June 9, 2022
Blog Professional employer organizations, or PEOs, are an integral part of the United States business community, having served about 173,000 US companies by the end of 2020. This led to the hiring of close to 4 million worksite employees who earned about $216 billion in wages during their tenure. It’s safe to say that most businesses are still in the dark about PEOs and what they do. This is partly because of the prevalence of myths surrounding PEOs that discourage most companies from hiring them. So, what is a professional employer organization, and why are they so important?
Well, keep reading to find out. That’s because, in today’s PEO guide, we’ll be taking a deep dive into what a PEO is and debunk some of the most common myths surrounding PEOs.
What Is a Professional Employer Organization?
In the most basic terms, a professional employer organization is a company that provides HR services to businesses. These services can include payroll, benefits, workers’ compensation, and even recruiting and training.
In other spheres, PEOs are known as co-employers. This means that they technically become the employer of record for their clients’ employees. This arrangement is what gives PEOs the ability to offer their clients such a wide range of services.
PEO companies are important because they help businesses save time and money. Most businesses don’t have the bandwidth or resources to handle all their HR needs internally. PEOs swoop in to fill that gap and free up businesses to focus on what they’re good at.
PEOs are also important because they help businesses stay compliant with employment laws. Employment compliance is a moving target, and it can be hard for businesses to keep up. PEOs make sure their clients are always in compliance, thus protecting them from costly penalties and lawsuits.
Common PEO Responsibilities
PEOs are lifesavers for companies and work to see their success through streamlining HR operations. Some common PEO responsibilities include:
Ensuring Compliance With Employment Laws
As mentioned earlier, PEOs help businesses stay compliant with employment laws. They do this by keeping up with the latest changes in employment law and making sure their clients’ practices are up-to-date. That way, their clients can avoid hefty fines and penalties.
Employee Recruitment and Onboarding
Did you know that the average US company spends about $4,425 to hire a single employee? Hire ten employees, and that’s at least $40,000 from your pockets.
PEOs can help ease the burden and streamline the process. They’ll handle the bulk of the recruiting process and only send qualified candidates your way. They can also help with onboarding by creating orientation materials and training your new hires.
Administering Employee Benefits
PEOs handle employee benefits, including everything from enrolling employees in health insurance to handling 401(k) contributions. PEOs make it easy for businesses to offer their employees a robust benefits package without breaking the bank.
Offering a competitive benefits package is one of the best ways to attract and retain top talent. But administering employee benefits can be a full-time job in itself. PEOs take that burden off businesses’ shoulders so they can focus on what’s important while keeping employees happy.
Processing Payroll
Payroll can be a complicated affair for large companies, but that’s where PEOs come in. PEOs handle payroll activities like calculating employee pay, issuing paychecks, and paying taxes. Payroll is a complex and time-consuming process, but PEOs will make it a breeze.
PEOs use the latest technology to streamline payroll processing and make sure employees are paid on time and in full. They’ll also handle all the paperwork and red tape that’s associated with payroll.
Maintaining Worker’s Compensation Insurance
Worker’s compensation insurance is mandatory for any business with employees. But it can be hard to find an affordable policy that meets all your needs.
PEOs will work with you to find the perfect worker’s compensation insurance for your business. They’ll also make sure you’re always in compliance with the latest workers’ comp laws and regulations. That way, you can avoid liability in case any of your workers gets injured on the job.
Providing Human Resource Guidance
PEOs are a valuable resource for businesses when it comes to human resources. They can provide guidance on everything from employee handbooks to hiring practices.
PEOs want their clients to succeed, so they’ll always be there to offer advice and support. They’re also a great sounding board for any ideas you have about how to improve your HR operations.
Benefits of Hiring a Professional Employer Organization?
It’s normal to be on the fence about hiring a PEO. However, with so many benefits, doing so only works for the best. Some of these benefits include:
Helps Save Money
PEOs help companies save money through efficient economies of scale. PEOs help you get discounts on things like employee benefits and workers’ compensation insurance. They can also help you save money on HR costs.
According to a recent survey, businesses can save an average of about $1,775 per employee each year on HR costs. This translates to an average ROI of 27.2%.
PEOs can also help you save money by reducing turnover. Businesses that work with PEOs have been shown to experience turnover rates that are much lower than the national average.
So, not only will a PEO help you save money on HR costs, but they’ll also help you save money by reducing turnover. This is a huge win for any business.
Saves Time
PEOs handle all the HR functions that typically take up much of the business owners’ time. They help with things like recruiting, onboarding, payroll, and benefits administration. This frees up business owners to focus on what they do best: running their business.
PEOs also help businesses save time by handling all the compliance paperwork. This includes things like workers’ compensation insurance and unemployment taxes. With a PEO, business owners can focus on what they’re good at and leave HR operations to the experts.
Better Employee Benefits
Employees are the lifeblood of any business. While most businesses want the best for their employees, they simply can’t afford these benefits. PEOs give employees better benefits, which leads to happier and more productive workers.
