A PEO (Professional Employer Organization) is an organization that provides mostly HR and regulation compliance services to businesses (usually small to medium-sized). Businesses will outsource their payroll and HR work to these organizations and join into what is known as a “co-employer” relationship, leaving certain responsibilities or bothersome tasks to the organization while leaving you with full control over your policies and workforce.
Most PEO services also provide support and training in numerous areas, and this professional insight can be invaluable to startups and for business owners struggling to meet informational mastery required for running their organization.
If you are interested now in a PEO and would like to know about the best options available to you and your business right now, please see our review page.
Common Functions Performed by PEOs
Payroll Management: Perhaps the most common and well-known function of PEO services, a good PEO will handle payroll for any employees you sign up with the service, handle tax contributions, make sure payments are timely, deal with direct deposits and similar programs, and manage whatever else may be necessary.
HR and Legal: Most PEO services will provide HR support and management for your employees, ensuring laws and regulations are followed. They should also provide interpretation and explanation regarding those laws so that you can create a better, safer workplace.
Additional compliance support can include handling employee liability insurance, time reporting and tracking, and unemployment insurance filings.
Benefits: PEO services regularly provide benefit offerings to employees. As PEO companies often represent thousands if not millions of employees in total, they have more bargaining power than small businesses, allowing for much better packages. Common benefits include health, dental, retirement, life insurance, termination pay, and employee rewards programs.
Recruitment and Training: PEO services will often have a library of training resources at their disposal on various subjects and will train or aid in the training of employees. They may also work with you on creating training plans.
Recruitment and employee retention is also often managed, and some PEO services will provide data and tools to save you time on these functions.
Risk Reduction: PEO companies are fantastic resources to help you reduce risk from various sources, including previously mentioned legal and compliance risks, payroll fines, and reduction of potentially disastrous mismanagement.
What a PEO Isn’t
While PEO organizations are great, you should be aware that there are some misconceptions about them and that they might not be for everyone at their business’ current stage. So please keep in mind the following warnings and disclaimers.
• The clear majority of them will not manage your employees and their tasks for you. They will likely help you in performing that management, but the responsibility of running your business still squarely on your shoulders and they are not responsible for the inefficient use of human resources.
• In many cases, they aren’t an organization that will take the blame/legal responsibility if your employees or company do not follow regulations or best workplace practices. They will likely tell you the best course of action, but it is up to you and your employees to enforce regulations on site.
• Some PEOs will not be legally/fiscally responsible if they poorly file taxes for you. This can lead to difficulties if the PEO performs poorly in their obligations. This risk can be negated by using an IRS Certified PEO, which would be responsible for those failures.
Why Should You Use a PEO?
You might want to consider utilizing a PEO if some of the following apply to you:
• You need HR work done, but you don’t see the need for a full-time HR specialist on your payroll.
• You would like expert management when it comes to your payroll.
• You think your employees deserve better benefits, are confused about setting them up, or you would like your employees to be able to receive the benefits of the great leverage PEO companies have with insurance providers and other organizations.
• You are in a heavily regulated industry (perhaps finance or construction, as examples) and need help understanding and complying with the labor and workplace safety laws as applicable to your industry (and doing so in the most efficient manner), as well as dealing with the forms associated with those laws.
• You have difficulty training employees or finding the time to do so and would like to streamline that process.
• You would like to personally save time on any of the tasks listed above and focus more on other tasks.
• You wish to have more performance management and attendance oversight tools available to you.
• You would like to digitize your payroll and employee management efforts (most if not all PEOs have a digital system and portal for both employees and managers).
In short, a PEO is the service for your business if you are hoping to save time and spend your human resource resources more efficiently. If HR is a problem for you, you need a PEO. If you’re looking to take your business to the next level, a PEO is what you need.
With one, your small business can offer corporate-level benefits at a reasonable cost, with minimal effort on your part.
Which One Should My Business Use?
Every business has its own needs, and the proper answer to “which one do you recommend” depends on your situation. Does your business only have a few employees, or do you require HR services for a few dozen employees? Will a great deal of training be required? Is the business in an industry that is heavily regulated or has greater than average legal risks? Are there employees in more than one state? These are all questions you will need to ask of yourself and your business before finalizing any decision.
The other major thing you will want to consider is the commitment you are willing to make at the start. It is entirely reasonable to not wish to start with a year-long contract as opposed to only requiring a 30-day notice to cancel the plan, and it is equally reasonable to look for a flexible PEO that allows you to pick and choose (and pay for) only the services that your business will use.
Hopefully, by now you know whether a PEO service would benefit your company or whether it would be best if you or an employee kept performing HR tasks and management. They are incredibly useful organizations for the right company and can make the difference in letting you focus on the aspects of running your business that are most important.
Fortunately, we’ve sorted through the dozens of companies available to make your selection much easier. You can see our recommendations here.
If you have any questions or comments, or have any recommendations of your own, please leave a comment below and we’ll be interested in what you have to say.