What Is PEO And Things To Consider For PEO In 2024

What Is PEO And Things To Consider For PEO In 2024

Whether you run a small or medium-sized business, you can benefit a lot from engaging with a professional employer organization or PEO. A PEO takes on multiple responsibilities associated with human resources, for example, payroll, employee benefits, regulatory compliance, and others.
This article will explain what PEOs are, and how they work and you can decide if PEO is suitable for your business situation.

What Is a PEO?

An organization called professional employer organization (PEO) works as a human resource outsourcing company. In this arrangement, the main tasks are overlooking different human resource services on behalf of clients through a mutually cooperative relationship with them.

A PEO typically serves as the employer of record which in turn reduces the time burden of human resources and administrative functions faced by the business. For example, the PEO agency manages payroll processing and workers’ compensation, monitors and maintains compliance standards and administers employee benefits. Through a PEO, a company will get to concentrate on the essential business functions while the HR functions are well taken care of.

How PEO Co-Employment Works

As a business owner, perhaps you already understand that you are the entity with clients. Nevertheless, PEOs are a form of business process outsourcing where your business is considered the client company.

In order to be able to perform the duties of a PEO, the latter signs a contract with a client company that defines a co-employment relationship as the basis for their collaboration. Different from other industries that opt for outsourcing business services, this structure makes the PEO a co-employer of client’s employees having a portion of the designated employer responsibilities of its own.

To be precise the PEOs performs the following functions such as managing payroll, taxation of employment and providing access to healthcare. As opposed to that, the client acts as the business owner who is responsible for the management of business operations such as product development, employment duties, and customer services.

PEO Services

The involvement of the PEO tends to adapt to the contractual terms agreed upon by the PEO and clients for the service provision that may vary from client to client. Whenever HR outsourcing companies offer a complete set of human resources services, they often include such typical HR services of hiring, onboarding, training, and assistance with legal regulations like FMLA (Family and Medical Paid Leave), ADA (Americans with Disabilities Act), and EOC (Equal Employment Opportunity Commission).

PEO itself serves as the client’s co-employer and has in place the necessary health insurance plans, workplace safety programs, workers’ compensation insurance and retirement plans such as 401K plans. In addition to the PEO services, they often include payroll processing and benefits administration, plus tax filings and handling unemployment claims.

Advantages of Using a PEO

PEOs usually carry out various HR functions that are needed in your business and provide you with other perks. The most important benefit is PEO’s HR knowledge. Employers can put aside the struggle of handling all the HR requirements, including strict compliance with relevant employment laws, and regulations. On the other hand, PEO helps businesses save time by reducing the administrative work involved in the process.

With the implementation of a co-employment relationship enforced by a PEO, companies would then take advantage of further chances to save money because of its structure. PEOs do not have a single customer business, but several businesses. Since PEOs can give competitive pricing HRM services, reduce hiring overhead costs and the employment costs have been lowered as well for their client companies. For example, PEOs are capable of assisting companies in getting their hands on the most cost-saving employee benefits from their own companies. PEOs can combine the total number of workers they employ to provide employees with the opportunity to experience Fortune 500-level benefits.

The size of your business doesn’t matter outsourcing a PEO is your greatest strategic option to expand your business. White papers studied by the National Association of Professional Employer Organizations (NAPEO) reveal that businesses that collaborate with a PEO experience a company growth of between 7% and 9% faster than those that don’t. Furthermore, in the cases where businesses with PEOs are 50% less likely to go out of business.

Advantages And Disadvantages Of Employing A PEO

When you are considering using a PEO, make sure you realize that this is quite a big decision that you shouldn’t make without caution. Therefore, there are two sides to PEO: the plus side is that it gives you an easier way to solve your business’ HR issues, but it’s equally crucial that you keep in mind the disadvantages.

For example, although PEO partnerships strike a holistic approach to HR services, you may be pushed into a contractual relationship for a certain period, which may be intimidating. Furthermore, being outside an in-house team and having a PEO means there could be a communication gap you might have with your co-employer. You understand that you now will lose some control over the human resources-related decisions.

Time and cost savings from payroll and administrative tasks managed by a PEO represent another big positive point in its favor and that allows shifting the focus to the more strategically important function of the company. These include employee benefits, payroll taxes, and worker’s compensation insurance, among others. A trade-off you need to take into account is giving over these functions to PEO which is the main party in charge of processing payroll, providing paychecks, and access to the package of benefits.

Moreover, although PEOs provide necessary consultancy and advice that help your business stay compliant with the laws and minimize risk, these perks come with some consequences. For instance, that might result in the challenges that you can face during the final stage of interactions with the PEO when your business transitions begin to take on more responsibilities.

