As companies increase in size, hiring more and more employees to handle the workload, management’s focus may be diverted away from core services or products to human resources and payroll tasks. Countless hours are spent preparing weekly payroll, recruiting new hires, and administering employee benefits – tasks often handled by a separate human resources department

Who Needs A Professional Employer Organization (PEO)?

You do, if you find you’re spending more and more time on employment administration, and less and less time on expanding business operations and taking the company to the next level.

Businesses, large and small, are turning to PEOs to provide valuable administrative services so the management team can maintain focus on improving business revenues, expanding into new service areas, and maintaining a leadership position within the company’s industry niche.

Management teams, especially within the small business sector, often need help in managing:

  • employee benefits administration in order to attract and maintain the highest quality employees
  • improved efficiencies of hiring and employment practices
  • compliance with local, state, and federal employment regulations, rules and laws
  • workplace risks to employees’ health and the environment
  • personnel paperwork
  • changes in workplace safety compliance
  • employee payroll
  • vacation scheduling

A PEO takes these routine, albeit essential, tasks off management’s desk so your management team can focus on what your business is actually about – service or product delivery. The PEO takes care of the “small stuff” so managers can focus on the big picture and the long view.

Of course, you pay for the services provided by a PEO, but you don’t pay for benefits or sick days taken by PEO employees. In fact, instead of building an HR department from scratch – an expensive proposition – a PEO serves as your human resources department, often saving many thousands of dollars in hiring and employment costs.

Co-Employment

Your business’ relationship with a professional employer organization is based on a co-employment agreement that contractually allocates employer responsibilities. Your current team takes care of the business of business, while the PEO handles human resources and payroll. PEOs contractually assume a great deal of responsibility and risk. As co-employers with your business, the PEO maintains an employer relationship with your company’s staff, relieving your business of this time-consuming (and expensive) responsibility.

A PEO co-employs workers at your location, assuming the responsibility of an employer under contractually-defined terms. PEOs provide direction for in-house managers as changes in the business environment take place. A PEO also shares responsibility with your company for maintaining quality of goods or services.

A PEO is also contractually responsible to its clients for payment of employee wages, collection and safekeeping of taxes (tax withholding), timely local, state and federal tax filings, oversight of safety standards, and other employer-employee matters.

Your company remains the primary employer, but the PEO becomes a co-employer with rights and responsibilities detailed in your contract with the organization. Both the PEO and the client company (your company) establish relationships with employees at your worksite.

You provide the tools, machinery, instruments, the workspace, the procedures manual, quality control measures, and best business practices. The PEO manages staff, limits exposure to business liability, handles Workman’s Compensation claims, payroll, employee supervision required to remain compliant with regulations and laws, and other activities usually handled by an in-house human resources department.

When to Call a PEO

You know you’re ready to contact a PEO when you don’t have enough time in your schedule to actually grow your business. You can barely keep ahead of everyday business matters. There’s no one warning signal to tell you it’s time to bring in outside help to handle personnel matters, and each client-company is likely to have some in-house systems in place before calling the PEO.

Start researching PEOs before you actually need one to find a good fit for your business. The National Association of Professional Employer Organizations (NAPEO.org) is a good place to start your research, but don’t stop there.

Different PEOs deliver different services. Choose one with a corporate philosophy similar to the one in place already. Meet with the PEO staff to describe how to best use these resources, and what responsibilities you can hand off in a co-employment agreement.

Do a cost analysis. What would it cost to build an HR department versus hiring a PEO? In most cases, PEOs cost less, assume some of your company’s business risk, and provide employee education and public relations services. Some PEOs will even help market your business, recognizing that the PEO’s success depends on the success of its client companies – companies like yours.

So instead of focusing on the day-to-day, time-consuming activities of personnel management, taxes, and other routine matters, see if you and your managers can prioritize your time and save operating capital by using a professional employer organization and co-employment.

 


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.