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What is a PEO?

Oct 17, 2019 | Business

The role of Professional Employer Organizations (PEOs) is to provide comprehensive Human Resource solutions for small and mid-size businesses. Among the many services that PEOs offer to organizations include tax administration, risk and regulatory compliance assistance, HR, benefits, and Payroll.

NAPEO reports that small and mid-size businesses that work with PEOs usually grow seven to nine times faster than those that work on their own. Their employee turnover is also 10 to 14 percent lower, and they are 50 percent more likely to stay in business. 

The co-employment model

PEOs work under a co-employer arrangement, meaning you’ll still have control of your employees but their names will appear in PEO’s books for compliance and tax purposes.

You’ll be free to decide whom to hire or fire, and you’ll be managing your employees’ responsibilities. The PEO only handles all your non-revenue generating paperwork and any other activities that can hinder the growth of your business.

Note that the PEO you partner with will have no influence on your workers’ benefits, pay, and business decisions. Instead, it will deal with all the compliance, legal and HR-related policy tasks defined by your company.

What a PEO provides

PEOs provide a range of services. You can choose to work with a company that offers a full bundle of services or you can work with a PEO that will build a customized bundle with specific features that suit your business. 

The choice as to whether to go for a full bundle plan or a customized plan will depend on the size of your company, your budget, and what functions you want the PEO to perform.

Most PEOs will require you to enroll in their payroll offering. They usually work only on short term contracts. If you want to cancel their services, you’ll have to give them a 30-day notice and they may require you to pay some fees for the cancellation.

Here’s a breakdown of some of the various services that PEOs provide:

  • Benefits administration
  • HR management
  • Insurance plans
  • State unemployment insurance
  • Payroll administration and processing
  • Retirement plans
  • Safety programs
  • Workers’ compensation
  • Recruiting and outplacement support
  • Training and development
  • Tax compliance
  • Government compliance

The services offered usually vary from one PEO to another, but most offer coverage in the main areas including benefits, payroll, risk management, and human resources. If you’re interested in working with a PEO, you’ll probably get a company that’s flexible and can provide you with exactly what you need.

Advantages of Working with a PEO

Working with a PEO has several advantages, which range from time-saving to sustained growth. As your business grows, a lot will be expected from you and the day-to-day activities may become overwhelming. 

PEOs take time-consuming, routine processes off your back, giving you time to concentrate on the core functions of the business. This will improve the productivity and profitability of your business.

Furthermore, through PEO, your employees can gain access to benefits enjoyed only by big businesses such as dependent care, retirement plans, life, dental, and health insurance, and many other benefits typically received only by employees of big companies. This is one of the main reasons why your employee turn-over rate will go down. 

PEOs are Spreading

The PEO industry is big. According to NAPEO, there are about 900 PEOs in the United States. These PEOs work with more than 150,000 businesses and employ about 3 million people. The annual revenue generated by this industry is between $136 to $156 billion.

PEOs originated in the United States offering solutions to small and medium businesses and now there are PEOs outside the United States that provided similar solutions to businesses in the United States that want to hire people in those countries. Contact us for any employer-related services.

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