Let a PEO Reduce Your Liability

For a small business, employer liability can be a complicated issue. Naturally, business owners want to care for their employees, but sometimes it is unrealistic to assume that a small company with few employees can turn over enough profit to easily settle lawsuits and claims. This is where a professional employer organization (PEO) can ease the burden of a small business or, to be more accurate, many small businesses.

A PEO is an umbrella company that handles payroll services, payroll compliance, human resources and more for small to medium-sized companies. The PEO becomes the co-employer for the employees of these companies, and the administrative tasks of each small business become the responsibility of the PEO. With payroll and human resources outsourced, business owners can focus on running their company, rather than sifting through paperwork.

When working with a PEO, employers can be sure that their payroll tasks will be handled by experts. There are thousands of regulations to which business must comply, and learning them all can be extremely time-consuming and frustrating. Worse, a lapse in this area can lead to a fine or lawsuit. Luckily, with a PEO at the helm, such tasks are handled by people with full knowledge of state and federal laws. In a co-employment situation, the professional employer organization assumes liability for payroll activities.

Yet there are many more benefits to be gained from a co-employment relationship, especially if health insurance and workers comp comes through the PEO. Working with a professional employer organization can protect businesses from expensive increases to their insurance. In a large corporation, when there are many people paying for health insurance, a hospitalization among the staff is not a financial blow to the company. However, a small or medium-sized company could experience significant financial repercussions from even one illness. By pooling the insurance benefits from many companies under one PEO, employers are creating a corporate-like insurance environment where they can utilize economics of scale.  If a PEO covers 2,000 workers, and insurance claim from one business is not likely to cause a drastic increase in premiums across the board.

In addition, some PEOs provide workers comp, thus removing yet another burden from the employer. A PEO may also provide risk assessments and safety training to their clients. Such training can dramatically reduce the number of at-work injuries, and therefore saves the company from paying out expensive claims.

Many PEOs also offer Employment Practices Litigation Insurance (EPLI). This insurance plan protects businesses from employees or former employees who wish to sue their place of employment. Lawsuits of this nature used to be directed solely against large corporations, but recently smaller companies are coming under fire as well. Luckily, many PEOs offer EPLI to their clients, so litigation does not have to have devastating consequences.

Professional employer organizations can remove much of the burden of liability from the backs of individual employers. Think of the PEO as the corporate strength behind a family-owned business. The face of the business and the services provided to customers doesn't change at all when a PEO comes to work with the company. What does change though, is the financial muscle supporting the company. With the burden of liabilities being shared by another company, small and medium-business can focus on what matters most: their customers.

About the Author 

Anthony Kelly is a frequent contributor to PEOcompare.com and has experience working for small businesses and the Professional Employers Organization since 1997. He frequently writes about compliance, HR, technology and other issues affecting the small business owner.