Everything Business Owners Need to Know About PEOs
A professional employer organization (PEO) can provide wonderful benefits for a small business. In fact, research suggests that small businesses that partner with a PEO grow 7-9% faster, and have a turnover rate that is 10-14% lower than the industry standard.
If you are unfamiliar with what a PEO is or the benefits that one can bring to your business, then the following guide will prove most helpful. The information below will answer these questions:
- What is a PEO?
- What services do PEOs offer?
- What are some of the benefits of working with a PEO?
- How can a small business partner with a PEO?
What is a PEO?
A PEO is a human resources company that takes over certain administrative functions for its client, such as payroll, employee benefits, taxes, candidate screening, etc. In most cases a PEO can provide comprehensive HR solutions for both small and mid-size businesses.
In some respects, a PEO is like a “co-employer” in that it combines the employees of several businesses under one administrative umbrella, which results in reduced costs and increased efficiency for each individual client. However, the day to day oversight of the business, as well as the final say on major decisions, remains firmly in the hands of the business owner.
What services do PEOs offer?
The wonderful thing about PEOs is that their services can be customized according to the needs of the client. Here are some of the many services that PEOs commonly offer:
Many PEOs offer assistance in developing a strategic compensation plan for their clients. They may conduct salary research and perform wage administration, as well as ensure compliance with federal guidelines like FLSA.
A PEO may ensure that a client’s managers have the proper training on how to handle employee separations, how to manage and contest unemployment claims as needed, and how to handle COBRA claims.
Employee Training & Performance Management
PEOs may provide certain limited skills training programs, especially centered around HR functions. They may offer supervisor training related to team building, employee counseling, and discipline administration and documentation, among other things. They may also assist their clients in developing employee handbooks, implementing drug tests, and creating policies around complaints, disciplinary actions, and anti-discrimination.
A PEO may help its client develop confidentiality agreements, non-compete agreements, arbitration agreements, and orientation procedures. The PEO may also offer to perform W-4 administration, federal and state tax administration (i.e., tax withholding), retirement plan enrollment, insurance coverage acceptance, and so forth.
Payroll & Benefits Administration
One of the most common reasons why small businesses partner with PEOs is the expertise in payroll and benefits administration that the organization can offer. PEOs can help clients navigate policy and process development around:
- Paid time off / vacation / sick leave
- FMLA compliance and guidance
- Health insurance plans and group coverage
- Group vision, dental, and life insurance
- Open enrollment
- Voluntary benefits enrollment and administration
- Retirement plans, such as 401(k) accounts and Roth IRAs
- Payroll processing (including online payroll)
- Direct deposit and pay card processing
- Time tracking and attendance
- Employment-related IRS filing, correspondence, and record-keeping
- W-2 and W-3 forms administration and record-keeping
- Many other aspects of payroll and benefits administration
While a business owner doesn’t have to take advantage of all the services a PEO may offer, it is certainly helpful to have those options available.
What are some of the benefits of working with a PEO?
There are many advantages that small businesses can gain from working with a PEO. Here are just a few of the benefits:
- Reduced costs. Compliance-related HR mistakes can cost you a lot of time and money. Just as one example, if you accidentally misclassify an employee as an independent contractor, then you may be on the hook for well over $1,000 to the IRS. A PEO can provide you with sound HR advice, and help you to avoid issues arising from non-compliance.
- Better benefits. In many cases, it’s difficult for a small business to attract high-quality talent, simply because their benefits packages can’t compete with larger organizations. However, a PEO can help you to enhance your employee benefits by providing you with access to group rates on health, life, dental, and vision insurance. They are also able to help you set up 401(k) plans or other retirement plans for your employees. PEOs have well-grounded relationships with many insurance carriers, meaning they can negotiate much more reasonable rates than a solitary business owner could. This allows you to compete with bigger companies when recruiting talent.
- More efficient payroll. Payroll administration can be extremely time-consuming; and when mistakes are made, the stress level may skyrocket. A PEO can streamline and automate the entire payroll process, so that you don’t have to worry about double and triple-checking your work. With the burden of payroll administration off your shoulders, you can focus on your business’ core competencies.
- Improved hiring process. PEOs can offer clients a lot of assistance throughout the different stages of recruitment and onboarding. For instance, PEOs can run background checks on candidates, assist in the interviewing process, help administer drug testing for new hires, file and route all the necessary paperwork, and train employees to navigate the client’s onboarding platform.
How can a small business partner with a PEO?
Research should be the first step in partnering with a PEO. You want to examine the track record and reputation of the PEO under consideration, perhaps by conducting some brief interviews with past and current clients, if possible.
Once you’ve decided to partner with a specific PEO, you’ll need to work with your contacts to develop a mutually acceptable Customer Service Agreement (CSA). The CSA will provide details on which administrative responsibilities you’re outsourcing to the PEO, and which ones you are keeping under your control.
Next, the PEO will onboard you and your employees. The PEO’s onboarding process varies for each client according to the terms of the CSA. A good PEO will also hold strategy sessions with you even after the onboarding stage is complete, in order to set your business up for future success.
In the final analysis, there are many benefits that your small business can gain from partnering with a reputable PEO. If you want to enjoy sustainable growth for years to come, be sure to explore your options in this regard. You won’t regret doing so.
Set up a time to speak to a Pioneer PEO Specialist to compare the value across different PEO’s and get quotes from each one.