What’s a PEO, and How Is It Beneficial for Your Business?
Business owners frequently fail to anticipate everything involved in running a company. When they realize that things like payroll, insurance, and other human resource needs are outside of their comfort zone, they invariably ask “What is a PEO?” Professional employer organizations, or PEOs, are outsourcing firms that can help with these matters.
Of course, PEOs offer more than just outsourced human resource services. This is why their popularity — and the number of companies offering these services — has increased so much in recent years. Take a moment to review our PEO guide and how these entities lead to cost savings and improved functioning.
What Is a PEO?
On the surface, professional employer organizations are firms that provide services — typically HR-related — to small and medium-sized businesses. Rather than resembling traditional outsourcing relationships, though, PEOs form more of a partnership with their clients. While business owners focus on overseeing employees, PEOs take over things like payroll and taxes.
When people seek the answer to “what is a PEO,” they often confuse the term with “temporary help companies.” These firms bring in employees to help with temporary project overload, but they don’t avoid the disadvantages of in-house HR departments. Professional employer organizations, however, take a long-term role in handling certain essential responsibilities.
Business owners can focus on what they’re good at rather than HR issues.
What Does a PEO Help With?
PEOs represent over 15% of employers that have between 10 and 99 workers. This extensive reach is at least partially because of the wide range of services provided by these firms. The following are some of the most common services provided by professional employer organizations.
Constant changes to taxes and regulations make payroll one of the most confusing aspects of running a company. PEO firms simplify this process by completely taking over the responsibility. Not only does this allow business owners to better focus their energies, but it ensures payroll gets managed by professionals in the field. They can also handle contractor and vendor payments.
Companies attract the best talent by offering superb benefits. Unfortunately, this is a complex area of HR. When people ask “what is a PEO,” they often fail to consider everything these firms handle in the way of benefits. They make it easy to offer medical, dental, and vision coverage. And since they have pools of workers from many companies, they can do this at reduced costs.
It would be nice if business owners could just find an exceptional employee and then pay them for their hours worked. Unfortunately, there are many compliance issues to worry about. PEOs offer support in these areas by handling employee reporting, unemployment filings, new hire paperwork, and legally mandated tax forms.
State and federal governments have different compliance requirements. Regulatory compliance may not be the first thing a person thinks of when they ask “what is a PEO,” but it’s definitely one of the most important elements of professional employer organizations.
Health and Wellness Perks
The benefits a person receives at their job are one of the biggest indicators of whether they’ll stay. Just like medical, dental, and vision insurance, PEOs offer the opportunity for reduced costs on other health and wellness perks. Family planning services, mental health support, discounted gym memberships, and flexible schedules are just a few perks PEOs offer.
So Much More
What is a PEO and what can they help with? The answer seems to grow by the day. In addition to the well-known services they provide, professional employer organizations also frequently offer human resource consulting, risk mitigation, workers compensation insurance, and workforce management technology.
This means we can boil the real PEO definition down to one word: partnership.
How Does a PEO Work?
Professional employer organizations may seem complex, but the business model is straightforward. The PEO signs a contract with the company they’re working with, thus creating their partnership. This contract makes them the employer of record for tax purposes. They file future tax documents for their partner business under their own tax identification numbers.
What is a PEO once it becomes an employer of record? It essentially serves as the payroll management and human resources aspect of the company. The firm doesn’t become a part of the business itself, but it does take on a significant role. The owner of the company remains in charge of their business, including continued day-to-day operations and directing their employees.
How Can a PEO Help My Business?
Being able to focus more on your craft rather than on human resource and compliance issues is a major benefit of PEOs. After all, having more time to devote to your company’s mission is invaluable. If it hasn’t become apparent yet, though, there’s always more than meets the eye with professional employer organizations. Your business can also expect the following from PEOs:
- You’re always up to date on new regulations affecting your business.
- Impressive purchasing power means lowered costs of benefits and perks.
- Avoid potentially costly filing mistakes linked to employee compliance.
- Avoid the high costs linked to new hires and onboarding.
- PEOs have their own risk-mitigation measures.
- Access to a wider range of employee benefits.
If you asked “what is a PEO” because you’re wondering what they can do for your business, the answer is wide-ranging and impressive. Take the time to research how a professional employer organization can help your business, and you’ll discover that PEOs can take your company to unexpected heights.
What a PEO Doesn’t Do
We pointed out earlier that the answer to “what is a PEO” is “partnership.” In any partnership, though, no one handles everything. This is the same with professional employer organizations, so there are a few things business owners will need to manage on their own. Consider the following tasks that remain within your control:
- Communication with your customers.
- Daily business tasks (e.g., manufacturing, service provision).
- Employee recruitment.
- Training related to doing the job.
Fortunately, most employers wouldn’t want a PEO to handle these employer responsibilities. Professional employer organizations rarely offer expertise in your field. You have the ability to choose your employees, train them to excel and make sure they do their jobs the best way possible. PEO firms can handle a majority of the rest.
How America’s Back Office Can Help
The demand for professional employer organizations has increased exponentially in recent years. When you’re looking for PEOs with the experience to back up their promises, America’s Back Office has you covered. For more than two decades, successful businesses have trusted us with their labor law compliance and human resourcing needs.
Over the course of this guide, we’ve hopefully turned your question of “what is a PEO” to “what is my first step”. When you’re ready to see how we can take your business to the next level — or if you just have more questions about professional employer organizations — contact us, and we’ll help you get started on the right path.