what are PEO companies?

clock July 31, 2021

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What are PEO Companies? Everything You Need to Know

For small to mid-sized businesses, human resources can be a source of many headaches. A lot of energy, resources, and time goes into HR and it’s difficult for leaders of smaller businesses to effectively handle that function in their company. But, did you know that there’s a way for you to ease your burden and eliminate some of your daily activities associated with HR?

If any of the above resonated with you, you may benefit from a Professional Employer Organization (PEO). You may be asking, “what are PEO companies?” And on top of that, how can they help you lighten your workload.

This guide will go over everything you need to know about PEO companies and how they can help you manage your business. 

What Do PEO Companies Do?

A PEO company is a full-service organization that you can outsource your human resource activities. They provide companies with administrative assistance and employee management solutions. The services offered by PEO companies vary from place to place, but they all typically offer some of the same HR solutions. 

Some of these services include:

  • Payroll processing
  • Pays payroll taxes
  • Maintains workers’ comp coverage
  • Provides HR guidance
  • Maintains an employee benefit program
  • Deals with benefits administration 

When a company hires a PEO company, they keep ownership and control of their business. The PEO company focuses their efforts on areas that are employee-related. The PEO client deals with their regular business operations. 

The PEO company has employees within their own organization that they hire to handle the necessary tasks that are associated with their client’s business. Within this relationship, the PEO is the “Employer of Record” for tax and insurance purposes. Keep in mind that the client’s employees still get their instructions and assignments from the client company. 

What is a PEO Insurance Policy?

When you partner with a PEO, they’re able to offer your employees insurance policies at affordable rates. They can access health insurance policies that large corporations get to take part in. Many of these insurance policies you normally wouldn’t have access to as a small to a mid-sized business owner. 

Figuring out health insurance and benefits for your company can be difficult and time-consuming. Your PEO company can take that weight off your back. Focus on running your company knowing that your employees have access to good health care coverage. 

What is the Difference Between a PEO and ASO?

An Administrative Services Only (ASO) company is similar to a PEO in regards to the HR services they provide. The primary difference to keep in mind is that an ASO won’t become a co-employer of their client’s employees. 

What Is ASO in HR?

When working with an ASO, the client company simply outsources HR tasks to them. They retain any liability while the ASO company performs the HR services. 

An ASO may handle insurance and tax filings, but it’s all done under their client’s company tax ID. With a PEO, it’s done under a shared tax ID. 

An ASO company can also provide their client guidance on legal questions but it’s the client’s responsibility to act. They also don’t provide benefit plans or health insurance. They can work with their client to find coverage policies and handle administration. 

What is the Benefit of a PEO?

There are many benefits of PEO companies. Like we mentioned above, they can provide your employees with comprehensive, cost-effective benefits. This includes the following:

  • Dental, vision, and medical coverage
  • Life insurance
  • Disability benefits
  • A healthcare flexible spending account

A PEO also handles processing your company’s payroll and all the associate accounting duties. They’ll handle your company’s W-2s, garnishments, and withholdings. They entirely automate the process, ensuring you don’t have to do anything to make it run smoothly. 

Offering retirement savings programs, including 401(k) plans, can attract and retain valuable employees. A PEO can help get that set up for your organization. They’ll manage all the responsibilities and requirements that are needed for maintaining a 401(k) plan. 

Laws in the workforce change constantly. It can be difficult to stay up to date on all the rules, regulations, and laws that apply to your company. 

A PEO stays up to date on all the state and local laws that apply to your company. They’ll ensure your entire organization stays compliant. You’ll avoid any hefty fines or fees. 

A PEO will also manage workers’ compensation coverage for your company. They’ll handle the audits, certifications, and paperwork to help mitigate your company’s risk. 

What Are the Differences Between the Services Offered by an HRO, ASO, and PEO?

HRO stands for Human Resources Outsourcing. PEO and ASO fit underneath the HRO umbrella as they are two different models of HRO. In both models, the employer transfers risks and responsibilities for HR activities to a third-party provider, who in turn performs those tasks for the business. 

Is a PEO a Good Idea?

If you’re a small to a mid-sized business owner that’s getting bogged down on a daily basis dealing with your HR tasks, you can benefit from a PEO. It all depends upon your company’s needs. You can work with the PEO company you want to hire to create a plan that’s customized to what tasks you want them to take over. 

Staying compliant when it comes to HR and workplace laws is important. Don’t leave that all up to chance, especially since it’s an area that you don’t have a lot of experience. Trust in PEO professionals to take control of your HR department and improve the functionality of your company. 

So, What Are PEO Companies?

Hopefully, we’ve answered the burning question of “what are PEO companies?” After reading through this guide, you should have a basic understanding of what PEO companies do and how they can help your organization. Don’t spend your entire day figuring out HR tasks – outsource the duties to a qualified company. 

For more tips and tricks on how to effectively run your business, check out one of our other articles. 

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