What is a PEO?

Outsource HR to a PEOA Professional Employer Organization (also known as a PEO or an employee leasing company) ultimately helps small to medium sized businesses increase their overall efficiency and productivity.  Although PEOs have existed for many years, in some markets they remain remarkably underutilized. Our goal is to provide business owners with an overview of their services and potential benefits.

Think of a Professional Employer Organization as a company in itself, focused specifically on handling administrative tasks within other businesses.  When a business becomes their client, the business’s employees come to be jointly employed by both the business and the employee leasing company.  This arrangement, called co-employment, allows a small business to offset some of their liabilities, giving specific responsibilities to their PEO.  This way, business owners and managers can take certain tasks off their plate allowing them to focus their time and effort on growth and increasing profitability.

PEOs may take on many different clients allowing them to pool your employees with other groups to lower risk thus obtaining lower insurance costs. This also allows them to propose a wide range of offerings, as well as access to benefit plans that you may not have been able to afford on your own. Most organizations can save you a percentage on your medical costs as well as offer help with taxes and regulations such as SUTA, Worker's Compensation and the new PPACA rules.

A Professional Employer Organization is not bound by state borders or limited in the amount of employees it can accommodate, which is why many employers are beginning to see the value in their services.  The professional world should be aware of the tremendous benefits these organizations provide the small business owner.

As defined by The National Association of Professional Employer Organizations (NAPEO) in 2009, PEOs provide business owners with:

  • Relief from the challenges of employment administration.
  • A wide range of employment-management solutions from a team of experienced professionals.
  • Liability reduction through improved employment practices, compliance, and risk management.
  • Access to comprehensive employee benefits packages, allowing clients to compete in the labor market.
  • Improvements in productivity and profitability.

So what do they DO?

There are several “core” features that are offered by nearly every PEO company. They are:

HR Outsourcing - Human Resources tasks are often very detailed and technical, and it can be easy to make a mistake or miss a crucial step when filing paperwork.  For a business owner, HR duties can become very time-consuming, tedious, and stressful.  PEOs act as a dedicated human resources department for their clients, and will monitor employment regulations and reporting requirements. In addition, hiring, firing and interviewing assistance can typically be given by the professional employer organization. They can also provide access to HR experts that will give you advice on compliance and recruiting, and even put together employee handbooks and employment procedure manuals. 

While there may be differences in the offerings and organization of different employee leasing companies, it is important to note that while the HR tasks are managed by an outside service, the business owner is still responsible for day to day management of their employees.

Calculate Payroll Taxes      Payroll - PEOs process payroll, deliver checks, perform direct deposits and file payroll taxes. They ensure your workers are categorized correctly, and that you are compliant with the most up to date government rules and regulations. This service is especially useful for companies with employees in multiple states. They ensure that payroll is filed properly for each state, saving business owners time and money.

     Benefit Outsourcing -To maintain a competitive edge and retain key employees, small businesses must compete with large companies that can offer extensive employee benefit programs. PEOs provide access to a broad range of medical, dental, retirement and other insurance offerings thus allowing their clients to offer a competitive, well organized package to attract talent, boost employee morale and retain their best employees. 

     A PEO will also help insure compliance with government regulations related to benefits such as COBRA and the PPACA.

     Additional Services

Though these core services are very important, there are still many other benefits to co-employment. Not all PEOs offer these same additional services, and these differences often determine which PEO is the best fit for your company. Some of these additional services are:

