Professional Employer Organizations (PEOs) are the largest employers you’ve never heard about. PEOs are the perfect tool for small businesses to save money on administrative, back-office tasks and maintain a competitive advantage.
What is a PEO?
PEO stands for Professional Employer Organization. PEOs are a type of outsourcing option for a full array of HR services including payroll, employment taxes, employee benefits, risk management, workers’ comp, and other employer administrative functions. When a business partners with a PEO, they enter into a co-employment agreement. The PEO becomes the professional employer of your workforce whereas you maintain control of all organizational decision making, your employees’ job functions and day to day tasks. A client service agreement (CSA) will be reached to determine which functions get outsourced.
Some services that PEOs can help you with include:
Payroll & Taxes
PEOs process payroll and are responsible for paying local, state, and federal employment taxes. The PEO is also responsible for payroll record keeping, reports, and compliance, while providing online paystubs and W-2s for your employees. PEOs also have access to experts in the industry as well as the best technology to ensure the payroll is accurate and sent out in a timely manner.
The PEO will handle all employee enrollment for benefits and will be responsible for processing claims. The co-employment agreement allows the PEO to aggregate all the employees of many small businesses together to achieve the same buying power as large enterprise companies. This means PEO clients get access to the same employee benefits as Fortune 500 companies, giving your team affordable rates for medical, dental and vision coverage as well as access to 401(k) and Roth IRA accounts.
PEOs are experts at navigating laws and regulations, helping protect your business form costly fines and penalties. The PEO is also responsible for unemployment insurance fillings and Employment Practices Liability Insurance (EPLI).
Workers’ compensation insurance may be arguably the most sought-after service that a PEO provides. Similarly to benefits, the co-employment agreement allows PEOs to leverage the number of employees to get workers’ compensation plans at a much cheaper cost. PEOs also specialize in lowering their clients’ experience modifier and reducing the number of claims. Because of this, PEOs may provide safety audits, training programs, and assist with Occupational Safety and Health Administration (OSHA) inspections.
A PEO has HR professionals who provide HR services and support. If an internal HR team is already in place, the PEO can assist them strategically and administratively. The PEO can also provide new hire onboarding, termination assistance, drug testing services, and employment verification.
How does Co-Employment Work?
Co-employment is a contractual allocation and sharing of certain employer responsibilities between the PEO and the client. The contract between your business and the PEO lays out who will be responsible for certain employee responsibilities. This contract makes the PEO the employer of record meaning all payroll, employment taxes, employee benefits packages and insurance is paid through the PEO’s EIN number. The business owner still controls the day-to-day operations, who to hire or fire, and the job functions of your employees. All the PEO is responsible for is making sure your employees get paid on time, your taxes are paid correctly, and you receive the correct benefits and insurance that was agreed upon. Through the sharing of employer responsibilities, your company can leverage economies of scale.
How can a PEO Help my Company?
A PEO can save clients time and money while proving them with support.
Unmatched Employee Benefits
By working with a PEO, your employees are grouped together with the rest of the PEO’s clients to form a large group. This large group can collectively buy benefits packages at a much cheaper rate than if a small business owner were to purchase them individually. This gives small business owners access to similar benefits packages as large Fortune 500 companies. Companies that offer robust employee benefits improve their employee retention rates. In fact, companies that use a PEO increase employee satisfaction by 28%. With a strong benefits offering, companies have an easier time hiring and attracting top talent.
PEOs are great at helping clients navigate risky waters. More than 33% of small business get fined every year for making payroll mistakes. And that’s just payroll. PEOs also help reduce workplace injury claims. Did you know there are over 4 million work related injuries that occur every year? That equates to an injury every seven seconds. PEOs can help get workers comp insurance the same way they purchase benefits, a big group order. That means you can obtain workers comp even if you have a slightly higher experience modifier. With a PEO on your side you know you can operate your business without worrying about regulations, fines, and penalties.