November 19, 2020    |    By

Running a business takes a lot of work. Some of the work involved is time-consuming but necessary. This work can include most of the work done by the Human Resources department. This work is something that most managers would rather not have to deal with, but unless someone else can take on the duties, there isn’t much choice. Small and medium businesses often are hit the hardest because they aren’t large enough to hire an HR department or a qualified HR professional. These companies can significantly benefit from working with a Professional Employer Organization, or PEO.

What Is A PEO?

A PEO is an organization that takes on many of your company’s human resource tasks. These tasks include such activities as:

  • Human resource consulting,

  • Safety and risk mitigation services,

  • Payroll processing,

  • Employer payroll tax filing,

  • Workers’ compensation insurance,

  • Health benefits,

  • Creating and implementing company policies related to employment,

  • Retirement vehicles (401(k))

  • Regulatory compliance assistance

A PEO is not someone who can give legal advice, but they can help business owners understand the current regulations and help them ensure that they are meeting the requirements.

How Does A Relationship With A PEO Work?

PEOs primarily target small to medium-scale companies’ pain points. These companies often find it difficult to provide affordable insurance for employees because they don’t have a large number of people that allow for discounts with big insurance companies. These smaller companies also find it challenging to keep up with the many changes in business law and run the company and deal with the paperwork from HR. A PEO can help reduce much of this that can overwhelm a small to medium business owner.

The co-relationship between a company manager and PEO makes sure you, as the company owner, do not need to feel you are losing control of your company. In all matters, you have the final say. The PEO can advise you in cases of hiring/firing, but you make the final decision. You are responsible for the daily running of your company. The PEO works in a limited area.

A PEO is sometimes considered the employer on record for your employees. This designation allows them to get better deals on insurance, which lowers the cost for your employees. The PEO can help with the hiring process by doing pre-testing, drug testing, and background checks. The PEO can help with the development of employee handbooks, work with insurance claims, and deal with taxes. It is up to the business owner to keep track of attendance and work hours, but the PEO can prepare and distribute payroll. The job of the PEO is to ease the paperwork of the business owner and help provide more significant benefits for employees.

1. You Can Provide Improved Benefits

Forty percent of PEO clients can offer their employees a higher benefit package. This ability increases the company’s chances of being able to better compete in their field. Too often, small and medium companies lose out to more giant corporations simply because they can’t afford to offer their employees the kind of benefits that employees need.

PEOs Sponsor Employees’ Benefits

The PEO is the employer on paper, allowing the PEO to add your employees to the pool of employees of all their other clients. The larger pool reduces the cost of unemployment insurance as well as life insurance policies. You are now paying a reduced rate and can offer your employees savings and bigger packages. This advantage allows you to seek out more qualified employees who may only work with more substantial companies because the more significant players can offer more excellent benefits. As your employee pool becomes more experienced, your company can grow more quickly and to greater heights.

PEOs Cover Workers’ Compensation

Many PEOs include management of insurance premiums and claims, handling compliance paperwork and audits involved, and certifications associated with the job requirements. This management allows you to concentrate less on learning all the ever-changing laws, filling out endless paperwork, and dealing with the officials involved in these tasks. By covering workers’ compensation, the PEO helps to reduce your costs even further.

PEOs Manage Retirement Plans

PEOs manage retirement (401K) plans, so you don’t have to. They follow accounts from initial paperwork, through all the payments, and eventually disbursements. You need less paperwork in this instance. Retirement plans are always changing, and they require a great deal of paperwork. The stress and time involved can sometimes require a full-time staff member to handle the plans. By trusting that responsibility to a PEO, you free yourself of this stressor.

2. You Can Provide Better Working Environments

Partnering with a PEO allows you to offer a better working environment for your employees. Nine out of 10 PEOs provide services that ensure employees’ welfare and safety are always a top priority. The PEO helps both you and the employees in this area, and their work starts with the initial screenings necessary to employ the correct employees.

