What Is A PEO?
Small businesses turn to a professional employer organization (PEO) to build and manage your employees. So, what is a professional employer organization, and how can it benefit your small business?
What Does PEO Stand For?
PEO stands for Professional Employer Organization. A PEO is a company that provides comprehensive HR solutions to small and medium-sized businesses (SMBs). By partnering with a PEO, companies can outsource the management of their employees’ payroll, benefits, compliance, and other HR-related tasks.
As a human resources service, a professional employer organization provides a cost-effective way to manage your HR. This includes human resources administration, payrolls, and employee benefits, and managing HR risk and compliance.
What’s an Example of a PEO?
The professional employer organization industry has been around for decades. Today, there are almost 500 PEOs in the United States alone according to the National Association of Professional Employer Organization.
Human Capital Concepts (HCC) is an example of a PEO. HCC provides a full suite of HR services, including payroll processing, benefits administration, risk management, and regulatory compliance support. HCC works with business owners, startup founders, and nonprofit leaders. The PEO helps them streamline their HR operations and focus on their core business activities. They drive their business and the PEO drives their HR.
The PEO is a single point of contact for everything related to your employees. The PEO takes responsibility to keep you updated on the ever-changing rules at both the federal and state levels. This mitigates your risk and avoids the need for multiple vendors for payroll, benefits, employment law and more.
PEOs provide services to their client’s employees across their organization, often across states. By aggregating employees across clients, a PEO creates leverage for negotiating benefits, HRIS, learning management systems, and other HR services. In the United States, PEOs assist 173,000 small and medium-sized enterprises. Today, the PEO sector employs more than 7 million people globally.
PEOs: What They Can and Can’t Do for Your Company?
Most people are concerned that working with a professional employer organization will result in losing control of their enterprises. The fear is that leaving the HR-related functions to an outsourced party will compromise the hiring process and the employee relationships.
However, the reality is that hiring or outsourcing an expert organization to manage your HR-related tasks and provide human resources advice is one of the best things you can do for your business.
When outsourcing to a professional employer organization, you essentially formalize and standardize your hiring and recruitment processes, offload your repetitive HR tasks, and have access to HR expertise. Your PEO possesses the skills, knowledge, and market expertise to take care of your human resources activities and advice so you can focus on growing your business.
Tapping into business process outsourcing helps you to focus on the bottom line with peace of mind that you have HR experts providing support and services for your employees.
What A PEO Does.
Comprehensive HR-related tasks.
A professional employer organization handles complex HR-related tasks such as HR procedures and policies, payroll management, employee benefits administration, risk management, HR compliance, learning management, and time management.
Reduces liability.
Outsourcing HR services reduce liability for payroll taxes, wage payments, and state unemployment taxes, especially with a certified PEO (CPEO).
Reduces Turnover.
A professional employer organization reduces employee turnover with better benefits, employee support, and employee onboarding.
Imporves Employer attractiveness.
With better negotiating power to provide employee benefits and services, working for your business is more attractive to retaining current employees and attracting new employees.
Saves Time.
A professional employer organization saves you time to focus on the growth and day-to-day operations of your enterprise. If you already have HR resources, their time can be focused on higher-value activities and leadership.
A PEO assists you with problems and issues in human capital planning that may otherwise feel overwhelming. HR outsourcing through a PEO helps you take control of your HR functions, streamlining processes and building effective talent management processes.
What A PEO Doesn’t Do.
Does not take control of your business.
A professional employer organization isn’t interested in your business affairs – only interested in how your business provides human resources support and services to employees. There’s no need to worry about losing control of your business.
Does not supply labor.
HR outsourcing through a PEO is primarily focused on HR functions, support, and services for your employees. A PEO brings experienced professionals to your organization who work in human resources every day, including support for attracting and retaining talent. However, a PEO is not an employment agency.
Does not make hiring and firing decisions for you.
A professional employer organization doesn’t make hiring and firing decisions for you. Instead, they provide support and services that free up your time to build your company culture and manage employee performance and opportunity.
By entering into a joint agreement with a professional employer organization, you position yourself to attract and retain better employees to grow your organization and free up your time to focus on that growth.
Why Would a Company Use a PEO?