PEOs Vs Other Services: A Comparative Analysis

It is not surprising to find companies outsourcing various business services instead of taking up those responsibilities themselves, particularly in the case of human resources. This business activity is called outsourcing or human resource outsourcing, or HRO for short.

On the other hand, getting a PEO to perform Human Resources services is a different experience than other available options. In contrast, other outsourced solutions only provide HR services after they’ve been remunerated while PEOs become co-employers of the whole business and charge a fee for the services.

Nevertheless, it is pivotal to note that the delivered services vary as well. As an instance, it’s become apparent that today the PEOs mostly provide businesses with a full range of HR services, including payroll responsibilities, access to employee benefits, legal compliance support and many others. Payroll providers, on the other hand, are limited to just that: performing payroll services. Likewise, no other person except the HR person will be allowed to access the HR technology platform through the software.

Deciding Whether Or Not A PEO Is The Right One For You

Although engaging in PEO services is easy, you still need to take a step back and consult your business objectively. To begin the complexity, let’s sort out some of the factors that you should look out for when considering the prospect of entrusting your organization to a PEO.

First, look at how the business is doing now. What is the size of your business? What is the total number of employees in your organization? Based on the NAPEO statistics, it is reported that an average business employing at least 19 people becomes part of the PEO network. For a small business, one of the most important advantages of partnering with a Professional Employer Organization(PEO) is the opportunity to provide employee benefits that may have remained out of reach otherwise, so long as it will not create any expense. In the same way, big businesses can still have equally advantageous things from connecting with PEO. However, even bigger companies that employ 500 employees or more are going in the same direction and practice outsourcing payroll services to PEOs. As you can see, PEOs aren’t only for small and medium-sized companies. Therefore, it is essential to factor in the current HR administrative workload of the business.

That leads us to the next factor to consider: would you say your HR is competent enough? If you believe that your business cannot manage to keep up with the daily tasks related to human resources, teaming up with a PEO can be the right decision.

Moreover, look into your business’s level of effective monitoring of the employment laws and regulations. Can your corporation successfully cope with all the compliance difficulties related to its business? Many companies find it quite beneficial to cooperate with a PEO because of the safety and ease of doing business that such a partnership brings about. Certainly, you have to put up with this, though. You lose control over your business too. It is necessary to spend some time to do self-reflection which will help you know how you feel about not being the sole owner of the role as an employer. Some of the questions to ask yourself to reflect on your business progression and goals are : 

  • What are the company’s growth strategies for the next couple of years?
  • Will you work on product development that will require a full expansive group or smaller multiple teams?
  • Can you see any increased hiring spikes in the year ahead?

Taking your time to review questions and answers slowly is worth the wait and is highly recommended. Addressing these questions with sincerity and equal treatment will see you through the necessity of a PEO for your business. When you have come to a decision that the cooperation with a PEO will profit your business, make a general search of many of them to find the best match for your entries and goals.

Top PEO Companies

To start with, managing your business’s new co-employment connection this way means that you should opt to outsource to a PEO. You need to find a PEO company that has met our satisfaction, recommendation, and reliability so you may comfortably work with them. First of all, we would like to emphasize the great assistance we can provide while working with a PEO recognized by NAPEO. Among these trustworthy associations, a Code of Ethics based on the national practice and the most prominent practices should be the standard. In addition, in order to boost your investigation let’s also name some of the major PEO suppliers. These include: FastLane Group 

Besides these aspects, NAPEO has a user-friendly web tool that will assist you in finding further information. The great feature of this tool is that it gives the year of the formal declaration of the PEO.

The Bottom Line

If budget saving is your primary goal while considering this prospect, a partnership with a PEO would be a solid answer. Legally, a PEO was recognized as your co-operator and bound to perform functions related to HR management. Thus, you will be able to pay attention to your business operations. There are a number of those PEOs that deliver nothing but the full range of HR services. Nonetheless, you need to give up some of your control over the HR part of your business and be in the long-term process to gain the benefit. When making this decision, review the terms of PEO agreements and their relation with your business goals and needs objectively. This would give you the opportunity to accurately decide whether or not contracting the HR functions to a partnered co-employment PEO business would be the right choice for your business.

How FastLane Group Can Help?

Fastlane Group provides PEO service to several small businesses With the depth of knowledge of our team, we can help your company ensure that the human resource and administration procedure is efficient, timely, and complete with all necessary documentation so you can focus on your business growth. Get in touch with us right now to find out more about how FastLane supports your success!