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What is a PEO and How Can it Help Your Business?

What is a PEO?

A professional employer organization (PEO) is a third-party agency that can manage payroll, benefits administration, taxes, regulatory compliance, and human resource services for any business. According to the NAPEO, when small businesses partner with PEOs, they grow up to 9% faster and are 50% less likely to fail. PEOs can also impact other areas of organizations, such as improving employee engagement levels and impacting employee turnover rates for the positive. 

The relationship that businesses have with PEOs is one of co-employment, meaning employees are grouped under the PEO to receive services, but the company is still in charge of them and the operational aspects of the organization. The PEO stays in the background, but it can have an influence on the culture of the organization as well as related processes. A PEO is best for small to medium companies that have a lot of growth in their future and don’t mind having to outsource these factors. 

Why would a small to medium business choose to work with a PEO? 

There are a number of reasons why a growing business may decide to use a PEO to reach its goals. Number one, a small to medium organization has limited access to HR and accounting personnel, which is often a small core team that is already maxed out trying to complete other tasks. The PEO offers access to skilled professionals in these areas at a rate that is far less than hiring an employee to perform these jobs. 

Secondly, PEOs can give small to medium sized businesses access to big-business resources, such as lower cost group employee benefits that they may typically not be able to offer affordably. For example, a small business may not be able to afford more than the standard healthcare coverage. But a PEO can offer a wide range of employee benefits at a more reasonable group rate, such as retirement savings plans, dental and vision plans, life insurance, and supplemental insurances. 

Lastly, the PEO is a rich source of information and connections in everything related to HR and accounting, giving a small to medium sized business a safety net of experts to turn to when making decisions in these areas. As the business grows, the PEO can also adjust and provide guidance along the way. This is a sustainable way to do business. 

What are some of the services that a PEO offers to the small business?

Most PEOs offer at minimum payroll and benefits support. However, there are a wide range of services available at many PEOs, such as: recruitment and employee leasing, new hire onboarding and screening, risk compliance and audits, safety training, workers’ compensation claims processing, and more. PEOs are often operated by professionals who have worked in these areas for many years, therefore they have the experience to protect your business. 

How do you choose the right PEO Partner?

The decision to work with a PEO should be taken seriously, as this is a relationship that will impact your organization for the future. There are several factors to look for when seeking a PEO, according to the NAPEO: 

  • Determine your workplace HR and other needs and if the PEO has the capability of meeting these needs. 
  • Ask the PEO for a list of client and professional references to gain further insight. 
  • Is there a demonstrated history of sticking with industry best practices, according to independent accreditation agencies like ESAC? Are financials reviewed by a CPA? 
  • Is the PEO a member in good standing with NAPEO? 
  • How skilled are the PEO’s internal staff? There should be a high level of expertise and competence, along with ongoing professional development.
  • How are the employee benefits funded? Is the PEO fully insured or partly self-funded? The TPA (carrier) should also be licensed to do business in your state(s) of operation. 
  • Do the benefits offered by the PEO make sense for your employees, or are they too much or too little? 
  • Review any contracts and service agreements carefully for each party’s responsibilities, fees, renewal and cancelation terms. 
  • Check with the state the PEO operates in to ensure they are authorized to do business there. 
  • Review any negative feedback carefully about the PEO and ask about this in advance of signing any agreements. 

Once you start working with a PEO, you will quickly see the advantages this has for your small business. The services offered can help your business thrive and reduce pressure on internal resources. 

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Disclaimer: The information and resources provided herein are not a substitute for experienced legal counsel and does not constitute legal advice or attempt to address the numerous factual issues that inevitably arise in any employment-related dispute. Although this information attempts to cover some major recent developments, it is not all-inclusive, and any recommendations are based upon HR best practices and procedures. We recommend you consult an attorney for legal guidance.

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