A PEO is best suited for small and mid-sized businesses. These organizations are challenged with human capital planning, often spending valuable time, money, and resources managing their workforces. PEOs offer strategic guidance and expert advice on human resources policies, procedures, services, and support, ensuring that you have peace of mind as you grow your business.
The experience, expertise, and partnership from working with a PEO help your organization by reducing the challenges of managing your workforce so you can stay focused on leading and growing your organization. You leave the processes, paperwork, and potential issues of being an employer to your PEO partner, and benefit from less stress and a better employee experience.
Payroll and Tax Filing
A certified professional employer organization will process your company payroll, including paying Federal, State, and local employment-related taxes on your behalf. CPEOs integrate payroll with attendance, timesheets, and employee technology platforms that help track attendance, performance, and productivity.
Access to Better Benefits
PEOs can leverage their large client base to negotiate better health insurance rates, dental insurance, vision insurance, life insurance, disability insurance, retirement plans, and other employee benefits that a small business might not be able to access on its own. This arrangement ensures that your PEO partner takes an active role in providing support to your employees who need help with benefits usage and claims both during and after employment in accordance with HR regulations.
Improved Compliance
Keeping up with ever-changing employment laws and regulations can be a challenge. PEOs have experts who stay up-to-date on these changes and ensure the company remains compliant. The PEO protects your business from liability issues or violations emanating from poor HR practices. Your PEO partner should be well versed in human resources regulations and compliance, offering assistance and guidance when it’s needed. Their areas of expertise can help you avoid legal exposure relating to employment practices liability, HR regulatory compliance, workers’ compensation, hiring regulations, and unemployment insurance.
Risk Mitigation
PEOs can help reduce a company’s exposure to liability and risk, such as worker’s compensation claims or employment-related lawsuits. A PEO arrangement provides training and safety audits, procedures, and policies to help you limit claims from occupational safety and hazard. HR outsourcing can help you address occupational safety and health administration OSHA efficiently through regular inspections and audits. HR consultants provide training and assess your regulatory environment to ensure it’s in compliance with established laws.
Streamlined HR Management
Handling all the HR tasks in-house can be time-consuming and complex, especially for small businesses with limited resources. A PEO takes on these responsibilities, allowing the company to focus on its core operations. A PEO has a wide range of HR professionals who provide HR support and services. Your PEO team members partner with your in-house team to administratively and strategically provide guidance on HR policies, procedures, and activities, as well as advice on your HR practices.
Talent Management
A PEO offers end-to-end talent management services that encompass strategic hiring support, training, and compliance. PEOs help plan and optimize talent needs to enable business growth strategies. By understanding key functional areas, you can effectively align your business practices to reduce turnover rates, improve retention, and create a better employee experience.
Reduce Employer Liability
A PEO will help you reduce many of the liabilities associated with being an employer. Being proactive can shield your company from potential claims like:
- Wrongful termination
- Discrimination
- Sexual harassment
- Negligent hiring (e.g Age, Race, Gender)
Following HR best practices and working in conjunction with your PEO helps you manage your legal fees and costs if a claim arises.
Some professional employer organizations will offer data analytics, actionable insights, and benchmarking services that generate insight for your organization. And with the right HR expertise and real-time data, you can better serve your employees with a better implementation of policies, procedures, and best practices.
HR administrations should include:
- FMLA/ADA Compliance
- Employee Handbooks
- Harassment Avoidance
- Training Programs
- Progressive Discipline
- Exempt & Non-Exempt Classification Determinations
- Development of Company Culture
- Assistance in Attracting & Retaining Top Talent
- Documentation Support (Job Descriptions, Progressive Discipline, Performance, and Policy Drafting)
- COBRA
The right PEO partner can deliver many benefits and decouple yourself from the liability and risk associated with being an employer. With Human Capital Concepts as your PEO, you get calm, clear, compliant HR advice to address your most challenging situations. For clients who adhere to the expert recommendations provided, HCC even assumes responsibility for paying the deductible on an Employment Practices Liability Insurance (EPLI) policy in the event of a claim. That’s a promise you won’t get from anyone else!
How PEOs Work
Both the PEO and the client share discrete employment responsibilities when they enter into a partnership. In such agreements, the professional employer organization will handle payroll taxes, benefits administration, HR compliance, technology, and maintaining workers’ compensation coverage.
