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What is a PEO, and Why That Definition is Changing

Due to pervasive misconceptions, many individuals remain unaware of the services provided by Professional Employer Organizations (PEOs) and their potential to bolster businesses across all scales. Common misunderstandings often obscure the true nature of PEOs, leaving entrepreneurs and business owners unaware of the myriad benefits they offer.


The lack of awareness on PEOs hinders businesses from tapping into the expertise, resources, and cost-saving advantages that PEOs can provide, ultimately limiting their business's growth and efficiency. By promoting understanding, businesses can make informed decisions and unlock the full potential of partnering with a PEO.



In today's business landscape, where branding, marketing, and social media presence are integral components of success, PEOs have adopted a deliberate strategy of maintaining a lower profile.


This intentional approach aims to ensure that businesses maintain their distinct brand identities and messaging without overshadowing them with the PEO's own branding or marketing efforts.

 


This strategic positioning underscores the commitment of PEOs to prioritize the success and individuality of their client businesses while providing essential behind-the-scenes support in areas such as human resources, compliance, and employee benefits.


By prioritizing the success and individuality of their client businesses, PEOs operate discreetly in the background, allowing their clients' brands to shine without overshadowing them with their own presence.

 


However, this deliberate strategy can inadvertently lead to a lack of awareness among the average small business owner regarding the assistance and support PEOs can provide.


As a result, many small business owners may not fully grasp the breadth of services and expertise available to them through partnering with a PEO, potentially missing out on valuable opportunities for growth, efficiency, and compliance.


A considerable portion of the populace remains uninformed about the role and functions of a Professional Employer Organization (PEO), with some forming unfavorable opinions based on past encounters. Below lies a compilation of common misconceptions surrounding PEOs in the United States, accompanied by detailed explanations debunking their validity.


Misconceptions About PEOs:


  • I will lose control of my business.


While the PEO assumes certain responsibilities related to HR functions, payroll administration, and employee benefits, the client business retains full control over its core operations, strategic decision-making, and day-to-day management. Working with a PEO enhances business owner’s control by streamlining operations, ensuring compliance, and freeing up time and resources to focus on driving their business forward.


  • I will have to fire my HR team.


A PEO will complement and enhance the capabilities of an organization's HR department rather than replace it entirely. PEOs work in collaboration with existing HR teams, providing additional support, expertise, and resources to handle various administrative tasks. PEOs can offer specialized knowledge and guidance on complex HR issues.


  • The PEO will onboard, terminate, and manage my employees.


PEOs operate under a co-employment model, wherein they share certain employer responsibilities with client companies, but they do not control or dictate the hiring, firing, or management of employees. The client company maintains complete autonomy over recruitment, performance management, and day-to-day supervision of its workforce.


  • My employees will not like the change.


PEOs work diligently to ensure a smooth transition for employees, emphasizing clear communication and support throughout the process. PEOs typically offer comprehensive employee benefits packages, including health insurance, retirement plans, and other perks that can enhance job satisfaction and employee morale. Additionally, PEOs streamline HR processes which can alleviate administrative burdens on employees and improve overall efficiency.


  • PEO’s are only for mid-sized businesses.


The versatile nature of PEO services can benefit businesses of varying sizes, including small startups and larger enterprises alike. Small businesses gain access to expert HR guidance, compliance assistance, and employee benefits solutions that would otherwise be challenging to manage independently. Larger enterprises can leverage PEO services to streamline HR operations, enhance compliance, and optimize workforce management.


  • PEO’s are only for experienced business owners.


PEOs can provide support to businesses at all stages of development. PEOs offer vital assistance that can be particularly daunting for those new to the business landscape. By partnering with a PEO, inexperienced business owners can access the resources and support needed to establish a strong foundation for their ventures, facilitating smoother operations and faster growth.


  • All PEO’s are the same.


PEOs vary widely in their specialization, industry expertise, service quality, and technology capabilities. PEOs may excel in certain areas such as employee benefits administration or compliance management, client relationships, and/or tailored solutions. Factors like company culture, geographic coverage, and pricing structures can also differ significantly between PEOs.


  • PEO's lack the relationship dynamic of a small business.


While PEOs serve multiple clients, they often prioritize personalized attention and dedicated support for each business they work with. PEOs understand the importance of building trust and rapport with their clients, offering tailored solutions and responsive assistance to address their specific needs and challenges. Many PEOs assign dedicated account managers to ensure ongoing communication and collaboration, mirroring the close-knit relationship dynamics commonly found in small businesses.


  • Working with a PEO is too expensive for me.


While there are fees associated with partnering with a PEO, these costs are often outweighed by the efficiencies gained and the reductions in administrative overhead. PEOs leverage their economies of scale to negotiate favorable rates on employee benefits, insurance premiums, and other HR-related expenses, passing on these savings to their clients. Additionally, PEOs help businesses avoid costly penalties associated with non-compliance and minimize the risk of expensive HR-related lawsuits.


  • I will have nothing to do if a PEO runs my business.


PEOs aim to complement and enhance the efforts of business owners and managers by alleviating the burden of routine HR responsibilities and allowing them to focus on key priorities such as business growth, innovation, and customer satisfaction. By working together with a PEO, business owners can leverage their expertise and resources to streamline operations, improve efficiency, and ultimately achieve greater success. 


  • The PEO dictates how much they will help me and in what ways.


The misconception that they apply a "one-size-fits-all" approach to their services fails to acknowledge the tailored and flexible solutions that PEOs offer to meet the unique needs of each client. PEOs understand that businesses vary widely in size, industry, culture, and goals, and they adapt their services accordingly. Moreover, PEOs often provide scalable solutions that can evolve alongside a business as it grows and evolves.



For more information on what a PEO can do for your business and the difference between traditional HR teams and a PEO, feel free to read the blog linked below also written by our Cornerstone PEO team.


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