What is a PEO?

PRemployer on January 3, 2019


When you think of the term “PEO,” the first question that may come to mind is, “What is a PEO?” A professional employer organization (PEO) provides outsourced human resource services for small to mid-size businesses, including hiring, payroll, worker's compensation, employee benefits and more.  

Business success relies heavily on access to the right human capital, something that can be challenging in today's environment of high turnover and limited longevity. It's a priority to keep top performers, which is one of the many reasons why 173,000 businesses employing 4 million people use PEOs to help manage the intricacies of human resources. 

PEOs have grown extensively over the past decade. The total employment PEOs account for is approximately equivalent to the combined employment of the nation’s four largest companies. Despite there being fewer than 500 PEOs nationwide, they employed 3.97 million U.S. employees and paid out $216 billion. 

What is a PEO? 

From regulatory compliance and payroll to benefits and hiring, a PEO is well-equipped to offer these comprehensive human resources solutions without the stress and added overhead associated with staffing all of these needs internally. These organizations have seen growth the past few years as employers continue to see the benefits of outsourcing their human resources department. Working with a PEO is ideal for organizations with 50-250 staff members, specifically those that need the services, but are not quite large enough to handle the overhead of internal staffing. 

PEO Partnerships 

When working with a PEO, you enter into a co-employment relationship. What does this mean? For the purpose of taxes and compliance, your employees will appear to be on the payroll of your PEO partner. However, you retain full oversight of these staff members, giving you all the productivity and cost benefits of the relationship without the overhead or paperwork that is generally required for full-time or part-time employees.  

Responsibilities are contractually shared between the co-employers, with detailed outlines of responsibilities and payment structures. And this model ensures that you will not lose control of your business decisions and operations by partnering with a PEO.  

5 Common PEO Services 

Human resources is a critical business function, and you should make sure it’s in capable hands. Outsourcing these processes and tasks can help you save money, increase productivity and ensure compliance. Common PEO services include: 

  1. Human Resource Management. Your organization's success is directly tied to your ability to effectively manage your most important assets - your employees. PEOs manage everything from conflict resolution and discipline to unemployment claims and supervisory training. 
  2. Time and Attendance Tracking. Most PEOs will also help you plan, manage and optimize your business productivity. At PRemployer, for example, we provide customized solutions based on your unique work environment, such as a Time Clock model for location-based employees and an online version for mobile employees. 
  3. Payroll Administration. PEOs allow you to pass on recurring tasks such as check processing, direct deposit and tax withholding to a qualified team. Furthermore, they stay up-to-date on the latest tax liabilities, ensuring that your business is always fully compliant.  
  4. Worker's Compensation and Risk Management. A full-service PEO offers comprehensive risk management programs that include drug checks, OSHA compliance, safety manuals, training procedures and more. They also provide appropriate Workers Compensation and handle all claims administration. 
  5. Employee Benefits. One of the biggest costs to your organization is employee benefits. Partnering with a PEO gives you access to competitive benefits at a lower cost, including health insurance, life insurance and 401(k) investing opportunities. 

Benefits of Partnering With a PEO 

Driving growth is a primary objective for many small businesses, and those that partner with a PEO grow 7-9% faster than the average, according to NAPEO. Likewise, the cost of administration for these same businesses is 35% lower with significant savings in human resources costs. If that's not enough, businesses that utilize the services of a PEO are 50% less likely to go out of business. With the time and resources you save by outsourcing human resources to a PEO, you can focus more on actionable business growth initiatives. 

Partnering with a PEO provides protections and advantages, plus many more additional unexpected benefits, such as overall process improvement and a more consistent hiring schedule. Not only will you save staff time, you'll also reduce the overall impact of HR turnover on your business - all while driving business growth.  

PEO 101: Everything You Need to Know When Considering if a PEO is Right for Your Business

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