Professional employer organizations are an asset to companies seeking to efficiently manage human resources, payroll, and workers’ compensation needs. However, selecting the right PEO requires an assessment of company requirements and goals.
Managing employee and employer obligations can take time away from core business operations. Working with a PEO allows clients to reduce their workload while maintaining compliance.
Reduced Risk
What is a PEO? A Professional Employer Organization (PEO) is a service provider that acts as a co-employer with your business, essentially outsourcing and managing many of your human resources (HR) functions. Professional employer organizations have expertise in human resources, employment law, workers’ compensation, and more. They can help you reduce risk by mitigating threats and ensuring compliance.
When a PEO takes over certain HR functions, it effectively becomes the co-employer of your employees. This arrangement, known as co-employment, allows them to offer more affordable benefits like health insurance and workers’ compensation. It also makes it easier for them to file tax returns and maintain compliance with employment laws and regulations.
However, this arrangement doesn’t mean that a PEO will take over your company and assume all its associated risks. A PEO will still be responsible for a company’s payroll, but it may have a different level of control than the business owner.
Managing risk is vital to running a successful business. Responding quickly and efficiently when threats arise is important to minimize the impact. A PEO can provide invaluable guidance if you’re facing potential litigation, costly non-compliance fines, or a loss of customers. They can even save you money by reducing costs for workers’ compensation, retirement insurance, and other benefits.
Increased Employee Satisfaction
In a world where talent is becoming increasingly scarce, employee satisfaction has never been more important. Research shows that employees are willing to work for less money if they can find a company that offers the right benefits package.
Offering benefits such as health, life insurance, and retirement plans has become crucial for attracting and retaining top talent. However, the high cost of premium employee benefits can be challenging for small businesses.
That’s where PEOs come in. By legally co-employing their clients’ workers and handling payroll, human resources, benefits management, safety and workers’ compensation support, and training, business leaders can focus on their core operations while reducing risk.
As a result, research shows that PEO clients experience higher employee satisfaction and lower turnover rates than companies that don’t use a PEO. The key is the exceptional level of service and the peace of mind that comes from knowing your business is in good hands. The right PEO can help you take your business to the next level.
Streamlined Operations
A PEO helps to streamline your operations by helping with the most important aspects of running a business. These include employee onboarding, tax filing, and regulatory compliance. This allows you to focus on what matters most growing your business.
Studies have shown that companies with a standardized onboarding process see an increase in long-term new hire retention and are 62% more productive. In addition to providing best practices for onboarding, PEOs also help with other HR-related functions such as payroll administration, employment verification, and benefits management.
PEOs, also known as employee leasing companies, are a great solution for small businesses that need to outsource their human resources and administrative duties. However, it’s important to understand how these companies work before deciding. PEOs operate under a co-employment relationship, meaning they share employer responsibilities with their clients. Therefore, any decisions impacting employees must be coordinated with a PEO representative. It can include changes to administrative procedures, performance reviews, and salary increases. It also needs a company town hall meeting to introduce the PEO and its representatives.
Higher Return on Investment
While it may sound like a risk to hand over your business’s human resources management and payroll operations to an outside party, it can yield significant financial gains. According to a study from the National Association of Professional Employer Organizations (NAPEO), businesses that work with PEOs grow 7 to 9 percent faster and have 14% lower employee turnover rates than those that don’t.
Moreover, since a PEO operates on a co-employment relationship, it becomes the employer of record for your business’s employees and handles all tax filing and employment-related paperwork. It also uses its size and expertise to leverage economies of scale to get competitive employee benefits packages for your staff, including healthcare, workers’ compensation, and retirement plans.
It’s important to note that although PEOs are designed to help you comply with labor laws, they cannot guarantee error-free performance. As a result, you need to ensure that the IRS has certified your PEO as part of its Voluntary Certification Program. It will protect you from liability in the event of errors committed by the PEO.
Reduced Costs
A PEO can save your company on benefits like workers’ compensation insurance due to their economies of scale. This is because they can add your employees to the pool of employers they “employ.” It gives them the ability to negotiate much better rates with insurance providers.
The other way they save you money is by taking over administrative functions like payroll, employee taxes, and compliance for you. It frees you up to focus on growing your business instead of spending all your time on HR paperwork.
The final benefit of using a PEO is that they take care of the vetting and purchasing of workers’ compensation policies for your business and back-to-work programs. It can help you attract and retain the best employees, who may otherwise only work for larger companies because of their desire to receive a competitive benefits package.