What is a PEO ?
Professional employer organizations (PEOs) provide human resource services for their small business clients—paying wages and taxes and often assisting with compliance with myriad state and federal rules and regulations. In addition, many PEOs also provide workers with access to 401(k) plans, health, dental and life insurance, dependent care, and other benefits not typically provided by small businesses.
In doing so, they enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients can thus focus on their core competencies to maintain and grow their bottom line.
Any business can find value in a PEO relationship. The average client of a NAPEO member company is a business with 19 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust web-based HR technologies and expertise in HR management. PEOs can partner with companies that have 500 or more employees and work in conjunction with their existing human resources department.
PEO clients include different types of businesses ranging from accounting firms to high-tech companies and small manufacturers. A broad range of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from PEO services.
Who Uses a PEO?
How do PEOs help businesses control costs and grow their bottom line?
A PEO's economy of scale enables each client company to lower employment costs and increase the business's bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead.
The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO.
Business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most owners do not have the necessary human resource training, payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer.
PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise.
How does a PEO arrangement work?
How do PEOs help businesses control costs and grow their bottom line?
A PEO's economy of scale enables each client company to lower employment costs and increase the business's bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead.
The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO.
Do the business owners lose control of their business when they work with a PEO?
No. The PEO client/business owner retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities per a client service agreement (CSA). The PEO will generally only assume responsibilities associated with a "general" employer for purposes of administration of benefits and remittance of payroll and payroll taxes.
The PEO will be responsible for remittance of payroll and employment taxes, may maintain employee records and may retain a limited or general right to hire and fire, as delineated in the CSA.
What are the pros and cons of a PEO?
Each business is different, but the benefits of PEOs usually outweigh any negatives. Pros include access to competitive benefit packages, mitigation of certain employment-related risk, scalable technology and infrastructure, and employee-related cost stability.
As for cons, PEOs sometimes confuse employees when they see their paychecks and benefits issued by another company. You, therefore, need to ensure that the PEO will help you explain the co-employment relationship.
Through a PEO, the employees of small businesses gain access to big-business employee benefits such as:
401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits they might not typically receive as employees of a small company.
And, when a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, enhanced benefits, training, employee manuals, safety services and improved communications.
How do employees benefit from a PEO arrangement ?
Each business is different, but the benefits of PEOs usually outweigh any negatives. Pros include access to competitive benefit packages, mitigation of certain employment-related risk, scalable technology and infrastructure, and employee-related cost stability.
As for cons, PEOs sometimes confuse employees when they see their paychecks and benefits issued by another company. You, therefore, need to ensure that the PEO will help you explain the co-employment relationship.
What are the pros and cons of a PEO?
Through a PEO, the employees of small businesses gain access to big-business employee benefits such as:
401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits they might not typically receive as employees of a small company.
And, when a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, enhanced benefits, training, employee manuals, safety services and improved communications.
How do employees benefit from a PEO arrangement ?
Business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most owners do not have the necessary human resource training, payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer.
PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise. Professional Employer Organizations (PEOs) provide human resource services to their small business clients—paying wages and taxes and providing compliance assistance with myriad state and federal laws and regulations. In addition, PEOs often provide workers with access to 401(k) plans, health, dental and life insurance, dependent care and other benefits not typically provided by small businesses.
Why would a business use a PEO?
Through the economy of scale, client companies are able to realize lower employment costs and increase the business’s bottom line. Business owners will have the extra time to grow the business and focus on revenue producing activities. Clients are able to take advantage of technology that would otherwise prove costly and time-consuming.
How a PEO can help you reduce costs ?
The classifications for workers’ compensation (WC) insurance continue to be determined by the National Council on Compensation Insurance’s (NCCI) coding system and are based on the risk of work performed.
However, a PEO is typically the holder of a single workers’ compensation policy that covers all employees on the PEO payroll, including leased employees.
How does Workers’ Comp coverage through a PEO compare to a stand alone policy policy?
PEOs provide services to between 156,000 and 180,000 small and mid-size businesses, employing between 2.7 and 3.4 million people.
