PEOs, also known as Professional Employer Organizations, are a popular way for small businesses to get help with administrative tasks like payroll, benefits and HR.
If you've read articles about the pros and cons of using a PEO before, you may wonder whether they're right for your company. The answer? It depends on the specific needs of your business.
In this article, I'll explain what a PEO is and how it can help your company save time and money on administrative tasks to focus on growing sales revenue and profitability.
What is a PEO?
A PEO, or professional employer organization, is a third-party administrator (TPA) that provides outsourced HR and benefits services to small businesses.
They're like an insurance company for your employees. PEOs are certified by the U.S. Department of Labor (DOL), which means they must meet specific criteria for certification as well as continuing compliance with federal laws and regulations governing payroll tax administration, workers' compensation and other applicable requirements.
Why is PEO so trusted?
The PEO industry is highly regulated and governed, and as such, you can trust that your PEO will be a reliable source of human resources.
For one thing, they have years of experience in the industry, which means they're well-equipped to handle all your needs.
They also have a reputation to protect—a poor reputation could lead clients away from their business!
And finally, their access to the best resources and technology available means that they can provide you with the best services possible.
All these factors help ensure you'll receive value from your relationship with a PEO.
Benefits of PEO
A professional employer organization (PEO) is a company that provides HR-related services to its clients.
They help you avoid the headaches of dealing with payroll, taxes, benefits and other compliance issues.
A PEO can also offer more robust service than an outsourced payroll provider because they're experts in their field.
PEOs are trusted providers who bring years of experience and can support your business, whether large or small.
How it gives you more time to work on your business
- Reduced HR overhead
- Increased productivity
- Less time spent on compliance
- More time for sales, marketing, and growth
How it lowers your compliance burden
1. PEOs can help you stay in compliance.
Compliance is a costly endeavour for any business, but it's especially onerous for small businesses.
The burden of keeping up with complicated laws and regulations falls on the shoulders of owners and managers who often need more experience with HR or legal matters.
This can easily lead to an out-of-compliance state where your company faces potential fines, penalties, and even lawsuits down the road.
A PEO has experts in all aspects of human resources and payroll compliance who can handle all aspects of these tasks while you focus on running your business day to day.
2. You'll save money by using one firm for multiple services at once:
payroll processing, benefits administration, tax compliance assistance (including ACA), etcetera.
How it makes you more attractive to employees
One of the most attractive benefits of a PEO is that it can help you attract and retain top-notch talent.
By offering better health, retirement plans, and HR support than your competitors do, you can improve your company’s reputation—making it more likely to get the best employees.
How it improves benefits and compensation offerings
As an employer, you should take advantage of your PEO services. This can be done through a PEO by providing benefits and compensation to your employees that are competitive and innovative.
When you hire a PEO, they will provide you with all the necessary tools for offering better benefits than traditional options such as self-funded plans or third-party administrators.
PEOs offer a range of benefits, including health and dental insurance, workers' compensation, life insurance, disability insurance and 401(k) plan administration services.
The benefit offerings are designed to meet federal requirements for offered coverage and state mandates for eligibility requirements.
In addition to these standard offerings from most PEOs, there is also an opportunity to customize benefits packages based on each company's needs!
How it provides access to health and retirement plans
As a PEO, we offer two types of health plans:
- A traditional health plan with no waiting period and benefits that are issued on a calendar year basis.
- A flexible spending account plan is not considered traditional and has the same benefits as the other plan but does have a 90-day waiting period before your employees can access them.
We also offer three retirement plans through our partnership with ADP:
- Traditional 401k plan – Employers may match employee contributions up to 6% of compensation or $2,500 per employee per year; employers are required to contribute at least 50 cents for every dollar that an employee contributes up to 6%, up to 3% of compensation or $1,000 per employee per year into each participant's traditional 401(k).
- Roth 401(k) option – Employees may make after-tax contributions; employers are not required to make matching contributions under this option; however, employers may choose to make additional after-tax contributions if they wish (up to 4% of compensation). For both traditional and Roth options, employers must contribute at least 50% of any contribution made by an eligible employee who is age 50 or older at any time during their participation in the plan.
How it connects you with HR support
As a PEO, we provide HR services to our clients. That means we can handle the administrative side of things, so you don't have to worry about recruiting and managing employees.
PEOs offer a wide range of services:
- Hiring - We'll help you find the best candidates for your open positions
- Payroll - We'll handle all payroll processing for your business
- Benefits administration - We can customize plans that fit your needs
- Advice on legal issues related to employment law (this depends on state laws)
A PEO can help you save time, money, and heartache.
The PEO is an expert in the field of human resources. An HR professional with a PEO is able to provide your business with advice and support on all things related to employment law, benefits administration, payroll processing and employee relations -- everything from hiring to firing.
A PEO will also help manage your company’s budget by using its own network of providers for a range of services like workers' compensation insurance or retirement plans.
Why small-medium businesses use PEO services
Small-medium businesses are often strapped for time and resources to manage their human resource functions, especially when it comes to the more intricate compliance issues.
For example, the DOL's FLSA regulations are a complex system of rules that require companies to ensure employees are paid correctly and on time.
That is something that many small business owners do not have the time or expertise to do themselves, but PEOs have the experience and know-how needed to make sure your company stays compliant with all DOL requirements.
By outsourcing your HR functions via a PEO, you can devote more time and focus on other aspects of your business, such as sales growth or new product development.
A PEO will also help minimize administrative errors by having staff members who specialize in HR manage payroll processing while also ensuring compliance with federal regulations such as COBRA reporting requirements or EEOC reporting requirements (to name just two examples).
How does a PEO operate?
PEOs are third-party administrators that manage your benefits program's administrative and legal aspects. They provide a single point of contact for all HR needs, including:
- Benefits management: The PEO will guide you through the selection process, help you understand the regulations and make sure you are compliant with the regulations.
- Tax reporting: The PEO can file your quarterly taxes, handle any audits that may arise from these filings, and provide W2s to employees on behalf of the company.
- Payroll services: The PEO can manage payroll for multiple clients and streamline processes with electronic payments and direct deposits.
- HR support services: Suppose an employee has a question about their benefits or is having difficulty managing their paycheck online (for example). In that case, they can contact someone at the PEO directly instead of going through multiple people in different departments.
Account Reconciliation Services
A PEO is a great investment for any business, especially for startups and small businesses.
It can help you stay focused on your core competencies while lowering the cost of HR compliance and improving benefits and compensation offerings.
While some may think it's too expensive or complicated to manage their own HR functions, it's important to remember that there are many advantages, like time saved from having someone else handle all your employee issues for you.
FAQ's related to What is a PEO and How can it help your business
1. What is a PEO?
A professional employer organization (PEO) provides administrative and human resources services for your business. It takes on the liability of running your company, leaving you to focus on what's important: growing your business. Your employees are legally treated as employees of the PEO, which gives you peace of mind while lowering healthcare costs and other compliance burdens.
2. How is a PEO Different from a Traditional Human Resources Company?
A traditional human resources company doesn't operate as an employee's employer. You're responsible for collecting payroll taxes and reporting them to the IRS yourself, for example—something that can be difficult if you're new to running a business or have little experience in payroll processing. A PEO takes care of all these responsibilities for you so that all you need to focus on is growing your company.
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