The Pros and Cons of PEO Companies

Businesses that work with PEO companies have been shown to grow 7–9% faster and are 50% less likely to go out of business, as reported by Fast Company. These companies can serve as a buffer against some of the most common pitfalls of starting and operating a small business, supporting continued growth and success.

Whether you are currently in the startup phase or are developing a new human resource strategy for the year ahead, it’s important to consider the pros and cons of PEO companies.

What Are PEO Companies?

PEO stands for professional employer organization.

PEOs are essentially HR experts that address common company tasks. These tasks include managing benefits, filing paperwork, and taking care of payroll. These companies essentially handle these tasks so that businesses can save an immense amount of time and money. Since they are experts in what they do, they also help businesses remain compliant, all while maintaining a positive work environment.

Recommended reading: 5 Myths About PEOs

When choosing a solution that’s best for you and your employees, there’s a lot to consider. After all, the PEO you choose will become a co-employer. This means that although you will continue to manage the day-to-day operations of your business, your employees will have two employers — you and the PEO. Think of your company as the on-site workplace employer and the PEO as the administrative employer.

Want to learn more about what a PEO is and how they can help your business? Read this guide.

The Pros and Cons of PEO Companies

Many small and mid-sized businesses decide to work with a PEO because they do not have the staff or resources needed to tackle HR tasks and ensure compliance. Let’s dive into some of the greatest advantages and disadvantages surrounding co-employment, employee benefits, payroll and taxes, operational costs, and accessibility.

While considering these pros and cons, it’s important to remember not all PEO companies are equal in terms of what they offer and the quality of their services. When you work with the right PEO company, the pros will most definitely outweigh the cons!

Co-Employment

PRO — Shared liability

  • This is a massive benefit, especially for small businesses. When you work with a PEO, you co-employ your employees, sharing risk and liability. If you need help and wish to reduce liability in relation to taxes, workers’ compensation, and state unemployment, this is a great option for you.

CON — Shared control

  • Although your company is yours, when working with a PEO, you will need to relinquish some control. This may be seen as both a pro and con, depending on your organization. That is why you should seek a PEO that will help your employees maximize their potential.

Employee Benefits

PRO — Lower benefit rates

  • PEOs have access to more benefit options and lower rates. If you’re seeking lower insurance rates, PEOs can negotiate these for you.

CON — Healthcare plans may not be customizable.

Payroll and Taxes

PRO — Payroll processing services

  • Just imagine being able to set payroll dates and then allowing your PEO to do the rest. From payroll reports to tax payments, work with a PEO that will handle all of your payroll tasks based on local, state, and federal law compliance.

CON — Some PEOs do not guarantee compliance

  • If a PEO does not file your taxes on your behalf, you could face fines and penalties. So it’s important to partner with a PEO that has achieved a positive reputation.

Operational Costs

PRO — Lower overhead

  • When you’re working with a PEO, there’s no need to hire someone to process payroll, which can help you reduce overhead costs. Businesses that use a PEO have also been shown to achieve a healthy ROI.

CON — PEOs can be costly

  • This con is very much on a case-to-case basis. Some PEOs have better plans than others. That is why you’ll want to work with a PEO that actively works to lower employment costs and increase your bottom line.

Accessibility

PRO — Benefit from access to HR services

  • Once you partner with a PEO company, you’ll gain access to services you may not have been able to afford otherwise, such as employee onboarding.

CON — Minimal access to company HR data

  • This may not be a major issue for you, especially if you work closely with a PEO you can rely on.

In need of custom-tailored PEO solutions, offered at a rate your can afford? Get a quote.

Who You Partner with Matters – How America’s Back Office Can Help

It’s important to consider all the pros and cons in terms of your unique business needs. Many of the cons above can be addressed by speaking to a credible PEO company. Overall, the pros tend to outweigh the cons significantly in terms of cost and risk management.

Human resource failures happen when business owners are too busy to address some of the most pressing issues and tasks. This can lead to severe consequences. For example, the average lawsuit for Family Medical Leave Act violations is around $80,000. America’s Back Office is unique in terms of our comprehensive turnkey HR solutions, including legal defense support.

If your goal is to save money, increase risk protections, manage workers’ compensation, improve the employee experience, and more, American’s Back Office can help. We will not only provide a wide spectrum of leading services and continued support but also help you achieve greater peace of mind day in and day out.

If you’re ready to improve efficiency and streamline operations, we’ll assist you every step of the way. Our mission is to help businesses focus on what matters most: their sustained growth and success.

Outsourcing some or all of your HR tasks may be the answer to managing some of your most pressing and time-consuming challenges. Our team of professionals will ensure that all of your HR needs run smoothly while you focus on your core business operations.

Schedule a consultation today!