12 May What is a PEO and how can it help my business?
Starting and growing a business is no mean feat. And while many may try, only few truly succeed.
Those founders and entrepreneurs who do go on to lead successful SMBs are characterized by their ability to make smart decisions on the behalf of their organizations. This is true at any time, but it’s especially pertinent during times of hardship.
When external forces threaten the market, small businesses often come under a lot of pressure. And as times get more difficult, new challenges arise — where once it may have been possible for a founder to manage all aspects of the business, there are suddenly actions and initiatives which have to take precedence. The hours you spend on payroll each month, for example, would surely be better spent nurturing new client leads and protecting the bottom line.
Even when things are going smoothly, delegating necessary — but time-consuming — tasks can mark the difference between a business that’s going steady, and one that’s going for gold.
This is where a PEO can come in.
For small businesses, HR can be a hugely labor-intensive issue, and incredibly hard to get right. Entrepreneurs rarely get into business to feed their passion for employment compliance, and so spending time and resources on HR is not necessarily the best use of their skills.
A PEO can take care of the HR burden, offering access to impressive employee benefits, ensuring full compliance, competitive workers’ comp rates, and freeing up time to concentrate on growing the business.
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What is a PEO?
PEO stands for Professional Employer Organization. PEOs are external organizations who specialize in employer-related HR, providing expertise, workers’ comp insurance, admin support and access to a huge range of employee benefits.
A PEO is able to manage the full range of HR responsibilities that fall on business owners, from payroll and compliance to benefits and work comp insurance. They can take care of everything that a full in-house HR department would do, and provide an enterprise level of service for much smaller organizations — all without the same associated costs. You remain in control of hiring (and firing) and promotions, but the day-to-day admin and HR heavy lifting is taken off your shoulders.
But PEOs are not just outsourced HR departments; their reach can be far greater than that. A PEO manages and represents the employees across every organization they are in partnership with; sometimes up to thousands of people. This opens up a huge range of extra benefits that small businesses would otherwise not be able to access, making your workplace more desirable to future talent.
What does a PEO do for a business?
A PEO is able to provide a huge variety of HR services, taking on the full range of responsibilities required to help a small business to run smoothly and efficiently. More specifically, a PEO can assist with:
A PEO can handle every aspect of payroll for your organization. Your PEO partner will take care of salaries for your full and part-time employees, as well as administering one-off payments and ensuring vendors and contractors are paid on time and in full. With many PEOs offering services like automated deposits, running payroll becomes a seamless task.
Workers’ Comp Insurance
PEOs use top carriers (Zurich, Ace, Chubb, AIG, etc.) for their work comp policies. By joining forces with a PEO, you are able to gain access to the competitive rates that they have. With the PEO being your payroll provider as well, your insurance premiums are pay-as-you-go. No audits, no surprises. You only pay premium for the exact dollar amount of payroll that is ran. Low rates, no audits, and A-rated carriers? Sounds like a win-win-win.
Employment law is notoriously complex, and is subject to constant updates and change. Staying on top of requirements and regulations can be hard even for large businesses, and is a real challenge for small firms. So it’s little surprise that over 33% of small businesses are fined every year for payroll mistakes, and the cost of not being fully compliant can be high.
A PEO provides expertise and guidance from HR professionals to ensure that you stay on the right side of the regulations and red tape. Whether it’s issues with sick pay or wage equity laws, they will be able to handle everything and keep your business fully compliant. They’ll also make sure you stay fully updated when the rules do change.
Potential recruits often use benefit packages to weigh up the desirability of one organization versus the next. And what you can offer current staff by way of reward also has a big impact on job satisfaction, engagement and, therefore, performance.
If you’d like to boost your employee benefits, a PEO can help.
PEOs have access to benefits packages that would normally be out of reach for small businesses. A PEO will allow your organization to offer health insurance, as well as dental and vision coverage, at extremely affordable rates, and can usually provide packages that rival those given at enterprise-level companies.
PEOs will also offer extra perks, like gym memberships, bicycle schemes and transportation extras. They can take care of the admin work — such as onboarding and insurance claims — and look after all benefits-related paperwork, too.
When it comes to employee retention, a great retirement plan or 401(k) makes a huge difference. A PEO can provide access to superb savings programs, as well as offering and managing 401(k) plans for your employees. A PEO will also often provide a full program of training, education and awareness to help employees make solid retirement choices. This is the sort of service that can set a company apart from its competition when it comes to attracting talent.
Although most small business owners like to retain control over hiring and firing, recruitment is an area that many PEOs can offer support in. And an extra pair of hands can be immensely helpful when seeking the brightest and the best. A PEO can offer recruitment assistance, and provide access to experienced recruiters who can provide a wider network, as well as invaluable guidance and support. The big hiring decisions will still be in your hands, but a lot of the legwork will be done for you.
PEOs and co-employment: what does it mean?
PEOs work with businesses on what is known as a co-employment model. Co-employment basically means a sharing of certain responsibilities and duties between the PEO and the employer. The PEO becomes the employer of record, and handles the duties and responsibilities as described above, subject to the co-employment contract agreed upon. The client retains control of overall management and day to day operations.
The co-employment model essentially means that your employees also become the PEO’s employees. This might sound a little daunting, and it does mean that when it comes to tax, healthcare and certain other issues you will be ceding control to the PEO. But, in the same breath, it means that many risks are shared, and things like filing employment tax returns become the PEO’s responsibility.
The co-employment model allows small firms to benefit from economies of scale. As a representative of all the employees of all the clients they work with, a PEO can leverage the large numbers of an enterprise-level organization when negotiating benefits, insurance rates, and so on. This provides access to plans and perks that a smaller business would normally be unable to get.
What are the benefits of working with a PEO?
Working with a PEO is a great way for small businesses to work more effectively, free up resources and staff time, and get access to HR expertise and benefits without the associated costs of an in-house HR team. Working with a PEO can have a hugely positive impact on a small company — in optimizing efficiency and lowering costs — and give it the tools it needs to grow and succeed.
Whether it is access to better rates for health insurance, improved benefits or streamlining the recruitment process, working with a PEO can help small businesses cut costs and make savings in a variety of ways.
The co-employment model means that a PEO takes on many of the risks and responsibilities of the small business, and shares the burden of risk management. Working with a PEO helps ensure that businesses remain fully compliant and fully insured; your PEO partner will even take care of the relevant paperwork!
One of the most important ways that a PEO helps improve a small business is by freeing up time. With a PEO handling the day-to-day admin of HR and employment issues, you and your staff are free to take on more creative tasks, and work towards helping your business flourish.