If you run a small business, chances are you’ve come across PEOs before. For business owners not in the know, PEOs, or Professional Employer Organizations, are simply an outside entity that enters into a co-employment relationship with client firms in order to provide an integrated and cost-effective approach to the management and administration of the human resources and employer risk. While not entirely the same, PEOs can often be described as an umbrella corporation of sorts.
A PEO Broker Quick Tip: Co-employment relationships are an intimate affair, which means finding the right PEO for you is absolutely critical. In a typical PEO-client setup, the PEO will become the employer of record for a client’s employees – effectively making them the legal employer for tax purposes. While this may sound a little scary, fret not! All hiring and firing is done at the discretion of the client firm. Furthermore, should a PEO-client relationship be terminated, employees simply revert back to the client firm.
What do PEOs have to do with my small business?
In short, PEOs change the nature of the game and even the playing field for small companies looking for affordable, more comprehensive employee benefits and HR resources. By acting as an umbrella corporation for smaller client companies, a PEO can strategically pool it’s clients together in order to obtain premium discounts, expanded benefits, and access to elite HR services for their client companies. Without the economies of scale offered by a PEO, these benefits would typically not be available or accessible to each individual small business, resulting in stunted growth. Here are some of the ways PEOs help drive growth instead:
- By collecting their clients together in large risk pools, PEOs are able to get generous discounts on insurance premiums. These savings are then passed on to the client firms.
- Expanded benefits mean more competitive hiring and a more competent workforce driving growth.
- PEOs also provide their own expert HR personnel. This reduces the burden of bureaucracy on the client firm, and greatly reduces risk exposure.
- Finally, by taking on HR duties, PEOs free up precious time and resources that clients can use to strengthen their core business and promote long-term growth.