How a PEO can help your non-profit

America's nonprofit sectorThe PEO idea is not just a benefit to ‘for-profit’ business anymore. Non-profits have unique employment issues that professional employer organizations can serve well.

Non-profit problems

A non-profit has fewer resources to buffer its losses in tough economic times. By definition, a non-profit has no profit margin to “play” with. So, if it is to reallocate revenues already directed by its tax status, a non-profit has to cut costs. Most will take the high road with regard to their employed staff, but they are also committed to their mission. Few non-profits are positioned to support a Human Resources function, let alone a fully staffed department.

  • The culture of a non-profit drives its organizational structure. And, the structure aligns emotionally with the organization’s mission. Its culture of self-sacrifice stamps its every decision and expenditure.
  • The non-profit management often lacks specialization, and, more often than not, the majority of work is taken on by a few willing participants.
  • This same multi-tasking, often thankless work makes it difficult to attract and retain first-rate employees.
  • Non-profits often find the cost of group insurance benefits and retirement plans prohibitive.

The PEO Solutions

Professional employer organizations were created to serve these needs and more. In most cases, which are often a function of workforce size and state regulation, a PEO can address each of the following non-profit challenges.

  • The PEO eliminates the need for a Human Resource department saving personnel and administrative costs.
  • The professional employer organization relieves the leadership of compliance and accountability burdens allowing them to focus on mission and fundraising.
  • The non-profit executive leadership and board of directors are relieved of professional liability relating to employment issues.
  • The PEO administration takes tasks - like payroll and recordkeeping - off the desks of employees and volunteers to make room for the work that serves the non-profit’s mission.
  • Much of the fiduciary responsibility will shift from the Board of Directors to the PEO as the latter takes on the burden of tax payments, unemployment claims, risk management, and workers’ compensation insurance.
  • By entering into a co-employment arrangement, the non-profit passes on concerns about discipline and termination and accepts direction from the PEO on HR policies and procedures. The PEO can also offer assistance on recruiting, risk and safety, background screening and training on hot issues like harassment and discrimination.
  • The professional employer organization can bargain for group insurance premiums, employee assistance programs, and 401(k) Plan participation from a position of scale to provide the sort of package that attracts and keeps good talent.

Any non-profit worth its mission will consider the value of co-employment with an established PEO. Audited financials of the professional employer organization will demonstrate its ability to cover its maximum expected risks as determined by actuarial methods for identifying loss development. That audit must also show “tail” coverage to remaining workers’ compensation claims incurred prior to the PEO contract.

A non-profit may have a higher motive to investigate the PEO’s experience in compliance with state and federal laws, taxation withholding and reporting obligations, and payment of wages and overtime. Given the complexity and sophistication of the accounting, the non-profit is well advised to seek the assistance of a CPA in reviewing the PEO’s audited financials and assisting in the transition of accounting and tax records. Once accomplished, the PEO implementation should launch a continuing mutually beneficial relationship in which the professional employer organization serves the non-profits needs well.

To find and compare the best accounting software products for your non-profit, try the free Software Selection Tool on

Or, read more about Nonprofit Accounting Systems vs Commercial Accounting Systems

Image credit to Lester M. Solomon, America's Nonprofit Sector: A Primer, 3rd edition (