Dealing with payroll, employee benefits and workers’ compensation is time-consuming and can be a distraction from the job of running your business.
Engaging with a professional employer organization can remove those obstacles, allowing you to focus on growing your business, says J. Richard Hicks, CEO of HR1 Services Inc.
“A PEO is a single source provider of integrated services that allows business owners to cost-effectively outsource the management of strategic services such as recruiting, risk/safety management and training and development,” says Hicks. “The PEO becomes the employer of record for employees for both tax and insurance purposes in a practice called co-employment.”
As of 2010, there were more than 700 PEOs operating in the United States, covering 2 million to 3 million workers, and that number is continuing to grow.
Smart Business spoke with Hicks about how engaging a PEO can allow you to concentrate on your business.
How does a PEO work?
A small or mid-sized business enters into an agreement with a PEO to establish a three-way relationship among the PEO, the client company and the company’s employees. This now becomes a co-employment arrangement, as the PEO co-employs your existing work force and becomes a legal employer that is responsible for such functions as payroll, record-keeping, benefits and services, and participation in hiring, evaluation and firing.
Dealing with the day-to-day functions of running a business can distract an owner from the big picture and focusing on a strategic vision to move the company forward. Services typically provided by an employer are outsourced to the PEO; the PEO takes over the management of human resources and employment-related issues, freeing up the business owner to focus on the core operations of the business.
The role of a PEO goes far beyond that of a temporary firm, staffing agency or payroll administration firm. Instead of simply taking on one role for a company, the PEO offers comprehensive HR services to clients, either as a bundle or a la carte.
What are the benefits of a PEO?
In addition to allowing leadership to more sharply focus on the business, a PEO can manage your unemployment claims and keep current on tax laws to ensure your business remains in compliance. When employers need to submit employee paperwork to the government, the reporting experts at the PEO will ensure the documents submitted are in compliance with all regulations.
In addition, a business’s employees are eligible for the group benefits offered by the PEO, including medical insurance and 401(k) plans, and it can often get better rates than a single company could on its own. Because it is working with multiple companies, the employees of each of them can be pooled together, creating a larger group and potentially lowering costs. This also removes from the employer the hassle of having to deal with multiple vendors in areas such as health insurance, payroll, 401(k) management and other areas. And because the work in all of these areas is being done by one provider, instead of several, the company’s records are more uniform, allowing for less work in case of an audit.
How can a PEO assist in the area of workers’ compensation?
A PEO can be involved in the management of both workers’ compensation and unemployment claims. In the case of workers’ compensation, the PEO can work with a company to get injured workers back on the job through a light duty program more quickly than they otherwise might return. And as with health insurance premiums, the larger pool of employees created by joining the work forces of multiple employers under the PEO umbrella can often mean lower workers’ comp premiums than an individual employer would pay on its own.
Employers can also receive assistance from the PEO when implementing risk management programs. Having the proper safety initiatives in place can significantly lower workers’ comp premiums and help maintain a more productive work environment.
The PEO also eliminates the need for year-end premium audits, as the company’s expense is billed in the same amount each month.
What are the potential disadvantages of a PEO?
Although the PEO is responsible for all of the above-mentioned services, the employer is still responsible for the productivity and conduct of its employees. Also, some state laws or labor contracts may limit which employers can enter into such an arrangement.
What questions should an employer ask before choosing a PEO?
First, make sure you know what you are paying for. Services are often bundled, and unbundling them can give you a better idea of what you are paying for. Also ask who you will be regularly working with and ask about that person or that team’s background. Determine how often someone from the PEO will visit your office and whether someone will be available on short notice if you run into a problem.
Find out if the PEO will do an analysis of your company before agreeing to take you on. The PEO should be interested in working with you to make things more efficient and help you lower costs and shouldn’t agree to work with you without first thoroughly understanding your business.
Also ask about development and training. A good PEO will be interested in the growth of your employees to help grow your business, so ask if those services are included in your fees, or whether there is an additional costs.
Check with your local PEO expert to ensure that your business is eligible to participate and to get more information about how to proceed.
J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or RHicks@HR1.com.