Professional Employer Organization(PEO): What is it and how can it help your business?

A PEO, or Professional Employer Organization, is a type of full-service HR outsourcing known as co-employment. Under this arrangement, the PEO performs various employee management tasks on behalf of the company, including Payroll and Benefits Management. Some of the PEOs also offer strategic services, but they are all different, so it’s important to research providers and compares their features.

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What is a PEO?

Professional Employers Organization Definition

Professional Employer Organizations (PEOs) provide employee management services such as payroll, benefits administration, and corporate recruitment.

A PEO (Professional Employer Organization) is an organization that helps companies rapidly recruit full-time talent nationally and internationally.

Legally, it employs employees directly in a process known as co-employment or co-employment. This greatly simplifies the processing of payroll, tax, benefits, and insurance. PEOs may or may not take legal risks to the employees they employ.

How Does a PEO Work?

A Professional Employer Organization or PEO employs the client company’s employees on its own payroll. Once outfitted, the employee becomes the “employer legal entity” of the PEO entity. Going forward, employees will receive daily KRAs from client companies but will work according to PEO’s HR guidelines. PEOs are responsible for employee payroll and compliance, allowing clients to focus on their business needs.

A PEO can handle the following things for your organization:

Payroll

PEOs calculate tax burdens, make direct deposits, make timely payments, and handle other payroll-related matters.

Employee Benefits

PEOs work with local insurance companies and businesses to provide benefits such as medical care, commuting benefits, workplace benefits, flexible spending, and sick leave.

Human Resources/Legal Affairs

PEOs research and decipher labor laws to ensure companies comply with local, state, and national regulations. As these regulations change, as is often the case, the PEO will investigate the potential impact and make any necessary adjustments.

Additional Benefits

In addition to normal human resources and administrative duties, PEOs can also help businesses in many ways. This includes managing employee performance-based compensation, long-term and short-term disability benefits, and overtime pay.

Talent management

PEOs offer end-to-end human resource services, including recruitment and strategic hiring, employee training and engagement, and performance management.

What advantages do PEOs offer businesses?

Small and medium businesses can save money and hassle by letting their PEO do the manpower-intensive work.

As mentioned earlier, companies that work with PEOs typically have access to a wider range of insurance and financial products than the same companies do alone. Because PEOs work with multiple companies at the same time, they can spread the risk across more employees, making them more attractive to insurers than smaller companies with dozens of employees.

Organizations may also find it easier to scale more quickly working with a PEO than keeping all HR responsibilities in-house. The more people you hire, the more time you spend onboarding employees and the more internal resources you need to deliver a great experience for your team. With PEO, you can ensure a standardized and streamlined experience that ensures all employees are legally compliant and happy.

In short, PEO provides solutions to key concerns such as payroll, benefits, and compliance so that employees and their managers can focus on collaboration rather than bylaws.

Is a PEO right for your business?

Business owners considering a PEO must decide whether it is worth giving up some control of their business for the temporary convenience of outsourcing their HR functions.

Businesses considering using a PEO for HR services should ask themselves:

Will the PEO commit to a number of hours per week to provide HR support?
Will they be on-site in an emergency?
Do you provide a fixed point of contact or do your employees need to communicate with several different people?
Do PEOs understand our core values?
Do we have the best interests of our employees at heart?
Can the PEO also help with training, career development, and performance management?

The answers to the above questions will determine whether HR outsourcing is the best choice for your business. It’s also important to understand that PEOs act as employers, so they can also influence the culture of the workplace. You also need to consider timing, whether you are bound for a period, plans for growth or expansion, and costs.

Pros and Cons of Using PEO and Internal Services

The PEO model is a unique option for small businesses looking for services typically offered to large corporations, but it is not without its pitfalls. By learning about the benefits, drawbacks, and limitations of PEO, you should be able to minimize the drawbacks and find the right organization for your business.

PEO Pros

Reduce administrative tasks

Working with a PEO takes all the tedious administrative tasks of managing your business out of your hands. This gives you more time to focus on running your business day-to-day.

Better benefits

The PEO model offers small businesses the opportunity to sign up for benefits that are typically only available to large companies. Employees can often access medical coverage at a lower cost than dealing directly with an insurance company. This means better health, retirement, and workers’ compensation insurance for the company and its employees.

Regulatory Compliance

PEOs are trained professionals who specialize in ensuring that a business complies with state and federal regulations. These include tax structures, personnel law changes, occupational safety compliance, and other risk compliance factors. Knowing that your business complies with federal, state, and industry rules and regulations give you great peace of mind.

Talent Acquisition

Better benefits and stricter HR policies help you attract the best talent in your field. If you need help hiring, onboarding, or even firing employees, PEO services can help. We also provide other resources for posting job postings online and managing the interview process.

Legal protection

Most PEOs offer civil protection and labor liability insurance in case a former employee sues the company for discrimination or wrongful dismissal.

PEO Cons

Abandon Liability

The PEO has to shoulder some of the burdens of running the company. If you are a small business owner and are involved in all aspects of your business, partnering with a PEO can be a transition.

Health insurance change

Better medical services will be available, but you and your small business will be at the mercy of his PEO’s decisions. Depending on the state in which you do business, you may change insurance companies while you are with your PEO. PEO looks for the best deals. This affects your business and the compensation you and your employees receive.

Impersonal

We hope that the PEO you choose will provide your business and employees with personal attention and service. While this is great in theory, many of his PEOs are large companies serving thousands of small businesses. At some point, your business and your employees can get lost in the chaos. Searching for PEO gives you a sense of the company’s commitment and how much they care about providing the services you and your employees need. Please remember that you can usually cancel the service by giving us proper notice.

Setup and Migration

Hiring a PEO changes part of your job. It may take some time for you and your employees to adjust to new methods and processes.

Fortunately, Shrofile helps you hire, pay, and manage global talent in a way that makes sense for your business. We offer a wide range of technology-enabled, expert-led solutions covering compliance, onboarding, payroll, benefits, and more to facilitate your global business growth.

Please Contact us to find out more and get started.

PEO Frequently Asked Questions (FAQs)

Still not sure what a PEO can do for you? Here are answers to some frequently asked questions about PEO processes and operations.

What Does PEO Stand For?

PEO stands for “Professional Employment Organization” because it acts as an intermediary between employers and organizations.

What’s the Difference Between a PEO vs. EoR?

The main difference between PEO and EoR is that PEO acts as the employer of the employee whereas EoR is the global employer of the company’s distributed employees.

How Does a PEO Help Control HR Costs?

PEO’s economies of scale help reduce hiring costs and increase profitability. By relying on a PEO, you can maintain little or no in-house HR infrastructure, thereby reducing your hiring effort. A PEO not only provides critical support in employer compliance but also saves time by handling mundane and redundant activities.

What is the benefit of a PEO?

PEOs solve HR, risk, and compliance issues to help protect and grow your business.

If you are a senior executive looking for a new role, register with us. If you are an employer looking to hire into your leadership team, contact us.