By Michael Roloson, Director at PEO Focus
A PEO or Professional Employer Organization is a company that assists Small and Medium Sized Businesses with comprehensive HR solutions such as Payroll, Tax Administration, Employee Benefits, Employer Compliance, Workers Compensation Insurance, Recruiting, 401k Plans, and HR Technology. These services help decrease the administrative burden that surrounds the liability of having employees while also providing a cost effective solution to provide a greater employee experience.
How Does a PEO Operate?
According to the National Association of PEO providers, “Small Businesses that work with a PEO grow 7 to 9 percent faster, have employee turnover that is 10 to 14 percent lower, and are 50 percent less likely to go out of business”. So how exactly does a PEO provide that high level of impact? Quite simply, economies of scale.
PEO’s operate under a Co-Employment agreement where they act as the Employer of Record through a contract called a Client Services Agreement. As the employer of record the PEO becomes responsible for administering payroll and payroll taxes for all employees covered by the agreement. Through this agreement a company can take advantage of the HR resources that a PEO utilizes and can allow its employees access to the PEO’s employee benefit programs that are reserved for large companies.
How Your Company Benefits From the PEO Relationship
Over the past decade acquiring and retaining top performing Employees has become more difficult for companies with under 150 employees. Here are some ways that working with a PEO allows a smaller business to level the playing field by offering a Fortune 500 Employee Solution while keeping the desirable culture of a small business.
When partnering with a PEO employers can now provide Employees access to multiple Medical, Dental, Vision, Disability, and other ancillary insurance options instead of providing a limited number of choices. Employees now have freedom of choice when it comes to identifying a medical plan that best suits the needs of them and their family. For some a High Deductible Plan (HDHP) with a Health Savings Account (HSA) will bring tax advantages. For others a Co-Pay plan with either low or high deductibles may be a better fit. The Employer is now able to attract talent by offering richer Medical Benefit plan options at better prices than they would be able to obtain on the open market.
A PEO also gives Employees access to other benefits such as Retirement Plans, Flexible Spending Accounts, Pet Insurance, EAP programs, Commuter Benefits, and other options that help them reduce costs or offer additional value. While offering all of these benefits independently would create an administrative challenge, working with a PEO often eliminates participation requirements and takes the hassle out of enrollment.
Human Resources Expertise and Access
A PEO provides Employees with access to HR professionals who can assist them with questions surrounding Benefits, Payroll, Company Policies, and other parts of the HR process via phone or email. Most PEO’s also have advanced technology that allow Employees to access all of this information via a computer or mobile app.
For Employers, a PEO will provide access to HR experts who guide their team through compliance needs that vary by state, strategies surrounding employee relations, development and distribution of an employee handbook, guidance on developing an employee benefit offering, and many other consultative HR related pieces. As laws continue to change a PEO’s HR expert will keep you informed on adjustments that you can make as an Employer. For groups with employees in multiple states access to these teams becomes indispensable.
If your company is growing you may be familiar with the nightmare that on-boarding new employees can be. If you are handling payroll internally your team may dedicate an entire day or two twice a month to complete this task. Preparing for open enrolment for your benefits plans each year and completing COBRA or State Continuation paperwork when an employee leaves the company can steal days away from your year that could be better invested elsewhere. PEO’s focus on removing these types of administrative burdens from your day. For some smaller businesses these tasks fall on the lap of CFO’s, Administrative Assistants, or the Owners themselves, none of which joined the company with HR mind as a dedicated piece of their role.
Everyone’s Favorite – They Can Save You Money
PEO organizations charge administrative fees to partner with them. This fee ranges wildly from PEO to PEO and even client to client. They offer different levels of service and most often even bill their clients in completely different fashions. It can be easy to look at these fees and not take into consideration the many cost reductions that a PEO brings to the table as well. When all of the costs shake out, most Employers with less than 100 employees will find themselves in a situation where they are saving money. To again reference NAPEO, “PEOs provide services to 175,000 small and mid-sized businesses, employing 3.7 million people” and “Administrative costs are around $450 lower per employee for businesses that use a PEO”.
Which PEO Provides the Most Value for My Business
The same way your business is different from its peers so is each and every PEO. With over 900 PEO options it can be a little confusing. They may offer bundled or unbundled billing. They will offer different medical carriers with different plan years. Some offer credits for payroll taxes, medical plan deductibles, and State Unemployment Taxes. Some offer a very high touch experience while others rely more on technology. Because businesses are different, each PEO will provide different levels of value to their clients. To save time and make it easier to find the best value from a PEO standpoint there are PEO Consultants like PEO Focus that make it easier to identify the PEOs that are the best fit for your team and make them easier to compare.
Michael Roloson is a Director with PEO Focus, a PEO Consulting Firm that assists their clients with understanding the complexities of PEO and PEO related solutions. You can learn more about PEO Focus at www.peofocus.com or contact them directly at email@example.com.