What is a PEO?

Amanda Martin Human Resources Services Leave a Comment

If you are reading this, it is likely because you are dissatisfied with the status quo of what you are doing for benefits with your company. Typically, no one goes looking for change unless what they have currently is creating problems. The reasons for seeking out another solution are as varied as the companies that end up working with a PEO. Perhaps you have heard about PEOs and are curious if one would work for you. If you are like many business owners, the first question you ask is, “Well, what is a PEO anyway?” That’s a perfect place to start. 

The acronym ‘PEO’ stands for Professional Employer Organization. The term means exactly what it says. PEOs are in the business of providing professional services for companies to help them with nuances of employing people; primarily legal compliance, tax administration, and benefits. If you are already employing people, you’ve learned a great deal about how complicated it can be, not to mention expensive. There is much more to employees than just their yearly salary. PEOs help you with everything you need to do regarding employing people. 

Talking About The Elephant In The Room When It Comes To PEOs 

Before we get into the ins and outs of PEOs, we have to cover a terrifying term for business owners. That term is ‘Co-employment.’ This is where the unenlightened say, “Hold on! I don’t want someone telling me what to do with my business or my employees. No, thanks!” Before you rush out thinking a PEO takes over your business, this is not what is meant by co-employment at all. No one is going to tell you how to run your business, but a PEO will help you with the common HR issues most business owners don’t like addressing for themselves. 

When you enter into a co-employment relationship with a PEO, the two entities partner together for what is in the best interest of the businesses and the people they co-employ. What are the responsibilities of both parties? The answer is simple:

Worksite Employer: This is you, the business owner. You handle all aspects of the day-to-day employment at your business. You are the one who will do the following:

  • Hiring all employees
  • Employee termination
  • Managing employees 
  • Employee training
  • Workplace culture 

The worksite employer is fully in control of what happens at their business when it comes to employment. For the business owner, this is good news. If you have ever worked with a contracting agency for an employment solution, this is not terribly different. You manage the employee, and they handle everything else. What is a PEO doing when it comes to your employees? This is the best news ever.

Employer of Record: This is the PEO. They do all the things most business owners don’t want to do when it comes to employing people. They handle all of the legal compliance when it comes to employment. There are a lot of laws to keep up with when you hire employees. It’s the PEO’s job to make sure you are all following the rules. They also do all the payroll processing, workers compensation, benefits handling, unemployment claims, and payroll tax compliance with the IRS and the state. Do you like doing that stuff now? Probably not. Co-employment doesn’t seem so bad anymore, does it? Most business owners would welcome someone taking over all that compliance stuff, we don’t blame them.

What Is A PEO Doing That Makes The Fees Worth The Money?

Since a PEO co-employs a large number of people from different companies into one group under their umbrella, they form one major corporation. Small group plans are costly for one reason; risk. When you insure only a small group of people, the risk of paying out benefits before the cost of insuring them has been realized is very high. For this reason, small group insurance plans charge a lot. They aren’t taking the risk of insuring your business unless you have some skin in the game too. 

With a large group of employees under one name, “PEO,” they get to take advantage of volume purchasing, just like your area’s largest employers do. The more people paying monthly premiums, the less risk. It’s just economies of scale, basically. As a PEO customer, you get to take advantage of the volume savings when it comes to:

  • Health Insurance
  • Dental Coverage
  • Vision Coverage
  • Workers Compensation
  • Retirement Planning
  • Group Life Insurance
  • Short-Term & Long-Term Disability
  • Flexible Spending Accounts
  • Qualified Transportation Benefits
  • Employee Assistance Programs
  • Unemployment Tax Rates 
  • EPLI Insurance 
  • HRIS Systems
  • Employee Discount Programs 

In short, a PEO can offer your employees a much more robust benefits program than you’d ever be able to afford. Many business owners like yourself, enjoy the idea of being able to provide the same benefits to their employees that their largest competitors do. The cost of losing good employees to larger competitors is pretty high. You can mitigate that risk by being able to compete with benefits that matter to your employees. 

Fees can be a touchy subject for many business owners. Why talk about savings if you are just going to pay out the savings in administration fees? Ideally, the PEO you choose would be able to save you enough on your total employee expenses that the fees would not be an additional cost. This is something you should explore with your PEO broker before looking for a PEO.  

How you would like to be billed is also a consideration as not all PEOs bill their customers the same way. Would you like your fees to be a structured flat cost per employee, or would you rather pay a percentage of your payroll? Do you want an itemized bill or do you just want a bundled offering? These are substantial considerations you should go over with your PEO broker before you start comparing PEOs. 

What Does A PEO Offer Directly To My Employees? 

Your employees will likely want to know what’s in it for them too. The idea of going from how your business does things from an HR perspective to being co-employed through a larger firm can be a little off-putting if you are not framing the discussion in the right way. It is essential to share with them all of the right reasons they would want to be part of a PEO. Their cost savings on benefits and the additional coverage they deserve are not all there is for your employees to take advantage of, but they usually warm up to the idea of a PEO just fine when they see what they are getting and what they will save on monthly premiums. 

Perhaps your employees have never had benefits with your company. This is all the more reason for them to consider how great a PEO would be for your company to work with. If they have ever worked with a large company before, things like employee discount programs are the things they miss. Now, they will have them with your company too.

With the Human Resources aspects of being employed comes personal subjects to deal with that may impact your employee’s job performance. It takes a skilled HR professional to help make these inevitable situations that come up go as smoothly as possible. PEOs have professionals at the ready for all the HR related questions your employees may have concerning personal subjects such as:

  • Using the employee assistance program
  • Workplace harassment concerns
  • Understanding how to use mental health benefits
  • Maternity coverage
  • Family planning benefits 

Most employees are relieved to talk to someone other than the owner of their place of employment about these issues that commonly come up in life. For everything else, your PEO’s customer service people are standing by, ready to help your employees make the most of their benefits. 

What A PEO Does Not Do For Your Business Or Employees 

While a PEO sounds like an all-encompassing employment solution for you and your employees, there are a few things that a PEO is not going to do for you or them. It is just as important to talk about these things as all the other things they cover. A PEO does not provide any of the following things to you or your employees:

  • Sick leave 
  • Bereavement leave
  • Maternity leave 
  • Insurance against employee theft 
  • Employee vs. Employer contractual negotiations 
  • Paid vacation time 

The above issues are workplace culture things you will have to decide for yourself if you want to offer them to your employees. While the government certainly isn’t making you pay for any of these things, some states now require that you at least provide your employees the ability to take sick leave and maternity leave unpaid and without penalty. 

What Is A PEO Going To Do For Your Company Specifically? 

We hope you feel more informed about what a PEO is and what it can do for a business just like yours going forward. Which PEO is right for your company’s individual needs? That is something you should discuss with any one of our well-qualified PEO professionals. They will walk you through the common questions you should have answered so they can tell you which of the top 3 PEOs best fit your specific needs. 

Ready to talk to someone about a PEO comparison for your business? Contact us today for more information on how we can help you find the right PEO for you, free of charge. 

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