Why Co-Employment with a PEO Is a Good Small Business Investment in 2021

Is co-employment a good investment for small business owners?As a small business owner, you carry the burden and risk of keeping your doors open. That’s especially true in our post-pandemic world, where supply shortages, talent shortages, remote work, and other challenges threaten to permanently change the way we do business. Co-employment is one way you can reduce the risk of operating your business in 2021.

But how exactly does it work? Think of it this way. 

Small business owners wear a lot of hats. There’s the Creative Hat – the one you wear when you’re coming up with new ideas about how to serve your customers and grow your business. This is the hat that got you into business in the first place.

Then there’s the Finance Hat. It’s the hat you’re wearing as you balance the books, send invoices, file taxes, and make sure everyone gets paid on time.

At various times throughout the day, you might also wear the Customer Service Hat (keeping customers happy and creating great experiences), the Efficiency Hat (improving processes and using resources effectively), and the Recruiting Hat (hiring new employees and helping teams work well together).

And of course, there’s the HR hat. This is the hat you wear when you’re taking care of your employees: administrating benefits, making sure employees have what they need, and handling any problems that come up.

That’s a lot of hats – too many for any one person, especially if you’re wearing them all at the same time. In fact, maybe you’re feeling a little squeezed by all the hats piled on your head. If so, you’re not alone.

But what if there was a way to distribute the hats across more heads? What if you had someone you could trust to share the load - someone who had some skin in the game and who was just as passionate about your success as you are?

That’s what a co-employment model does for you.

 

What Exactly Is Co-Employment?

Co-employment is the model used by Professional Employer Organizations (PEOs) to share both the responsibility and the risk of HR. Under a co-employment contract, a PEO can help business owners with things like legal compliance, benefits administration, workers compensation claims, insurance, and more. 

By offloading some of this risk, business owners boost their chances of staying in business by 50% according to the National Association of Professional Employer Organizations. They also grow faster and have lower employee turnover rates than companies that go it alone.

Small businesses owners that work with a PEO also enjoy greater peace of mind and lower incidences of stress, risk, and burnout. That’s why PEO employment growth is 16% higher than the rest of the economy.

That all sounds great - but what exactly can a PEO do for you? And are there any cons to working with one?

 

What Are the Benefits of Co-Employment?

The primary benefit of co-employment is that you as the business owner no longer have to shoulder the burden of responsibility alone. By sharing that burden with a PEO, you free up time, resources, and money to grow your business and serve your customers more effectively. Here are just a few of the ways working with a PEO benefits you:

  • Better Insurance Rates – With a PEO, you save money on insurance premiums by pooling your employees together with those of other businesses. As part of a larger employee pool, you get access to rates usually available only to much larger companies.
  • Reduced Risk – From unemployment claims to errors on tax forms to workers’ compensation claims, business owners shoulder a heavy burden of risk. It’s part of the job description. A PEO helps you manage that risk by assisting with unemployment and workers compensation scenarios, assessing job site safety, and protecting you through the process of employment-related claims with safeguards like EPLI insurance.

  • Paperwork Relief - If you routinely get buried under a mountain of paperwork (and what small business owner doesn't?), your PEO can relieve that burden. A PEO will help you with tax filing, unemployment claims, workers compensation claims, and much more. If you spend all your time in the back office shuffling paper, a PEO will free you up to get involved in running your business again. 

  • Compliance and Risk Management - Speaking of paperwork, one of the most time-consuming aspects of filing all that paperwork is making sure you are up to date on all compliance guidelines. A PEO lifts that burden off your shoulders, handles the compliance aspect for you, and reduces your risk of errors and associated fines. 

 

What Else Should You Know? 

If you're thinking that sounds like a pretty sweet deal, you're absolutely right. Working with a PEO does take immense pressure off of you as you manage the day-to-day function of your business. In fact, that's why 175,000 small and mid-size business partner with a PEO according to NAPEO.

But are there any caveats? We're glad you asked, because there are a few additional things you should know before you sign on the dotted line:

 

  • Not all PEO clients get lower insurance rates. Every PEO has a different process for handling insurance and benefits. Some offer brokerage services instead of a group plan. Others may require a minimum number of employees for eligibility. Your eligibiliby may also be affected by the number of past claims you have or other factors. For those who qualify, the group plan rates may not, in fact, be lower than what you already get. That's why it is essential to read all the fine print and understand exactly what the terms are before you sign on with a PEO. For example, some PEOs will let you carve out the insurance option so that you can benefit from all the other services without paying for the group plan if you don't want it. 

    Bottom Line: Most of the time you'll get better insurance rates through the PEO. But do your homework ahead of time, because there are instances where you may not.

  • Not all PEOs are created equal. As the popularity of PEOs has increased, so has the number of up-and-coming providers. That's not necessarily a bad thing, but it does mean you should spend some time doing your due diligence. Ask plenty of questions, and be sure the PEO has an established track record of business under their current name. If the PEO is new or not well known, you may want to ask if they are certified through the IRS. This simply means that they have met IRS requirements such as an annual audit and confirmation of employment tax payments. Many PEOs still provide excellent services without certification since it is not a legal requirement. Still, if you are unsure about the credibility of a provider, it may be worth checking into. 

    Bottom Line: Check out the PEO's credibility, length of time in business, and references before signing on.

  • Your HR team may not understand the value. This is a common problem with HR teams who feel they are losing control to the PEO. You may even feel this way yourself. The truth, however, is that a shared business model brings significant benefits while still allowing you to control all business decisions, hiring and firing decisions, and management decisions. Business culture can be an important factor in determining whether your team will align well with the PEO, and for that reason it's worth taking the time to consider how the change will impact HR function.

    Bottom Line: Change management is a critical component of success when transitioning to a PEO. Work with your team to establish a collaborative culture where everyone feels confident in the value of their role.

 

Your Partner for Success

So, is co-employment a good investment in 2021? If you're looking for a business model that will reduce your administrative burden, minimize risk, and give you the freedom to make better business decisions, then the answer is clear: Co-employment is a good investment for you. Take the time to research PEO providers and determine which ones align culturally with the direction of your business, and you'll be ready for whatever the future holds. 

Looking for PEOs that meet your business requirements? We can help! Use our free PEO Matching Tool to create your provider short list today! 

PEO Matching Tool