  • Worker's Comp -This benefit is so popular that many PEOs are now offering worker’s comp as a core service. It’s worth noting that if a business is satisfied with its existing coverage, it is usually possible to find a PEO that will allow the company to keep its individual policy. However, companies can benefit from obtaining worker’s comp insurance through a PEO. PEO services are usually subject to lower rates, and these savings can offset the PEO's cost of services. Typically, a PEO will also review and process worker’s compensation claims, saving small businesses a great deal of time.
  • Safety - Because the PEO's service may be responsible for worker's compensation, they may also provide risk and safety consultants. These consultants will review facilities, give advice, and even develop safety programs tailored exclusively to their client’s needs.
  •  Recruiting - In addition to traditional HR services, some PEOs provide access to a recruiter or a job posting service. They may also screen applicant resumes or perform initial interviews. This helps save business owners time, and ensures that final interviews are conducted only with serious, qualified candidates. However, not all PEOs are involved in the hiring process, and employers do not have to use this service if they would rather recruit on their own.
  • Training Services - If offered, training may be local or web based, and is often provided at a discounted fee. Training areas can range from employee development and computer skills to sexual harassment and ethics programs.
  • Performance Management - Outsourced human resources departments provide guidance con-
    cerning performance reviews and methods of identifying and retaining key employees. This service
    helps a business owner understand which employees are doing the most for their company, and how
    to reward their efforts. Additional services available may include onboarding programs, evaluation & performance tracking, goal development, compensation management, market salary data, workforce planning, and even writing tools for performance reviews.
  •  Outplacement Services - This service helps to limit risk when performing a reduction in the workplace. With this service, downsized employees will have some assistance while searching for a
    new employer.
  •  Background screening - Some PEOs offer background screening to assist in the hiring process.
    With sufficient background screening, employers can avoid hiring high-risk individuals who may cause concern for a small business. This service is usually discounted due to volume-based pricing. 
  •  Drug Screening - As in background screening, this step insures employers do not hire high-risk individuals. Again, this service may be discounted due to volume-based pricing.


But What Does it Cost?

Most PEOs charge a flat fee per employee per year based on a percentage of payroll.  This percentage will vary depending on the number of services utilized by their client.  For example, a contract to manage employee recruitment, the payroll process, medical insurance administration and employee retirement planning will pay a larger fee than one who only contracts to oversee payroll.

PEOs can also offer bundling packages to reduce overall cost – for example, Human Resources, background checks, and drug screening may be offered together for a reduced rate. Of course, businesses should take care not to pay for services they will not use, as this will increase the price of co-employment. For a more detailed account, download our complimentary white paper, How PEOs Determine Pricing.


How Do I Find One?

As you can imagine, searching for the right PEO company is undoubtably very time consuming. Our goal is to assist you in your search by narrowing down your choices to PEOs that work in your state, take on your industry, manage your size, and are best suited to meet your company’s unique needs. Take a look at our Free PEO Services Matching Tool. Using information you provide, this questionnaire generates a PEO vendor report showing ranked scores of which PEO companies best match your specifications.  From there, you may compare HR service and technology details side by side, view individual service fine points, or simply request more information.

For more personal assistance, or to work with a PEO consultant.  This can save you time and effort, and surely eliminate frustration!

More Stats, Please

The nation’s largest trade association for PEOs is the The National Association of Professional Employer Organizations (NAPEO). With well over 400 PEO members, NAPEO operates in all 50 states.  Member companies range in size from brand new companies to large, publicly held organizations with many years of experience. NAPEO describes itself as The Source for PEO Education®, bringing its members with the very best educational options and business resources, including conferences, seminars, magazines, online services, marketing resources, public relations support and more. The Voice of the PEO Industry®, NAPEO also protects the interests of its PEO members by proactive lobbying efforts and ongoing, timely communications on legislative/regulatory issues of interest. For more information on growth in the PEO industry, you may review some of NAPEO’s statistics here,

Sum it Up

If you’re a small business owner who has concerns about payroll, filing paperwork, and complying with government regulations, co-employment may be the service you’ve been looking for.

For more detailed specifics, check out our free PEO Buyer’s Guide or use our quick PEO Comparison for a comparison analysis that will provide brief information and data on the contrast of PEO insurance offerings, Professional Employer Organization services, and PEO availability within different industries.


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