Professional Employer Organizations – PEOs
PEO’s help add time back to your day
The topic of PEO’s was front and center in a recent episode of SCORE Business TV. According to Wikipedia, a PEO is an outsourcing firm that typically provides the following services to small and medium size businesses: human resource consulting, safety and risk mitigation services, payroll processing, employer payroll tax filing, workers’ compensation insurance, health benefits, retirement services such as 401k, regulatory compliance assistance, workforce management technology, and training development.
The PEO enters into a co-employment agreement with the company. (This arrangement had previously been known as employee leasing.) Thus, the PEO becomes the employer of record for tax purposes under its own employer identification number. As of 2017, there were 907 PEO’s in the United States servicing 3.7 million worksite employees through 175,000 PEO clients.
PEO’s save companies time and money that would normally be used to prepare payroll and administer benefit plans. Usually, the client businesses can offer better benefits packages to attract and retain more skilled employees. It’s important to note that the client company contracting with the PEO retains total control over its employees.
PEO’s typically cost anywhere from 3 to 15% of total gross payroll. Clients often realize savings on reduced workers’ compensation premiums. Additionally, the PEO is able to provide benefits at reduced prices. Because, technically, the employees work for the PEO, which can obtain better coverage by negotiating on behalf of their clients.
My PEO experts were Brian Smith and John Coleman, senior district sales manager and PEO consultant, respectively, with Oasis, a Paychex Company.
Q: Why should a business consider entering into a PEO arrangement?
A: (JC) When you contract with a PEO, we help the business owner focus on their core business and take away a lot of the headaches that come with running a small business.
The first area is insurance and benefits. The Small Business Administration (SBA) says that small businesses have more benefits than large corporations. Through our larger groups we’re able to bring in benefits at a Fortune 500 level to an organization that couldn’t obtain these benefits on their own.
The second area is compliance and legal support. The Small Business Administration says costs are higher for a small business when it comes to compliance. This has to do with legal changes that happen daily and monthly at a federal and state level.
We update the owners and HR on a regular basis about compliance issues and help reduce costs.
In the area of payroll and payroll processing, for a lot of companies it’s burdensome. We take that burden away from the employer by processing payroll and handling quarterly tax filings. We handle vacation and sick time accrual processes, W2s and other tax filing. Other services available from a PEO include recruiting and onboarding.
Q: How long does it take to set up?
A: (BS) That depends on the size of the operation. We’ll have a team of HR and onboarding specialists work with the company. It’s usually about three to four weeks on average, but I’ve seen a turnaround in two to three weeks. If you have a larger company or operate in multi‐ states, then it could be about a month.
A: (JC) A lot depends on the business. If they dedicate a person to work with us one on one, and they give us the paperwork we need, we can turn it around in seven days. I’ve seen clients come on board very quickly. It really depends on the organization and how fast they support us with the necessary documents.
Q: Do PEO’s get involved with recruiting employees?
A: (JC) PEO’s, in general, do. In our case, we have tools to assist our clients in automating that process. We have a system where you build your individual job description and we post it automatically to job boards. For example, to Indeed or to your own website. From there, the applicant can apply electronically, and responses then go directly to the hiring manager for review and evaluation.
Q: Why is a PEO good for a company?
A: (JC) We help the employer reduce their costs, and also add time back in their day to focus on their core business. Many small and mid-sized companies get caught-up in the minutiae of dealing with day to day paperwork and processes of business. Our backend system helps relieve some of those pains.
Q: If I’m interested in selling my company at some point or I just want to add value to my business, is having a PEO a positive thing to do?
A: (JC) There’s a lot of risk liability that comes with owning a company. If your goal is to sell your business, you want to reduce the risk for the new potential owner. A PEO transfers the liability of your employees to the PEO and that makes a lot of sense.
Q: Am I likely to be more competitive in the marketplace, therefore hiring better employees because I have a PEO?
A: (JC) That’s a huge factor today. The competition for good employees is very tight. Through the PEO we can bring Fortune 500 benefits to a smaller organization, making it affordable and accessible to employers and to employees. That helps attract the best in your industry.