The short PEO definition
A PEO, or Professional Employer Organization, is a third-party entity that partners with businesses to manage various aspects of human resources, including payroll processing, benefits administration, compliance with employment laws, and risk management.
A PEO acts as an outsourced HR department, enabling businesses to focus on growing their business while the PEO handles administrative tasks related to employment.
Why PEOs are great for small businesses
Small businesses don’t have the resources or expertise to manage complex HR functions effectively. On top of that, managing these functions can be very difficult and take time away from other core parts of the business, like growing revenue.
With a PEO, Small businesses can access a wide range of HR services and expertise by partnering with a PEO without hiring dedicated HR staff. PEOs offer cost-effective payroll, benefits administration, compliance, and risk management solutions, allowing small businesses to save time and focus on growth.
How does a PEO work?
As a business owner, you’re accustomed to being the one serving clients. However, it’s essential to understand that when engaging with a PEO (Professional Employer Organization), your business becomes the client. A PEO establishes a co-employment relationship through a contractual agreement with the client company to carry out HR functions effectively.
This unique arrangement designates the PEO as a co-employer of the client’s workforce, sharing specific employer responsibilities. PEOs handle payroll processing, employment tax administration, and facilitating access to benefits like health insurance.
For the most part, a PEO handles or automates employment-related HR administrative work, including:
- Payroll: When you partner with a PEO, they take over paying employees, withholding and paying taxes, and more. Modern PEOs allow you to automate payroll and spend only seconds on each pay run.
- Employee benefits: As a large group, a PEO can leverage its economies of scale to negotiate pricing with providers, giving you access to more competitive benefits, better employee enrollment, process claims, and more.
- HR compliance: Labor and employment laws are complicated, different in every state, and often changing. A PEO helps you follow the rules and avoid any fines.
Do small businesses retain control when they choose to join a PEO?
Of course!
Small business owners retain full control when working with a PEO. While PEOs handle certain administrative HR functions on behalf of the business, the business maintains control over its day-to-day operations, strategic decision-making, and company culture.
PEOs operate under a co-employment model, where they become the “employer of record” for specific HR purposes, such as payroll and benefits administration. At the same time, the client business remains the primary employer responsible for managing employees’ job duties, performance, and overall business direction.
How PEOs benefit small business
A PEO offers a comprehensive array of HR functions and services for businesses and various benefits. Its most notable advantage lies in the deep-rooted HR expertise it brings.
Business owners can trust that HR tasks (including navigating complex compliance with employment laws and regulations) are expertly managed, freeing up valuable time by streamlining administrative workloads.
Furthermore, the co-employment model with a PEO opens doors to cost-saving opportunities. By serving multiple client businesses, PEOs can offer competitive pricing for HR services, reduce hiring overheads, and ultimately lower total employment costs.
For example, PEOs facilitate access to cost-effective employee benefits by leveraging the combined workforce of various companies, providing Fortune 500-level benefits.
Regardless of business size, partnering with a PEO is an effective strategy for fostering growth. Studies conducted by the National Association of Professional Employer Organizations (NAPEO) indicate that businesses collaborating with a PEO experience growth rates between 7% and 9% higher than those without such partnerships. Additionally, businesses working with a PEO exhibit a 50% lower likelihood of closure.
Businesses using a PEO can expect administrative costs per employee to drop by around $450 compared to without.
– NAPEO
More PEO perks…
First, picture happier employees, substantial cost savings, and that reassuring feeling of having everything under control. Sounds good, right?
Now, let’s talk about benefits. For a small—to mid-sized business, standing out in the talent market is tough without competitive salaries and perks.
But with a PEO on your side, you tap into the collective strength of co-employment, unlocking access to top-notch benefits like healthcare plans, life insurance, retirement options, and more—often at rates that won’t break the bank. That’s right, Fortune 500-level benefits for your team without the Fortune 500 price tag. Most PEOs provide some combination of the following:
- Healthcare plans
- Life insurance and disability insurance
- Worksite Benefits
- Mental health support
- Retirement plans
- Commuter benefits
- Dependent care
Outsourcing HR tasks to a PEO isn’t just about numbers
It’s also about delivering a better employee experience. These folks are HR wizards, equipped to handle inquiries and process benefits claims with lightning speed, making your team happier and more productive. Speaking of numbers, let’s talk about money. By pooling resources and negotiating with insurance providers, PEOs can often snag better rates for health benefits, saving you a pretty penny.
Plus, according to NAPEO, businesses using a PEO can expect administrative costs per employee to drop by around $450 compared to going alone. That’s more money in your pocket and less stress on your plate.
Now, compliance. It’s a headache, we know. But with laws constantly changing, staying on top of payroll and benefits regulations is crucial—and time-consuming. Enter the PEO, your compliance superhero. With experts on hand to navigate the ever-shifting landscape of employment laws, you can quickly know your business is in good hands.
What’s the price tag?
The cost of PEO services varies depending on your company size, desired services, and the PEO’s pricing model.
PEOs commonly offer two pricing structures:
- Fixed monthly fee per employee
- Percentage of payroll, including taxes, workers’ compensation, and employer practice liability insurance (EPLI)
Additional expenses may include administrative fees, setup charges, and optional add-ons. Before committing, ensure you thoroughly understand the contract terms and the overall cost of partnering with the PEO.
All-in-one workforce management
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And let’s not forget about time.
You’ve got big plans for your business, right? A PEO can help make those plans a reality by taking the paperwork off your plate. From payroll to benefits to employee management, they’ve got you covered, freeing up your time to focus on what matters—growing your company.