What Is A PEO & Can It Relieve Your Payroll Tasks?
Between managing customer relationships, balancing the books, and marketing, it’s easy to become overwhelmed as a small business owner. If administration and paperwork are keeping you from what matters most, it may be time to ask for help.
You could hire or train staff, but this can take considerable time — not to mention the fact that paying another employee’s salary and benefits can be costly. Alternatively, you can outsource certain tasks, especially those that are not driving your revenue.
A Professional Employer Organization (PEO) is one option for handing over a business’s most cumbersome HR duties to trained specialists.
Let’s take a closer look at how a PEO works and the services they offer to help determine if this outsource solution is a fit for your business.
Table of Contents
What Is A PEO?
PEOs are human resource companies that contract with small and mid-size businesses to manage HR services, such as payroll, employee benefits, and tax administration. Besides providing technical know-how, a major selling point for PEOs is that they are largely hands-off, allowing business owners to offload HR functions and get back to the most important work of leading their enterprises.
To make this happen, PEOs and small businesses enter a co-employment agreement. As co-employers, both the small business and the PEO share legal and tax responsibilities. This grants them the authority to help administer various employer-related tasks, but keeps decision-making and leadership in the hands of businessowners.
By becoming co-employers for numerous enterprises, PEOs can leverage a larger employee base to get better deals on various benefits and administrative services for their small business clients.
How A PEO Can Relieve Payroll & Other HR Tasks
From business to business, the payroll and HR tasks included in a PEO contract can vary. Knowing which administrative duties are most important for your business is important if you’re going to find a PEO that fits your needs. Some leading tasks that PEOs can handle include the following:
- Payroll: Whether your employees are full-time, part-time, tipped workers, or 1099 contractors, a PEO can make sure everyone gets paid on time. This can include more complicated functions, such as garnishments and deductions.
- Employee Benefits: PEOs can acquire better employee benefits than you’d get on your own, including medical, dental, vision, retirement plans, life insurance, and workers’ compensation. They can also handle the administration of these benefits, ranging from onboarding to processing claims.
- Compliance: Staying up to date on compliance and HR regulation can be difficult. PEOs are able to offer guidance and cover the bases for payroll taxes, IRS reports, and other requirements.
- HR Resources: PEOs can customize resources like employee handbooks and written job descriptions for small businesses.
- Strategic Planning: Working with a PEO can help revise a business’s mission statement, vision, and organizational culture.
- Recruitment & Screening: Between posting jobs, vetting candidates, and onboarding new hires, a PEO can handle the details so business owners can focus on choosing from a selection of top candidates.
- Safety & Risk: Businesses that involve hazards can consult with a PEO to identify ways to reduce risk. As a co-employer, a PEO shares liability with a small businessowner.
Is A Professional Organization Right For Your Business?
Outsourcing is becoming a common practice for small businesses to save time and streamline their operations. In fact, about 37% of small businesses outsource at least one business process.
According to the National Association of Professional Employer Organizations, there are over 900 PEOs providing services to more than 175,000 small and mid-sized businesses. But that doesn’t mean a PEO is right for every business.
Here are some advantages and disadvantages to consider based on your small business’s needs and characteristics.
Advantages To Using A PEO
- Increase efficiency by passing administrative duties to experienced professionals.
- Avoid having to hire additional internal HR staff.
- Pay less for competitive employee benefits packages by aggregating negotiating power with other PEO small business clients.
- Lessen financial and legal risk
- Improve employee retention through greater benefits and HR support.
Disadvantages To Consider When Choosing A PEO
- PEOs may not agree to work with businesses with less than 10 employees.
- Pricing structures tend to favor businesses with more employees.
- A PEO contract’s proposed services may not completely align with a small business’s specific needs.
- Small businesses could be liable for paying a fee or penalty for withdrawing from a contract early.
Professional Employer Organization FAQs
PEO Isn’t For Everyone: Exploring Other Options For Payroll Support
A PEO can relieve employers from tedious paperwork and improve HR administration. Small businesses that utilize a PEO’s services grow 7-9 percent faster on average.
While PEOs can deliver a comprehensive solution for some businesses, it may not be worth the cost for others. Some small business owners may just prefer to handle certain things in house.
If you’re still considering options, there are other ways to save time and streamline operations. For starters, you can explore the best payroll software for small businesses. Alternatively, you could give free payroll software a test run to stretch your budget even further.