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Should You Use A PEO?

Being an employer isn’t getting any easier. The challenges of the past few years have complicated what was already a complex aspect of running a business. HR challenges in 2022 run the gamut from recruiting during the Great Resignation to implementing a hybrid workforce. Additionally, employers must still manage evolving compliance laws and increasing benefits costs.

Business owners looking for a solution to their increasing HR burden can find relief by partnering with a PEO. In this article, we’ll tell you what a PEO is and the benefits of choosing a PEO. Then, we’ll examine what kind of businesses benefit from partnering with a PEO. Finally, you’ll learn everything you need to know about choosing the best PEO services for your small business.

What Is a PEO?

A professional employer organization, or PEO, is much more than a payroll service or HR administrator. Whereas the latter will handle some elements of your HR department, a PEO will take on the core functions and daily activities of managing employee-related tasks. In effect, a PEO becomes a co-employer handling the details of HR administration.

However, when you partner with a PEO in a co-employer relationship, you still maintain control as an employer. Hiring, termination, and all other decisions remain under your control, while the PEO takes on responsibilities that are out-of-reach for a payroll service or HR administrator. A PEO can handle all aspects of employee payroll including tax payments, negotiate with insurance providers for better coverage and rates, and provide guidance on risk and compliance. Essentially, having a PEO for your business allows you to focus on your core business knowing that you have a team of HR experts to handle the operations of having employees. 

What Are the Benefits of a PEO?

The unique framework of a PEO means it can offer businesses benefits other HR solutions can’t.

Effortless PEO Payroll and Employee Tax Withholdings

A PEO will perform all of the functions of a payroll administrator, from withholdings to direct deposits. But a PEO certified by the IRS, also known as a CPEO, will handle all of your employee tax payments as well. The CPEO will send the tax payments to the IRS and will be responsible for filing employment tax forms.

Better Insurance and Other PEO Benefits for Employees

The competition for talent is fierce, and small to medium-sized businesses often lose out to large corporations that can offer great benefits at a lower rate. The unique nature of your co-employment relationship with a PEO means you can offer your employees quality coverage at close to the same rates as larger businesses. This is because, when the PEOs negotiate with insurance providers, they do so with the bargaining power of employees across all their clients.

Lower Employee Turnover

Being able to offer better employee benefits is just one reason a PEO can help you lower employee turnover. Employees working for PEO-partnered businesses report greater satisfaction, according to McBassi & Company, an analytics and research firm. The survey found that employees at PEO-partnered businesses had more confidence in their employer’s HR practices and business success factors, such as innovations, growth, and superior service. As a result, turnover among PEO-partnered businesses was almost 20 percent lower than national rates of turnover.

Cost Savings

For many businesses, the cost for a PEO versus the cost for an in-house human resources team is less expensive. Nearly half of a company’s HR expense goes to employing staff for its HR department. Other costs include health benefits and unemployment insurance. On average, PEO-partnered businesses saved about $1,775 per employee. Their annual rate of return on their PEO investment was 27.2 percent.

Worry-Free Compliance

A lot can go wrong when you’re relying on one or two HR professionals to stay abreast of constantly changing state and federal regulations, on top of managing all the other aspects of human resources management and support.

A study by the National Association of Manufacturers (NAM) found that “the average U.S. company pays $9,991 per employee per year to comply with federal regulations.” If you’re a manufacturer, you probably pay double. Another survey by the National Small Business Association found that owners spend “more than 80 hours per year meeting requirements.” And when they make a mistake, the average fine is just over $30,000.

A PEO is a team of HR experts whose core roles involve staying abreast of the latest federal and state regulations. Partnering with a PEO means you’re not relying on just one HR professional; you have an entire team devoted to keeping you compliant.

Who Should Use a PEO?

A variety of businesses can experience the benefits of PEO partnerships.

  • Any business struggling to keep up with its HR burden.
  • Small and medium-sized businesses that struggle to offer cost-effective benefits and attract top talent.
  • Startups that need to devote more time and resources to core business activities.
  • Nonprofits that need help ensuring their organizations are as efficient and compliant as possible.
  • Businesses operating in industries that traditionally have a high regulatory burden or high employee turnover.
  • Any business interested in saving operational costs while improving KPIs and employee satisfaction.

How Do I Choose a PEO?

Start by verifying the PEO is certified by the IRS. Known as a CPEO, these organizations are required to undergo strict IRS auditing and reporting standards. Only a CPEO can take on liability for handling your employee tax withholdings and payments to the IRS. Without that certification, you could be on the hook if the IRS doesn’t receive the tax payments from your PEO. HCC is an IRS-certified CPEO.

Ask the PEO how it will help you resolve issues when they arise. When employees have questions, will they be able to speak with someone at the PEO? Or will they be directed to an impersonal call center? Will the PEO assist you if you find yourself in the crosshairs of a regulatory group?

At HCC, we offer access to a dedicated team of experts in all things HR-related. When you or your employees have a question, the staff at HCC are only a phone call away. Let’s face it,  most companies have HR-related issues that arise. At HCC our clients are encouraged to call us for guidance. In fact, if the client seeks our advice and follows it, yet the employee brings legal action, HCC will cover the Employment Practices Liability Insurance deductible. To the best of our knowledge, we are the only CPEO that does this.

Do you want to learn more about how HCC can reduce your costs, improve your employee retention and reduce your compliance headaches? Contact us today.