Managing a business involves hiring and handling personnel. This becomes more challenging when your company grows as you get faced with more HR responsibilities. It’s a welcome problem that has an easy solution, that of a PEO.
But what exactly is a PEO? This article aims to give you a definition and show you how your business can benefit from one.
What is a PEO: Professional Employer Organization
A PEO, also known as Professional Employer Organization, is an outsourced employee management service. It provides solutions for administrative assistance such as recruitment, payroll processing, benefits, and many other HR concerns. It is now becoming a popular alternative to hiring in-house or direct employment for all types of companies.
Human resources tasks and other employer liabilities are some of the most time-consuming for a business owner. Thus, a PEO is an asset, especially for small businesses that aren’t yet ready for a full-time, in-house HR staff. Small business encyclopedia website Entrepreneur defines PEO as “A company that technically “employs” the workers of several other companies and oversees all HR-related functions.“
How Does It Work?
Many business owners confuse PEOs with temporary staffing businesses. As the title suggests, these quick help companies provide short-term workers or those on a per-project basis. On the other hand, PEOs are much more complex and give a broader service scope than that.
Here’s how the PEO process works:
When a business and a PEO get into a contract, they enter what is called a co-employment arrangement. This means that the PEO becomes a co-employer of your employees. It becomes the professional employer of your workforce that provides services and benefits. You, as an operating employer, hold the primary control in decision-making, managing your staff’s job functions, and other day-to-day tasks.
Generally, a PEO is an outside company where a business can turn over all its HR roles. They are the ones to manage these operations to get the HR burdens off your shoulders. This gives you more time and energy for revenue-producing endeavors.
Although PEO companies vary in the services they offer, here are what they most commonly provide:
- Payroll
- Payroll taxes
- Workers’ compensation coverage
- Employee benefit programs
- Human resources guidance
- Benefits administration
What a PEO Doesn’t Do
To better understand what a PEO does for a business, we need to know what it doesn’t do.
PEOs Don’t Take Full Control of Business
When you enter a co-employment relationship with a PEO, you still keep full ownership and control of your business. A PEO will only focus on employment-related areas. This includes HR administration and other responsibilities written in your contract service agreement.
A PEO is Not an HR Staff Replacement
If you already have an in-house HR personnel, a PEO is not a replacement for them. PEOs will work alongside your existing HR staff by giving them supporting expertise. They will assist in administering workplace policies and implementing necessary changes in company culture.
When your business grows, a PEO can help with your company’s increasing employee engagement and recruitment. It can also help your HR specialists address conflicts and develop programs related to your new business goals.
PEOs Won’t Cause Disruptions in the Workplace
When you become a PEO client, you won’t have to worry about them disrupting your company’s workflow. Your employees will barely notice a PEOs’s work. The most they can probably see of a PEO is its name visible on their paychecks. Also, technology today has afforded PEOs the ability to provide HR data to employees whenever they need it.
How Does One Apply?
Applying for a PEO’s services need not be complicated. All you need is to free up time for you to choose the best PEO for your business. Here are a few factors you need to consider when making your choice:
- Assess and determine what your workplace needs regarding human resources and management.
- Schedule a meeting with several PEOs to check for their capability of meeting your requirements. You can also ask for client references.
- Check for certifications and other pertinent data such as financial statements and compliance with state requirements.
- Examine a prospect’s expertise and competence in administration and management. If you can, it would help to check for their internal staff’s qualifications as well.
- Understand their employee benefits and how they are funded. Is your prospective PEO insured or self-funded?
- Carefully review their service agreement. You may also want to check their cancellation terms and conditions.
Once you settle on a choice, you can request for another meeting to clarify what you may have missed in your initial search.
The Pros of a PEO
As with any aspect of a business, there are good and bad sides. Here are the pros and cons of getting the services of a PEO:
- You’re free from all the hassles that handling the HR responsibilities entails. This allows you more time to take care of operations, marketing, and strategizing.
- A reputable PEO is up to date with rules and regulations that the law prescribes. You won’t have to worry about your company’s compliance with fast-changing procedures.
- A PEO has the capabilities of negotiating and providing affordable employee benefits and insurance coverage.
- You’ll get access to licensed HR professionals who can help you regarding employment-related risks. You no longer have to hire separate lawyers and experts that can add to your expenses.
The Cons of a PEO
A PEO offers so many advantages for your business. However, it’s not entirely without its fault. Here are the cons of being a PEO client:
- PEO pricing can sometimes lack transparency. Payroll, taxes, workers’ compensation, and other expenses are usually rolled into one. It may be difficult to see what you’re actually paying. However, talking to a representative of a PEO can clear up any misunderstanding.
- The PEO is the one that selects the insurance plan they will offer your company. You have little say in it, which can leave you fixed with one you don’t especially like.
