still in control of the aspects of “the business of doing business.”
Under the terms of your client service agreement, the PEO that you partner with will assume responsibilities for the administration of benefits and remittance of payroll and payroll taxes. Depending on your specific agreement, the PEO may also provide assistance with workplace safety and compliance, maintaining employee records, or retain a limited ability to hire or fire employees if stated within your contract.
What Types of Businesses are a Good Fit for a PEO?
The average size of a PEO client is a small- to midsize business. However, even larger corporations can benefit from a partnership with a PEO. Whether you’re a small business with 19 employees and you’re single-handedly taking care of HR duties yourself, or you’re a larger corporation employing 500 or more with a robust human resources department - you can benefit from a PEO partnership.
Why Would a Business Use a PEO?
There are numerous benefits to a PEO partnership. Although many PEO clients are small, they’re able to offer a broad array of benefits to their employees at a lower cost. Conservatively, PEO clients are able to enjoy a 21% savings on HR administration, with many clients saving much more.
The benefits a PEO offers can help small businesses attract and retain employees, reducing costly employee turnover.
According to the National Association of Professional Employer Organizations (NAPEO), businesses that use a PEO are 50% less likely to fail compared to their non-PEO peers.
With a PEO company offering, implementing, and managing HR services, executives are able to focus their attention on the core business. PEOs allow business owners to focus on the business of their business rather than the business of employment. And they can help existing HR personnel and departments work even more efficiently.
Small human resources departments who have pieced together dozens of different vendors and software services to effectively manage payroll, accounting, employee training, and compliance can switch to a single-vendor solution. Your existing HR person or department can have one point of contact and one system, freeing up their time and resources to focus on the “human” aspects of HR.
How are PEOs able to Offer More Services for Less?
PEOs use an economy of scale to lower employment costs and help businesses increase their bottom line.
PEOs are able to procure benefits that a small business typically couldn’t afford. With a PEO partnership, small businesses are able to provide Fortune 500 quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Since PEOs are able to obtain benefits on a large scale, they can obtain them at a lower cost than a small or midsize business could.
PEOs can also reduce workers’ compensation deposits and premiums. PEOs typically administer workers’ comp through payroll services, which provides a pay-as-you-go model that eliminates the need for deposits and audits. Workers’ comp premiums are based on actual payroll data, not estimates, which can save your business money (as well as the hassle of trying to accurately estimate payroll expenses). Many businesses initially come to a PEO trying to find a solution to a workers’ comp challenge.
PEO clients can also lower employment costs by maintaining a simple in-house HR infrastructure or none at all by relying on the PEO. The PEO can provide critical assistance with employer compliance, which helps protect their client against liability. In many cases, a PEO client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO.
In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company's core competency and grow its bottom line.
Is a PEO Right for You?
If you want to focus on growing your business and increasing your bottom line; if you want to reduce turnover and attract talented employees with high-quality retirement and insurance benefits; if you want to reduce workers’ compensation deposits and audits with a pay as you go model; if you want a better chance at success….then a PEO just might be the right partnership for your business.