What is a PEO?
Human resources is increasingly complex. Meet the new challenges of HR while reducing costs and improving employee satisfaction with a PEO.
Being an employer isn’t getting any easier. The challenges of the past few years have complicated what was already a complex aspect of running a business. HR challenges in 2022 run the gamut from attracting and retaining talent in a tight labor market, to implementing a remote workforce. Additionally, employers must still manage more compliance laws and increasing benefits costs.
Business owners looking for a solution to their increasing HR burden could possibly find relief by partnering with a PEO. In this article, we’ll tell you what a PEO is and the benefits of choosing a PEO. Then, we’ll examine what kind of businesses benefit from partnering with a PEO. Finally, you’ll learn everything you need to know about choosing the best PEO services for your small business.
What Is a PEO?
A professional employer organization, or PEO, is much more than a payroll service or HR administrator. Whereas the latter will handle some elements of your HR department, a PEO will take on the core functions and daily activities of managing employee-related tasks. In effect, a PEO becomes a co-employer handling the details of HR administration.
When you partner with a PEO you will share the responsibility of having employees. The client is responsible for hiring and is the one responsible for managing and motivating the team. The PEO takes on the remaining employee responsibilities. These include all aspects of payroll and related taxes,, benefits acquisition, negotiation and administration, human resources technology and compliance including certain aspects of risk management. . Essentially, having a PEO for your business allows you to focus on your core business knowing that you have a team of HR experts to handle the operations of having employees.
What Are the Benefits of a PEO?
The unique framework of a PEO means it can offer businesses benefits other HR solutions can’t.
Effortless PEO Payroll and Employee Tax Withholdings
A PEO will perform all of the functions of a payroll administrator, from tax withholdings, filings and payments, to direct deposits and garnishments. In addition, you should have a dedicated payroll professional that will help you when you or your employees have payroll related issues.
Better Insurance and Other PEO Benefits for Employees
The competition for talent is fierce, and small to medium-sized businesses often lose out to large corporations that can offer great benefits at a lower rate. The unique nature of your relationship with a PEO means you can offer your employees better benefits that allow you to compete for talent more effectively. In part, this is because, when the PEOs negotiate with insurance providers, they do so with the bargaining power of employees across all their clients. In addition, using a PEO gives you access to their benefit administration that can help explain this complicated subject to employees as well as handle their benefit problems as they arise. Most employees do not know who to turn to when they get confused. A PEO answers this question.
Human Resources and Compliance
One of the most complicated aspects of having employees has to do with all the labor laws and compliance issues that a company must deal with. Knowing all the federal regulations pertaining to FMLA, ADA, COBRA, Wage and Hour, and more is hard enough. But each state has its own regulations that a company must follow. This is very hard to comply with let alone keep up with the frequent changes that get made. Furthermore, companies embracing a remote work environment are experiencing new challenges as many of the employees they are bringing on do not work in the “home” state where the company is located. Most companies do have a full time HR professional and if they did that person usually struggles to keep up with compliance along with all their other duties. A PEO clearly helps by having the resources to keep up with this ever changing environment.
Lower Employee Turnover
Being able to provide a comprehensive team that helps address employee issues, as well as the offering of better employee benefits are just some of the reasons a PEO can help you lower employee turnover. Employees working for PEO-partnered businesses report greater satisfaction, according to McBassi & Company, an analytics and research firm. The survey found that employees at PEO-partnered businesses had more confidence in their employer’s HR practices and business success factors, such as innovations, growth and superior service. As a result, turnover among PEO-partnered businesses were almost 20 percent lower than national rates of turnover.
For most businesses, the cost for a PEO is less than the cost for an in-house human resources person or team. Nearly half of a company’s HR expense goes to employing staff for its HR department. On average, PEO-partnered businesses saved about $1,775 per employee. Their annual rate of return on their PEO investment was 27.2 percent.
A lot can go wrong when you’re relying on one or two HR professionals to stay abreast of constantly changing state and federal regulations, on top of managing all the other aspects of human resources management and support.
Your PEO brings a team of HR experts whose core roles involve staying abreast of the latest federal and state regulations. Partnering with a PEO means you’re not relying on just one HR professional; you have an entire team devoted to keeping you compliant.
Who Should Use a PEO?
A variety of businesses can experience the benefits of PEO partnership.
- Any business struggling to keep up with its HR burden.
- Small and medium-sized businesses that struggle to offer cost-effective benefits and attract top talent.
- Startups that need to devote more time and resources to core business activities.
- Nonprofits that need help ensuring their organizations are as efficient and compliant as possible.
- Businesses operating in industries that traditionally have a high regulatory burden or high employee turnover.
- Any business interested in saving operational costs while improving KPIs and employee satisfaction.
How Do I Choose a PEO?
Start by verifying the PEO is certified by the IRS. Known as a CPEO, these organizations are required to undergo strict IRS auditing and reporting standards. Only a CPEO can take on liability for handling your employee tax withholdings and payments to the IRS. Without that certification, you could be on the hook if the IRS doesn’t receive the tax payments from your PEO.
When you are choosing a PEO to work with you need to ask the PEO specifics on how the partnership will work. How it will help you resolve issues when they arise? When employees have questions, will they be able to speak with someone at the PEO or will they be directed to an impersonal call center? Will the PEO assist you if you find yourself in the crosshairs of a regulatory group?
Because most companies have HR related issues that go beyond their internal expertise, the PEO you choose should offer access to a dedicated team of experts in all things HR-related. When you or your employees have a question, your help should be only a phone call away.
When you are ready to learn more about how a PEO can reduce your costs, improve your employee retention and reduce your compliance headaches, Decimal can connect you to a trusted PEO partner for help with your human resources and your business.