PEOs can also help you design a benefits package that’s tailored to your business. This way, you can attract and retain the best talent. Some of these employee benefits include health insurance, worker’s comp insurance, retirement plans, and paid time off.
Provides a Competitive Edge
Businesses that work with PEOs almost always have a competitive edge. This is because they can offer their employees better benefits and more perks. They can also attract top talent, which gives them a leg up on the competition.
PEOs give businesses the ability to compete with larger businesses. They provide all the resources and support that businesses need to succeed.
Seamless HR Experience
PEOs provide a seamless HR experience for businesses. That’s because they’re always up-to-date on the latest HR laws and regulations. They can also help you develop custom HR solutions that are tailored to your business.
This seamless HR experience is a huge benefit for businesses of all sizes. It helps businesses avoid compliance issues, which are incredibly detrimental to your business.
Common PEO Myths and Misconceptions
Despite the overt benefits of PEOs, there are a few PEO misconceptions that blind companies from the truth. Here are a few PEO myths you shouldn’t fall for.
Hiring PEOs Means Relinquishing Control of Your Business
This is simply not true. When you partner with a PEO, you’re still in control of your business.
You’ll still make all the business decisions and steer it in the direction you want. The only difference is that you’ll have access to a team of experts who can help you make those decisions.
In fact, most businesses find that they have more control over their business when they partner with a PEO. This is because they’re able to focus on what they do best and leave HR operations to the experts.
PEOs Make You Lose Your Small Business Status
Working with a PEO won’t make you lose your small business status. This isn’t to say that your small business won’t grow into a large one. All it means is that all the perks you get because of your small business status still apply after hiring a PEO.
These perks include things like state funding, Paycheck Protection Program loans, and others. You’ll still be eligible for these perks until you outgrow your small business status.
You’ll Have to Fire Your HR Manager
PEOs don’t require you to fire your HR manager. In fact, most businesses find that their HR managers are more valuable after partnering with a PEO. That’s because PEOs take on the compliance burden, which frees up your HR manager to focus on more strategic tasks.
Your HR manager will still play an important role in your business. They’ll just have more time to focus on things that can help your business grow.
Hiring a PEO Is Employee Leasing
The ill-conceived notion that hiring a PEO is employee leasing. With employee leasing, businesses give up control of their employees to the leasing company. This means that the leasing company makes all the decisions about your employees.
PEOs, on the other hand, don’t make any decisions about their employees. You’re still in control of your employees and you make all the decisions about them. PEOs simply provide the resources and support you need to manage your employees effectively.
Hiring a PEO is not employee leasing. You’re still in control of your employees and you make all the decisions about them. PEOs simply provide the resources and support you need to manage your employees effectively.
PEOs Are Super Expensive
Most people think PEOs are super expensive. That’s because they provide so many services and resources to their clients. But as we mentioned earlier, PEOs actually save businesses money.
Remember, PEOs save businesses money by helping them avoid compliance issues. They also help businesses negotiate better rates for health insurance and other benefits.
Plus, we already talked about the ROI of hiring a PEO, so this is a myth that doesn’t hold true in any capacity.
Employees Will Resist the PEO
While it’s true that people are resistant to change, employees are more likely to embrace than resist PEOs. Earlier, we mentioned something about improved benefits and streamlined processes. With such benefits, there’s no reason why employees should resist PEOs.
PEOs are for Large Companies Only
PEOs can help businesses of all sizes, not just large ones. In fact, PEOs are more beneficial to small businesses than large ones. That’s because they provide access to resources and support that small businesses wouldn’t otherwise have.
All PEOs Are the Same
There are about 487 PEO companies in the country, serving different companies. The ill-conceived notion that all PEOs are the same will work to your detriment. Like any other service company, PEOs are starkly different from each other.
As such, when looking for a PEO, it’s important to do your homework to find the best one for your company. The best way to do this is to ask for referrals from businesses similar to yours. They can tell you which PEOs are the best fit for your business.
You Can’t Hire or Fire Staff When You Have a PEO
This is another myth that’s based on the misconception that PEOs are employee leasing companies.
As we mentioned earlier, PEOs don’t make any decisions about their employees. You’re still in control of your employees and you make all the decisions about them.
PEOs simply provide the resources and support to maximize your workforce potential and streamline HR. This means that you can still hire and fire employees when you have a PEO. You’re just better equipped to do so effectively.
You Stand to Win With PEOs
There are many misconceptions about PEOs. But the truth is, PEOs can be a valuable resource for businesses of all sizes.
They save businesses money by helping them avoid compliance issues and providing access to resources that would otherwise be unavailable. If you’re looking for a way to improve your HR management, consider partnering with a PEO.
We hope you now have the answer to the question, “what is a professional employer organization?” If you have any questions about PEOs or would like to learn more, please contact us. We’d be happy to chat with you and share PEO tips that can benefit your business.
