PEO Definition
PEO is an acronym for professional employer organization. Through a co-employment relationship, a PEO combines multiple vendors, group insurance products, and employee processes into a single-source provider. Using state-of-the-art technology, subject matter experts, and master group insurance policies. By joining a PEO, companies are able to streamline administration, offer richer benefits, offer lower premiums, shift employer liabilities, and reduce overall costs related to employees.
How PEO Benefits Businesses
As an example, take a business with 20 employees that doesn’t use a PEO. Their payroll service costs them $3000 per year, they offer employee benefits, medical, dental, vision, and flex spending, to name a few, with an employee-only premium of $500 per employee, which makes the cost $120,000 per year. Their worker’s comp costs $3000 per year. 401k is $5000 per year. State unemployment at 3% is $ 5,400 per year. Lastly, there’s HR and compliance. For this illustration, HR and compliance can be understood as soft dollar costs. Their current cost using multiple vendors that are not integrated is $136,400 per year, and the company is liable.
The PEO becomes the employer of record and brings all of these processes and insurance products to a company at a lower cost. A PEO provides payroll, a fortune-500 set of benefits, workers comp, 401k, and state unemployment in one package. A PEO will also provide the company with HR expertise to handle your back office and protect your company from workplace torts.
So what’s the best part of working with a PEO? By outsourcing to a PEO, companies are able to reduce their overall costs and compete for top talent in the marketplace.
What is a PEO Broker/Consultant?
A PEO Broker or Consultant is a professional intermediary who specializes in connecting businesses with Professional Employer Organizations (PEOs). They possess in-depth knowledge of the PEO industry and understand the complexities of HR management and compliance. Their role involves assessing a company’s specific needs and matching them with a PEO that best suits those requirements. By doing so, they save businesses time and resources in finding the right PEO partner. PEO Brokers/Consultants are invaluable for navigating the diverse range of services PEOs offer, ensuring that businesses receive tailored, cost-effective solutions for their HR, payroll, benefits, and compliance needs.
PEO FAQs
How does a PEO arrangement work?
In a PEO arrangement, your employees are co-employed by the PEO. This means the PEO shares certain employer responsibilities, handling HR tasks and compliance, while you maintain control over the day-to-day management of your employees.
What are the benefits of using a PEO?
Benefits include access to comprehensive employee benefits often unavailable to small businesses, reduced HR administrative burdens, assistance with compliance and risk management, and often, cost savings on benefits and workers’ compensation.
Will I lose control over my employees with a PEO?
No, you retain full control over the hiring, management, and termination of your employees. The PEO handles administrative tasks but does not interfere with your operational control.
How does a PEO affect employee benefits?
PEOs can offer a wider range of high-quality benefits at more competitive rates than a small or medium-sized business could obtain on its own, due to their large group buying power.
Is a PEO suitable for small businesses?
Absolutely. Small businesses can particularly benefit from PEOs as they provide the HR expertise and benefits typically available to larger companies, helping level the playing field.
How does the co-employment model of a PEO work?
In co-employment, the PEO becomes the employer of record for tax purposes and handles HR and payroll administration, while the client company manages the employees’ day-to-day activities and operations.
What is the difference between a PEO and an HR outsourcing service?
While both provide HR services, a PEO enters a co-employer relationship with your staff, offering more comprehensive services like employee benefits management and compliance. HR outsourcing typically involves contracting out specific HR tasks without a co-employment arrangement.
How do I choose the right PEO for my business?
Consider factors like the PEO’s industry experience, range of services, pricing structure, technology platforms, customer service quality, and their ability to meet your specific business needs. It’s often beneficial to consult with a PEO broker or consultant to find the best match.