Common Myths About PEOs Debunked!
An oft asked question received from many small business owners is “what are some of the disadvantages to creating a relationship with a PEO.” I decided that this would be a great subject for an article; to refute some of the myths regarding PEO disadvantages. Many of these perceptions are quite understandable, but they aren’t backed in facts.
To understand this, we will need to review the common services a PEO offers, followed by the supposed disadvantages of a professional employer organization. Today, PEOs provide small to midsize businesses access to expertise in human resources, workers’ compensation, risk management, employee benefits, payroll, and tax management. In addition, PEOs assume risk from the small business by providing assistance in putting together and administering the best practices in employment.
Some of the methods used seem very simplistic, yet they are absolutely vital to ensuring compliance with governing bodies. Some examples would include developing employee handbooks, providing risk assessment or procedures concerning employment policies. Many PEO companies will also provide access to recruitment, background screening, and drug testing services, all of which lower the level of risk on your small business. It is better to handle a problem before it becomes one. As the shared employer of record, the PEO will take on the burden of managing or fighting unemployment claims and workers’ compensation cases and payments.
The advantages of using PEOs are not industry specific, which is why long term growth projections are expected to continue to rise even during the event of an economic downturn. Putting it bluntly, more business owners are considering using PEOs in their HR departments, knowing that these issues take up a lot of time and take them away from their core business. That brief aside, lets dive into the many myths propagated about PEOs.
I lose control over my employees.
This couldn’t be further from the truth. The client services agreement is executed between both you and the professional employer organization. It determines the scope of the relationship. I am sure every owner would have his attorney present to check it out. If you find anything that does not appear correct, by all means, inquire about it. Giving up control is a myth as PEOs today share the burden of employment, but you control 100% of the direction and activities of the employees without the PEO being involved.
A PEO is really just a payroll provider with medical benefits.
This concern has been voiced because the PEO is still an unknown entity in most of the 50 United States. Many small businesses in some southern states like Florida and Texas are familiar with the concept, but the other 48 states are mostly in the dark. In reality, the PEO does take care of payroll, but assuming the risk and burden of employment are well beyond the scope of a payroll processor.
A PEO will confuse my employees.
This myth can be handled quite easily with proper communication. PEOs will often assist in outlining the myriad of benefits the employees will have to choose from. Quite often, employees will be thankful that they have someone to go to so they don’t feel like they are nagging their boss. Will some employees get confused? Yes, but with planning, you can assure employees that you are still the boss, but now will be able to provide them with “big company” benefits.
I still need an insurance broker.
This one is a pet favorite insurance brokers like to scare business owners with. There are a lot of brokers that provide help in selecting a PEO. There are also a lot of PEO brokers that don’t resell medical or other insurance. This is 100% the owner’s prerogative. If you have a great relationship with your broker, continue working with them. However, the PEO is a one stop shop for most services, and can be a value added service if your broker is “unresponsive” to your needs. Remember, PEOs are not insurance companies and do not sell insurance. What we do is offer you rates that you likely won’t get because we have better leverage buying power with the insurance companies.
PEO’s are expensive.
PEOs are not only payroll providers, but provide a full complement of employment related services. Yes, the cost of these additional services will be more than a payroll vendor, but a simple review of the true labor costs can be the difference in your decision. I believe there is a true return on investment when working with a PEO. Below are some examples many don’t think of:
- Increased employee retention.
- Saving time and money dealing with compliance issues.
- Reducing time spent on payroll administration and tax compliance.
- Less time spent researching medical and other benefits for employees.
- Cost containment of workers’ compensation claims.
The supposed disadvantages of PEOs actually are myths. Any small business with an employee base between 1 and 100 should consider a PEO as an option. You get more services, less time working and a great way to retain your key employees – which means you can focus on revenue producing facets of your operation instead of being bogged down in HR headaches.