These headaches can often keep an employer from focusing on the main task at hand - growing the business This is one of the main reasons that businesses seek out Professional Employee Organization (PEO) services that can get all their ducks in a row and make sure they don’t leave any bases uncovered.
What is a PEO?
This is the term given to describe companies that provide employee management tasks for an employer, ranging from payroll to training to workers’ compensation, and more. The companies do that by entering into what's called a “co-employment arrangement.”
Under this arrangement, the company's employees are technically employed both by the company and by the PEO. The former handles all of the workers’ job requirements and performance, while the PEO takes care of personnel issues. The company controls all business decisions while the PEO takes care of the manpower issues.
The industry is a booming one. According to the National Association of Professional Employer Organizations, PEOs make between $136 and $156 billion in gross revenue per year, and handle employment services for between 2.7 and 3.4 million workers at well over 150,000 small to midsize businesses. There are all types of businesses using PEOs, including small businesses with around a dozen employees to ones that have manpower needs on a much a larger scale.
But what can a PEO do for your business? Let’s look at the tale of the tape.
Why Go With a PEO?
Simplification: By outsourcing human resources responsibilities to a PEO, an employers saves the trouble of having to worry about all the nuts and bolts of employee management. After partnering with a PEO, a company transfers them funds to pay employee payroll, taxes and benefits, and takes the hassle upon their own shoulders.
Safety: When you hire a PEO, it is responsible for making sure all payroll taxes are paid correctly on employee wages. Chances are, you’re not a licensed accountant, so understanding the minutiae of tax law might not be your strong suit. By using an IRS-certified PEO that has real expertise in managing tax payments, you are more likely to stay on the up-and-up and avoid any sort of problems with the tax authorities down the line. In addition, the PEO may be able to find ways for you to save money on your taxes, which you might not have known about on your own.
Improve employee performance: The PEO can take the reins on employee performance management and design programs to maximize and optimize output. This can include designing and managing performance reviews, reward programs, and also training and coaching plans. In addition, the PEO can also gather and analyze employee feedback on how to improve your management methods and help you devise perks and benefits that can keep employees happy.
Workers compensation: When you hire a PEO, your employees will be covered under the PEO’s worker compensation insurance policy. The PEO will be responsible for handling any workers compensation claims, and can potentially save you money on insurance. Because the PEO is responsible for handling workers compensation claims, there is a good chance the PEO will also take steps to improve safety at your worksite, helping you cut man hour losses.
Optimize HR decisions: Sometimes it takes somebody from the outside looking in to help you figure out a great course of action going forward. This can include finding ways to recruit top talent and keep them happy, ways to improve the culture of your workforce, and how to match your workforce with your company goals.
Do They Get Results?
According to a report compiled by the National Association of Professional Employer Organizations, small business that use PEOs have higher growth rates, as executives are freed up to focus on the core business of the company.
The report stated that businesses that use PEO are about 50 percent less likely to go out of business from one year to the next and that the turnover rate for PEO clients is 10 to 14 percent lower per year than similar companies that don’t use a PEO. In addition, the report found that when using a PEO, administrative costs for a business come out around $450 lower per employee.
What to Look For
Before you sign an agreement with a PEO, make sure it is an accredited company that has a proven track record handling payroll, taxes, and other company services.
Check if the company is qualified to handle federal, state, and local labor laws, as well as workers compensation laws and other manpower issues.
You’ll want to know that the PEO service is scalable for when your business grows, and if the contrast is flexible enough to allow you to make changes if need be. You’ll also want to check if the business offers a variety of payment plans that can be suited to your business. For instance, with ADP, you can sign up for plans that are tailor-made specifically for the type of business you operate. This includes payroll, HR management, benefits administration and time tracking for small businesses of up to 50 employees, ADP “Workforce Now” which includes comprehensive HR management and employee mobile access for businesses of 50-1000 employees, all the way up to more far reaching plans for large business of 1,000+ employees and multinational companies that want solutions that have the scope to handle a company that works on a global scale.
The PEO you hire should have a reliable customer service department with varied options for contacting them. Manpower issues can arise quickly and include a variety of question marks - having reliable, professional support can really come in handy.
Let’s Get to Work
Partnering with a PEO is a major decision that can really help you move your business into the fast lane - or at least ease some of those clerical issues that can make running your own business especially challenging.
Before you sign on the dotted line, look for the company which includes service plans that are the most suited to your company. After all, if your company only has a dozen employees, there’s no sense signing up for an expensive plan that is engineered to handle the services of a major international company. The inverse is also true - if you’ve grown - and can expect steady growth in the coming years - make sure to find a PEO that can grow with you, and find the all the ways to make your day to day company management that much easier.