Is a PEO a Viable Option for Your Business?

A PEO, or Professional Employer Organization, is a company specializing in human resource management. A PEO will contractually assume responsibility for all human resource-related functions for your business and its employees including interviewing and hiring assistance, payroll management, employee benefit design and administration, and administration of federal and state workplace regulations. When you hire a PEO, your business and the PEO become co-employers with the PEO effectively becoming your off-site personnel department. This relationship can result in significant cost savings for you and your personnel department by reducing paperwork and human resource administration time.

It is estimated that PEO’s currently employ 2-3 million Americans. PEO’s exist in every state of the country with approximately 2,000 different PEO companies. The industry is growing 20-30 percent each year.

How PEO’s Work.

A PEO is an organization that hires your employees. The PEO generates paychecks for your employees and administers the filing of all related payroll tax deposits and monthly, quarterly and annual returns. The PEO bills your company for payroll, tax liabilities and fees for health, worker’s compensation and unemployment insurance premiums in addition to the PEO’s administration fee. With such a large pool of employees from various companies, the economies of scale allow for a vast array of benefits and services at a significantly reduced cost.

The Internal Revenue Service views the PEO as the employer of record and is liable to pay the federal income and unemployment taxes. Most (but not all) states recognize the PEO as the responsible entity for payment of state unemployment taxes. PEO’s also provide employees with coverage under all employment laws and regulations including federal, state and local discrimination laws. This includes Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act and Cobra.

Advantages of a PEO.

There are several advantages to entering into a business relationship with a PEO. Some of them are;

• potential significant cost savings from leasing employees vs. hiring a full-time corporate employees,

• significant reduction in paperwork volume,

• a wider array of employee benefits,

• full-time compliance of payroll, EEOC, etc.,

• worker’s and unemployment claims management and

• the average smallbusiness owner spends between 7 percent and 25 percent of his other time handling employee related paperwork.

Would Your Business Benefit from a PEO?

In examining the potential benefits of a PEO and whether this type of relationship would be right for your company, you must consider several factors. For instance, does your company need a PEO to perform these human resource tasks? In answering this question, consider whether your company suffers from a high turnover rate. Do your employees frequently complain about the company’s below average benefit plan? Do you spend a significant amount of time handling unemployment and worker’s compensation claims and administration? A PEO may offer you significant cost savings via reduced personnel requirements and reduced paperwork.