PEOs Provide Pre-Employment Screening and Checks

PEOs assist with things like job descriptions and streamlining your hiring process. By making job descriptions clear, the people most qualified can know what is expected of them. Next, the PEO takes over things like drug testing and background checks. This activity frees up both time and money for you and makes sure you are getting employees who are considered safe and productive.

PEOs Maintain Compliance to Employment Laws

Employment laws are in place that helps ensure employees are working in a safe environment, physically and emotionally. These laws change regularly. Penalties for non-compliance can be hefty. Compliance means employees’ rights and benefits are never overlooked. The PEO can also keep abreast of updates that may save you even more money in the long run. The PEO can’t put the safety measures in place, but they can keep you informed of what is needed, so you do not face any penalties during an inspection. This advice is another example of how you and the PEO are co-partners.

3. You Can Ensure Long-term Employee Retention

PEO clients’ employee turnover rates decline from 10 to 14 percent annually compared to non-PEO clients. This decline is a result of several factors. The PEO allows for better hiring procedures from the start. Next, they help you offer better benefits, which helps you keep employees who might otherwise move somewhere else for a better package. The safety of employees makes the working environment more pleasant, and this makes people want to stay. In the end, happier, healthier employees are more likely to remain in their position a lot longer even if the pay doesn’t always match a large company. Job satisfaction is one of the most often stated reasons an employee stays with a position regardless of the field.

Undisrupted Flow of Operations

Every business knows how difficult it can be to lose an employee and have to maintain operation with a limited staff. With the PEO in charge of HR, you often are able to hire better talent and retain that talent over the long run. They also assist you in dealing with your employees’ issues, allowing you to focus on the day-to-day operations of your company rather than getting bogged down with employee issues. By assisting you with properly managing your employees, PEOs give you a competitive advantage while helping maintain your employee morale.

Cost Savings

Hiring costs money. You need to work to find the best employee, take time with onboarding, and spend hours dealing with paperwork. These activities require that someone put aside their regular duties to see that the hiring activities get done. Then, productivity suffers. When a PEO can take on these duties, there is no production loss, and the cost of operation remains lower.

4. You Can Focus on Your Company’s Growth

Studies prove that PEO clients’ annual ROI of using PEOs is 27.2 percent. With a number like that, the ability and money needed to focus more on other areas of growth become free. You are running your business because you understand what works in your chosen field. Your skills and knowledge are best utilized in the areas of the company that can’t get completed by others. A PEO offers the opportunity to become more focused on growth.

PEOs Handle Payroll for You

Payroll is a necessary evil. You need to pay your employees. What is not required is your company doing the work involved in payroll, including taxes. Your role in the payroll process consists of keeping track of who works what hours. The PEO can then take that accounting of hours, do all the accounting, such as taking out taxes and adding up over time, considering time off or vacation hours, and creating payroll checks. At the end of the year, the PEO takes care of payroll taxes.

5. You Have a Higher Survival Rate

Businesses that use PEOs have 50 percent less likelihood of failure. One of the hardest things for a small or medium company to do is stay afloat when more substantial companies are near. The smaller ones simply can’t offer employees the same things larger companies can. Employees suffer, the consumer suffers, and ultimately the business itself fails. By allowing a PEO to handle many tasks that a larger company can save money handling, the smaller contenders give themselves a boost up and can better level the playing field.

PEOs Share Liability in Certain Claims

Top-tier PEOs may include handling lawsuits against wrongful termination, providing expertise in mitigating potentially costly settlements. Many small businesses have failed with one suit. By sharing the liability, your company has the knowledge and backing of another entity, helping give the necessary support.

Bottom Line: You Get Peace of Mind

What is a PEO? It is peace of mind in a world where every bit of peace is welcome. The partnership you develop with a PEO can save you time, money, and endless frustration. The relationship can make you healthier, more productive, and ready to take on the larger companies in your area as you grow.


Found this post helpful?
Check out this related post:
5 Reasons PEOs Are the Answer to Your Company’s Payroll.

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This blog post is intended for informational purposes only and does not constitute legal advice. No attorney-client relationship is created between the author and reader of this blog post, and its content should not be relied upon as legal advice. Readers are urged to consult legal counsel when seeking legal advice.