What is a PEO?

So, what is a PEO?  And can it help your company? If you don’t understand what a PEO is, you’re not alone.  Many people have never even heard the term, and saying, “Professional Employer Organization” is not only a mouthful, but it also is not an explanation.

A PEO allows you the opportunity for co-employment.  You choose the people to hire, and they become an employee of the PEO.  You still have all the on-site control as an employer. Still, the PEO is responsible for the payroll taxes and workers’ compensation insurance.

And yes, a PEO can help your company. Like most entrepreneurs, you probably started your company with just yourself and maybe one or two others.  You took an idea and created something that can be profitable.  Now that your business is off the ground, you finally need to start adding employees. But building that process from the ground up takes your focus away from building up your company.  By partnering with a PEO, you can jumpstart the employment process while ramping up your business. You focus on building and growing your dream, while the PEO focuses on employees.

The One-Stop-Shop

When you enter into a PEO arrangement, you are partnering with an already established company. The company will and should have:

  • secured payroll tax accounts
  • workers compensation insurance
  • employee benefit options
  • employee application and tracking capabilities
  • HR support that can build your employee handbook
  • job descriptions
  • provide all the employment forms necessary to hire employees

By partnering with a PEO, you can leapfrog over the required administrative work and fast track to successfully employing workers.

Make Sure You Get the Service You Want

All PEOs can offer a wide range of products, but the service you receive differs from one to the other.  The essential products of a PEO are payroll and workers’ compensation insurance.  These two products are required to hire employees successfully, but PEOs provide more than just products.

When choosing a PEO, the critical thing to consider is whether the service they provide meets the expectation you desire.  Suppose you want a hands-off approach to helping with HR and compliance issues. In that case, some PEOs only provide a software platform, blogs, and a 1-800 helpline that will tell you what is required by the department of labor.  If you want hands-on assistance, you need to find a PEO that can personalize its service to meet your unique needs.  What distinguishes PEO from others is the services provided in conjunction with the products, not just the products themselves.

The Hidden Fees of a PEO

Not all PEOs cost the same.  Many PEOs charge more simply because they can.  Because the employees hired are part of the PEO’s payroll tax and workers’ compensation, they can take advantage of charging more than the actual cost. It’s normal for a Professional Employer Organization to be profitable. That is the whole point of a for-profit business, but some PEOs will charge more than others.

When employee benefits are added to your list of products, the cost can increase even more.  Many PEOs will sell you on lower medical insurance costs. Still, they make up for the loss by having larger profit margins with workers’ compensation and payroll processing fees. Thus, making the overall prices higher than if you purchased a group insurance policy on your own and went with a different PEO.

Always shop around to compare costs against other PEOs before making a choice. And, while you’re shopping, keep in mind the expectation of service you want.  The right PEO can help jump start your human resource department and provide the back office support your company needs. At the same time, you focus on building your dream.

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