The PEO leaves you the responsibility and time to manage your business operations like products, services, and customers by handling human resource functions. The PEO also leaves you with the decision of which employees to hire and which ones to fire.
So, choosing a professional employer organization is crucial in your talent management efforts. A great PEO will help you respond favorably in a dynamic and unstable labor market.
By outsourcing HR functions to a PEO, companies can often save money compared to managing these tasks in-house, as PEOs can provide economies of scale.
A PEO can help you directly impact and improve the quality of employee experiences without adding more work to your plate, including:
- Outstanding benefits packages that show appreciation for your people
- Well-communicated, fair, and compliant policies that build trust with employees
- Support for employees with ongoing professional development and training, to help them reach their goals
You want an HR partner who looks out for you, who helps you create a workplace that attracts and retains the best talent, and who provides the advice and support for you to stay on top of the changing employment landscape. With a PEO, you can worry less about HR challenges and enjoy the peace of mind your HR partner provides.
How to Choose the Right PEO for Your Business
When it comes to HR for your company, you can do it yourself, subcontract to numerous service providers, or select a single source PEO partner that can handle all of your HR support, benefits, payroll, and compliance in one place. Labor costs continue to rise and are usually the most expensive aspect of your business. A PEO helps control your costs, reduce vendors, and provide exceptional HR expertise. When selecting a PEO, look for a partner that:
- Has strong financial positioning
- Has a track record of excelling
- Can meet your evolving human resource needs
- Provides comprehensive compliance coverage
- Provides comprehensive and end-to-end HR support
- Offers services in your geographic location or vicinity
Look for references from other clients in your industry. A good PEO partner should be accredited and certified (CPEO), or have special references from other trusted parties like NAPEO.
When evaluating potential PEO partners, there are several key factors to consider:
Scope of Services: Determine which HR services are most important for your business and ensure the PEO can provide a comprehensive solution.
Industry Experience: Look for a PEO that has experience working with businesses in your industry and understands the unique challenges you face.
Financial Stability: Verify the PEO’s financial strength and stability, as this will affect its ability to provide continuous service and maintain compliance.
Technology and Reporting: Assess the PEO’s technology capabilities, such as its online portal, mobile app, and data reporting features.
Customer Service: Prioritize a PEO that is responsive, communicative, and committed to providing exceptional service to its clients.
Certifications: Determine if the PEO has earned any relevant certifications, such as the CPEO designation, which can provide additional benefits and protections.
Carefully evaluate these factors to find the PEO that best fits your needs and helps you achieve your goals.
The Benefits of Partnering with a PEO
Partnering with a PEO can provide a wide range of benefits for small and medium-sized businesses, including:
- Improved Efficiency: By outsourcing HR tasks, you can free up your internal staff to focus on core business activities and strategic initiatives.
- Cost Savings: PEOs can often provide more cost-effective solutions for payroll, benefits, and compliance compared to managing these functions in-house.
- Better Employee Benefits: PEOs can leverage their large client base to negotiate more comprehensive and affordable employee benefit packages.
- Reduced Compliance Risks: PEO experts stay up-to-date on employment laws and regulations, helping you avoid costly fines and lawsuits.
- Scalable Growth: As your business grows, a PEO can easily scale its services to meet your evolving HR needs.
- Improved Employee Satisfaction: By offering better benefits and a more streamlined HR experience, you can enhance employee retention and morale.
- Increased Productivity: By reducing administrative HR tasks, your team can devote more time and energy to their primary job responsibilities.
Human Capital Concepts Simplifies Being An Employer
A Professional Employer Organization (PEO) can be a valuable partner for small and medium-sized businesses. They help to streamline their HR operations, access better employee benefits, and mitigate compliance risks. By outsourcing key HR functions to a PEO, you free up internal resources to focus on core business activities.
When choosing a PEO, carefully evaluate the scope of services, industry experience, financial stability, technology capabilities, customer service, and certifications. Find the best fit for your company. With the right PEO partner, you can unlock the full potential of your workforce and take your business to new heights.
Being an employer is complicated, with HR challenges that push the limits of business leaders every day. Whether you have internal HR team members or not, the team at HCC can partner with you for better HR support and services. Contact us today and get the conversation started.