What to Expect When Outsourcing Payroll to a PEO

PRemployer on December 10, 2019

What to Expect When Outsourcing Payroll to a PEO

Outsourced payroll has become common, with 47 percent of US companies using such services. Among large companies – those with revenue of $5 billion or more – 73 percent outsource. As will be shown, there is a very good reason for this.

How Your Company Will Benefit from Outsourcing Payroll

Many who begin outsourcing their payrolls find unexpected cost savings. While accounting has likely already considered the cost of the salary and benefits of an in-house payroll administrator, they may have missed the indirect costs of the staff who collect and process time information. There is also IT support and those who do other peripheral duties. 

One 2003 study found that many companies think that payroll only costs $2-$6 per employee.

They were shocked to find the true cost of payroll was closer to $16 per employee.

Outsourced payroll companies beat this figure thanks to efficiencies of scale. They have entire departments dedicated to processing payroll information and can do so at scale since they work with many clients. This volume reduces the per-check cost for each client.

Outsourcing to a PEO Makes the Savings Even Better

With a co employment agreement with a Professional Employer Organization (PEO), your workers are considered, for tax purposes, to be the employees of the PEO. Taxes are paid under the FEIN of the PEO instead of under your own, which yields several benefits such as increasing a company’s purchasing power when negotiating healthcare benefits. 

A common misconception is that co employment leads to a loss of control for your company. The reality is that you do the hiring, set performance expectations, handle discipline, and perform other duties related to personnel management. Meanwhile, the PEO takes care of the administrative end. This is not “employee leasing” or similar services. 

Partnering with a PEO Reduces Risk

Risk management is a big part of running a successful business. When you outsource your HR to a PEO, you reduce the risk of compliance errors regarding employee status, form filing, and more. The PEO will ensure that the Fair Labor Standards Act (FLSA), as well as state and local regulations, are not violated. This eliminates the risk of incurring hefty fines related to these laws.

PEOs also reduce risk in other ways. They handle workers' compensation insurance and claims, can run safety programs, devise and print safety handbooks, and otherwise reduce the risk of injury-related lawsuits at your business.

It's no wonder that companies ranging from small businesses to huge outfits outsource their payroll and HR operations to PEOs. Doing so streamlines operations, reduces risk, reduces cost, and frees up time. The more companies learn about outsourcing payroll, the more they sign up for this service. This practice will only get more popular as time goes on and reports of the great results spread.

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

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