If you google the acronym PEO, you will find hundreds of articles from PEO providers, PEO brokers, small business bloggers, etc., all telling you why you should work with PEO. We’d like to help you understand when it wouldn’t be a good idea, and for what reasons you shouldn’t work with a PEO. We came up with the best 3 to help you decide if working with a PEO is really the best route for you to take.
It’s hard to figure out what the best strategies are for your business, especially if you are the sole decision maker. In its very nature, strategy’s purpose is to make plans for a future positive outcome. There is a lot at stake. There is precious revenue, loyal employees and likely your family all hoping you make the right choices. We get it. It’s tough out there, so you need to be properly informed of any HR services that may take away from what your plans of success are.
The Reasons You Shouldn’t Work With A PEO
We thought hard and these are the facts. If you fall into one of these categories then you shouldn’t work with a PEO.
Your Employees Need To Stay On A 1099- Many small businesses have full-time employees on a 1099. That means, they are employed by you as a contractor and thus responsible for paying their own income taxes and finding their own health insurance. A lot of times, this agreement between the two parties works very well. The business owner is freed from employing someone formally and the contractor is free to bill what they want to work per hour and also pursue other opportunities at the same time.
If this is your situation and you don’t want it to change then by all means, you shouldn’t worth with a PEO. What you should know before you make up your mind though is what the legal implications are around that decision. With the ACA in full swing, the IRS is cracking down on not just whether or not a business is employing people on a 1099, but why they are doing so.
An employee working for you full-time as a contractor year over year is not really a contractor. The IRS sees that as skirting ACA compliance and payroll tax responsibilities. Contractors who are only filing a singular 1099 from your business every year are letting the IRS know that you are their full-time employer, regardless of the paperwork in front of them.
If you don’t mind the IRS poking into your business over 1099s and levying fines on you for non-compliance then don’t worry about it. By all means, you shouldn’t work with a PEO as an HR sourcing solution.
You Are Not Up To Date On Your Payroll Taxes – If you are employing workers on a W-2 but are behind on your payroll taxes then you do indeed have an issue that needs to be addressed before you sign with a PEO. Taxes need to be payed.
The good news with a PEO is that they will manage all of your payroll, and payroll tax filings going forward so you won’t have to wince every time someone says the word “tax” any more.
Still, if you are fine with backed up payroll taxes and the realization that sooner for later the IRS is going to want their money whether you want them to have it or not, go right ahead. You shouldn’t work with a PEO. They won’t help you sit in denial any more about paying your payroll taxes.
You Can’t Afford An HR Outsourcing Solution Of Any Kind – If you are paying for a payroll solution and small business health insurance, chances are you are thinking another service would certainly put you in the poor house. That mindset has probably stopped you from pursuing something like a PEO a number of times. One more thing? Can’t do it. I’ll suffer on my own, thanks.
If you are doing the fuzzy math of taking what you pay for payroll outsourcing, adding your small business health insurance premiums and figuring there will be an extra fee on top of that from a PEO and figuring that’s your anticipated payment to a PEO, then let me help you understand this: you are 100% incorrect.
One Good Reason To Work With A PEO
If you can live with all these warnings then you shouldn’t work with a PEO. PEOs save small businesses money, especially for those who are paying for all these services on their own. You won’t pay more for a PEO, you will pay less. Not to mention, not having to worry about doing payroll, keeping up with the IRS regarding payroll taxes and ACA compliance, and having the added bonus of paying up to 40% less than what you are currently paying now.
If this sounds too good to be sure, ask us to prove it. A quick phone call can do a lot. A PEO broker like PEO Spectrum can help you get ready to work with a PEO and steer you in the direction of the right ones for you to work with. The only thing preventing that from happening is you. What are you waiting for?