A professional employer organization, or PEO, is an organization a company can hire to outsource employee management tasks such as recruitment, payroll, employee benefits, workers’ compensation, risk/safety management and even training and development. A PEO can take on these responsibilities because of a practice called co-employment — a contractual allocation and sharing of certain employer responsibilities between the PEO and the company hiring them.
According to a report by NAPEO, 70% of businesses report that their revenues have grown since becoming a PEO client, and 66% report that their profitability has increased since becoming a PEO client.
Here are five benefits a PEO brings to a small business.
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Cost savings
– A PEO helps save operational costs by handling HR needs at a much lower cost than an in-house HR team. It can also save a business money through insurance costs. A PEO negotiates insurance rates on behalf of all of its clients, which helps it negotiate significantly lower group insurance costs, workers’ compensation discounts and also a lower state unemployment insurance rate.
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Better compliance with employment and tax laws
– Keeping track of all federal, state and local employment and tax laws can be cumbersome as well as stressful, especially for a small- or medium-sized business. By outsourcing to a PEO, a small business can protect itself from legal issues because there is a team of compliance experts working to ensure that all the rules are being followed including wage, hour, payment and break laws, requirements for insurance and so on. A PEO can also develop an employee handbook that includes appropriate harassment, anti-discrimination and Affordable Care Act policies, among others.
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Help with payroll
– Finding the right staff is critical, particularly for a small business. The Harvard Business Review reports that up to 80% of staff turnover is due to bad hiring decisions. A PEO has employees with formal hiring expertise as well as a broader network for recruiting. It can also handle salary negotiations, onboarding and overall compliance.
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Better HR technology
– Small businesses do not usually have the budget and resources for the latest HR technology, such as an advanced human resource information system. A PEO can give them access to an HRIS, which makes life easier for both employees and employers. Employers can use it to create, store, access and delete employee records, manage performance reviews and so on. Employees can use the HRIS to enter their hours in a time sheet, request time off, view and print pay slips, access employer HR forms and other benefits programs.
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Increased focus on core business activities
– Founders and CEOs should spend more time on revenue-generating activities such as business development and customer relationship management. By partnering with a PEO, they gain an entire team of HR professionals who can take care of HR administration for them.
Tips for finding the right PEO for your small business
When it comes to choosing a PEO for your business, it is important that you are selecting a professional and reliable firm. Check out these five tips to ensure your company is in good hands:
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Ensure that the chosen PEO is accredited
– The most important thing to check before finalizing the PEO for your business is to ensure it is accredited. The Employer Services Assurance Corporation accredits PEOs that are reliable and financially sound, as well as meet their standards for accreditation.
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Look into their previous and current work
– The next step is to study the kinds of organizations the PEO works with. This helps in understanding whether they will be able to properly manage your expectations. It is crucial to ensure that the PEO and the person appointed to handle your account have the required knowledge, skills, experience and expertise to serve your needs.
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Go over reviews and verify references
– Apart from checking reviews, ask the PEO for references of past and present clients, and make sure to talk to them. These are the people who can offer the correct insight into whether the PEO can benefit your company. This can go a long way in helping you make an informed decision.
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Work as per your budget
– An authentic PEO will offer a logical price point based on the budget, size of your company and your specific requirements.
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Ask about benefits packages
– Lastly, a reliable PEO will be able to offer a lot more in terms of benefits such as insurance than your small business can, so choose one that offers a quality benefits package for your employees.
