March 31, 2020
Blog What are the Professional Employer Organization Pros and Cons?
Outsourcing is a multibillion-dollar industry these days, and it’s not hard to see why. Business owners can work with third parties to get expert help for everything from IT to accounting.
One type of outsourcing that’s become more popular is centered around your HR functions. This includes activities like payroll, training and development, and even benefits administration. You may even look for a partner to help you with hiring and retaining employees.
One type of organization you could partner with is a professional employer organization, or PEO.
What are the professional employer organization pros and cons for your business? This guide will walk you through the ins and outs of working with a PEO.
What Is a Professional Employer Organization?
Before you look at the pros and cons of working with a PEO, you probably want to know what a PEO is. So, what does a PEO do?
A professional employer organization is one provider you can team up with for HR services. A PEO often provides many services, which include:
- Payroll administration
- Workers’ compensation insurance
- Benefits administration
- Compliance monitoring
- Employee training and development
You might wonder how a PEO is different from a staffing agency or a payroll service provider. The key difference is how the PEO works with your employees.
A payroll service provider offers you a payroll solution for the people you employ. A staffing agency hires workers, and then sends them to client businesses like yours.
A PEO is different. A PEO acts as a co-employer, which means they work with you at every stage of the employment cycle.
As you can imagine, that has some serious advantages.
Exploring Professional Employer Organization Pros and Cons
Since a PEO acts as a co-employer for your employees, they can offer your business some advantages.
The first pro of working with a PEO is the amount of control you keep over employment decisions. With a PEO, you’re in control of hiring and determining who gets let go.
You also have more control over employment policies. Since you’re co-employers with the PEO, you can make decisions about holiday pay, benefits, and more. With a staffing agency, you may have less say in these kinds of policy decisions.
What else can a PEO do for your business? As mentioned, they offer a wider range of services than a payroll provider. A PEO can help you with just about any HR task you can imagine.
This can lead to better integration of services like payroll and benefits administration. The PEO can often assist you with access to benefits programs, pension plans, and more.
The PEO also helps when it comes to workers’ compensation insurance and claims. They can assist you in accessing the right insurance, and they may also be able to help administer claims.
The PEO also monitors your compliance, which can help you craft better policies. They may be involved in training and development for top talent. They may also be able to provide advice during the hiring process.
Perhaps most importantly, the PEO can help you retain top talent and reduce turnover. Finally, they help you reduce costs by lowering labor costs and more.
What Are the Cons?
By now, working with a PEO probably sounds like a good solution for any business that needs help with HR. Like anything, though, there are some drawbacks to working with a PEO.
One of the drawbacks may be costs. Since PEOs provide much more in-depth and comprehensive services, this solution comes with a slightly higher price tag. If all you want help with is payroll, then you may find working with a payroll provider more economical.
Working with a PEO also means you’re still highly involved in most employment policies and decisions. While the PEO can take over many of the routine tasks, you’ll still need to review and revise policies. You’ll also be responsible for most decisions around hiring and firing personnel.
Some business owners would prefer to let someone else make hiring decisions. This is especially true for some small business owners who may not be familiar with job requirements, hiring best practices, or even legal aspects of what they can and can’t ask in interviews.
Sharing Liability
Another major advantage of working with a PEO can be shared liability. Since you and your PEO partner are co-employers, the PEO accepts some liability.
The PEO is jointly responsible for making sure state unemployment fees are remitted on time. This can lift a burden from the business. In turn, the business can both avoid penalties for late payments and free up resources.
Shared Control
For many business owners, the idea of working with a staffing agency can be a little daunting. They may be concerned about how much control they need to give up.
For them, a PEO may be the perfect solution. They can get access to a full range of HR services and expert advice without needing to give up control.
Other business owners may see the need to share control with the PEO as a disadvantage. They may prefer to work with a payroll provider or another organization. This allows them to stay in control.
Costs vs. Cost Savings
As mentioned, a PEO can save your organization both time and money. Working with the right PEO can help you reduce turnover and avoid penalties. You may be able to get access to the HR services you need or benefits at a more affordable price-point.
The suite of services, though, may be outside of your budget range. For that reason, costs are both PEO pros and cons.
Is a PEO Right for Your Business?
A comparison of professional employer organization pros and cons should help you decide if this solution is right. Overall, the pros of working with a PEO often outweigh the cons.
Are you looking for a better solution for your business’s HR? Then it’s time to get in touch with a PEO partner who can offer you more.
