What is PEO?

Table of Contents

Professional employer organization (PEO) is an outsourcing company that offers services like HR, payroll, risk mitigation, training, learning and development, employee’s compensation and insurance, workforce management technology, taxation and filing, compliance assistance, health and benefits, retirement vehicle, employers practice, and liability claim.

In simple words, it offers its services to small businesses, where the small business and PEO signs a co-employment agreement. Through this agreement, PEO acts like an employer, but in return, you’d get complete maintenance of the record from HR, payroll, taxation to insurance claims. PEO would take care of everything without keeping a costly HR department.

PEO business has been proliferating for the past few years. In 2017, there were roundabout 907 PEO firms across the US, and their total annual gross revenue was 174 billion US dollars.

How Does a PEO Work?

The relationship PEO and the business starts with the co-employment contract where both parties agree to share certain responsibilities. Mainly PEO becomes the employer of the contracts because it has to provide professional to the clients. It is serving many clients at the same time by having multiple co-employment contracts with different organizations. The client of PEO keeps on running its business operation and selling its products and services as usual.

PEO handles payroll processing. It would pay and withhold payroll taxes, maintenance of employee’s compensation coverage and other benefit programs. It also provides its professional HR guidance and administrative services as per request and contract requirements.

Ownership Status

The ownership status of both companies remains separately intact, which means that they would remain the owners of their companies. Co-employment contract won’t change anything in terms of control and change of power. PEO firm would only provide professional services like HR, payroll, taxes, employee benefits management, and etc. The client would keep on running the operations of its business as usual.

Liability Reduction

When the PEO firm provides all of those services, then there’ll be less and almost no liabilities for the client to worry about. Even the certified PEO firms provide the service of covering the taxes and other legal penalties. The financial protection services they offer to small businesses are less expensive and affordable.

Benefits of PEO

When a business hires PEO, then it not only just sharing of responsibilities, but it also saves a lot of time and energy. Imagine the cost of hiring an incompetent employee who makes blunders while maintaining the record of your company, and you have to pay for it later. PEO saves your business from doing it. Here are some of the advantages and benefits of PEO which are as follows;

Employees Benefits

The main purpose of a professional employer organization is to provide cost-effective benefits to the employees of the client company, without putting the client’s company under financial burden. To offer a solution that works for both parties.

PEO usually offers a variety of benefits to the employees by providing PEO sponsorship benefit plan that would include; health care benefits, vision and dental coverage, and lifetime disability benefits.

When PEO sponsorship the program, then it will cover all the dealing, negotiations, enrolment of employees and other administrative expenses. The employees would appreciate the sponsorship benefit plan, it’s because the PEO firm would provide them a complete awareness about the benefits.

Payroll

PEO would reduce the overall accounting and payroll processing costs; it’s because the firm usually automates the whole payroll process for its convenience.

As a business owner, you should look for a professional employer company that offers a complete payroll service with a specific fee, instead of a firm that charges a separate fee for different payroll services like monthly, quarterly and annual payroll reports.

Retirement Plans

A professional employer firm usually offers the 401K plan, it is a retirement saving benefits plan that helps companies to keep employee retention.

A business owner should look for the 401k sponsoring plan firm that deducts a certain amount from the employee’s income and accumulates it at the final amount. The plan sponsor should look after the regulation and administrative responsibilities like replying to the notices, distribution processes, and compliance testing. PEO plan sponsor usually provide learning and other educational material to their employee, so that they could choose a better retirement plan.

HR Compliance

The federal government will hold you responsible if your company doesn’t respond to the labor laws, HR rules and regulation. It would result in the form of a massive lawsuit against your business. If your business doesn’t have the legal competencies, then PEO offers legal guidance that is relevant to your business.

For instance, if your business is operating in more than one city, which means you have employees working at remote locations. Now, what about the paid sick leave policy of your company, is it following and relevant to the local laws? If it is not, then the local authorities would hold your company responsible.

There comes the role of PEO, its professionals would provide a complete guideline of how to run your business in an effective, or how to deal and comply with such issues.

Workers’ Compensation

Deduction of health and insurance funds from the employees’ salaries is a very lengthy and tiresome process. Under the co-employment contract, PEO offers your company an insurance program. It would also manage the audit, compliance, and other certifications running the program.

A good professional employer organization usually has a very competent team of professionals, who work in collaboration with their clients to mitigate the risk in a timely manner.

Lawsuits

If your company is planning to minimize the cost by not hiring the PEO; it would add up the extra expense on the company’s payroll. For instance, if the federal government finds your business in violation of HR and other labor laws, then your company would end up pay much more than the fees of PEO.

For instance, a top-tier PEO is very strict discrimination laws and equal employment opportunities. If you use the resources of such a firm, then you mitigate the potential risk of a lawsuit against your company.

Recruiting

Recruiting the right person for the job has been a serious problem for many companies. It is because as soon as the company announce the required vacancies, then thousand of application piles up in your database. Sorting out all of those applications is a very time-consuming process and it would require a lot of resources.

Professional employer organizations arrange the test and interviews of candidates to check and verify the background and credentials of the candidates. They would provide you the best candidate for the job because they follow the protocol and recruit people for many clients over the years. The chance of error is almost negligible.

They also have a team of behavioral analysts whose job is to read the body language of people; you can fake the credential and other paperwork. But you can’t change your unintentional attitude and body language.

Best PEO Services Provider

Justworks
ADP Total Source
XcelHR
TriNet
Infinit HR
Oasis Outsourcing
Paychex

8 Questions to Ask When Choosing a PEO

Here are some of the following questions that you should ask before hiring PEO;

The experience of individuals in the team, if the firm is old, but the team members are new. Then you should look for the firm that has experienced team members in various matters.
Is your firm web-based? Or you can visit and meet the office of your PEO team. If you can visit their office and meet their team members, then it would establish the trust easily. Everything would be suspicious online.
How many employees they have to support your team? If there are few people in the team and many clients, then there’s a possibility of delaying the results.
Make sure that you should have a written paper agreement that you can see and read it. You shouldn’t just rely on the online page.
Do they offer EPLI (employment practice liability insurance) and how much coverage? If they offer it, then it would save your company from many employees’ employment-related lawsuit. By coverage, you can find out the level of risk you’ll be getting, which you can compare it with other firms.
Their fees and how much would it increase annually? You should discuss the increment rate before signing the contract.
How would the firm fund the employees’ benefits? Your company would be responsible for paying the benefits of your employees, or PEO would sponsor the program of benefits, or any financial institution taking part in the program. Does the program have insurance (medical or otherwise)?
Are they certified profession (CPEO)? If they are, then when were they certified? It is because certified professional firms can save your costs in terms of taxes and other legal expenses. Your company doesn’t end up paying double taxes to the government.

Conclusion

If you are planning to expand your business, then it is better to hire a certified professional firm for assistance in legal matters. It would save a lot of potential future cost. When you are planning to hire a professional employer organization, then make sure that you check all of the above questions. If you do that, then it would save you in the future.