PEO: What you need to know

A Professional Employer Organization, or PEO, is a firm that allows small and medium-sized companies to outsource most of their HR management responsibilities.

PEOs deliver cost-effective, outsourced services for HR, payroll, benefits, and risk management, giving owners and managers more time to focus on growing their business.

Many PEOs also offer expanded HR services like time and attendance, recruiting, employee training, and performance management.

Professional employer organizations provide SMBs with several major benefits that directly impact the success of the business:

• Grow up to 9% Faster. CEOs and business leaders can outsource their day-to-day HR needs to redirect internal focus to high-value activities that build a company, like strategy and employee management.
• Save 35% on HR Administration Costs. HR administration is one of the biggest expenses. Working with a PEO enables an organization to access competitive benefits at a lower cost.
• Lower Employee Turnover by 10% to 14%. Working with a PEO allows smaller businesses to offer their employees the same benefits as much larger companies. In doing so, you improve employee happiness and engagement, and ultimately, reduce churn.
• Become 50% Less Likely to Go Out of Business. Working with a PEO can help solve some of the challenges SMBs face. With faster growth, lower employee turnover, and reduced HR administration costs, small businesses are much more likely to succeed.

While the exact services offered varies, the typical PEO serves three core business aspects: HR services, benefits services, and risk and compliance services. Within each, we offer various solutions:

1. HR Services. HR is more than just benefits, covering a range of tasks from running payroll to developing the culture your firm needs to thrive. HR services can include:
   • HR Management
   • Payroll and Tax Solutions
   • Performance Management
   • Recruiting Services
   • Training and Development
   • Scheduling
   • Time and Attendance
2. Employee Benefit Services. Small and midsize businesses need benefit plans that are cost-effective and flexible to help recruit and retain top talent. Partnering with a PEO enables clients to offer the same quality benefits as large companies, including:
   • Healthcare benefits
   • Life, Disability, Dental, and Vision Plans
   • 401(k) and Other Savings Plans
   • Voluntary Benefits (commuter benefit plans, supplemental insurance, legal benefits, etc.)
   • Complimentary Benefits (Employee Assistance Programs, entertainment and shopping discounts, etc.)
3. Risk and Compliance Services. You can never eliminate the risks of running a business, but you can always take steps to reduce your risk exposure. PEOs work with small and medium-sized businesses to identify potential risks and help mitigate exposure. Services include:
   • Employee Lawsuits
   • Workers’ Compensation Management
   • Workplace Safety Improvements
   • Affordable Care Act (ACA) Compliance
   • Leave of Absence Management
   • I-9 Verification
   • Occupational Safety and Health Administration (OSHA) Support
   • Employee Policies and Notifications

Each PEO may offer unique solutions that set it apart from others. For SMBs, these services can be extremely valuable for growing the business, employee happiness and engagement, and recruiting efforts.

You will want to Look for PEOs who can:

• Demonstrate a strong track record, including fiscal stability and accreditation from ESAC or the IRS.
• Tailor their services to meet the unique needs of your business and employees.
• Supply references from other clients in your particular industry with a high average net promoter score and customer retention rates.
• Provide comprehensive support, including risk and compliance expertise

Certified PEOs (CPEOs) have met the IRS's rigorous financial, legal, and reporting requirements. Working with one may afford you certain financial protections and tax benefits. A CPEO certification provides:

• Tax Restart Elimination removes the wage-base "restart" for certain federal payroll tax purposes if you join or leave a CPEO relationship midyear.
• Financial Assurance is a certification program that requires a CPEO to post a bond each year, guaranteeing payment of its federal employment tax liabilities.
• A Trusted Partnership as PEOs must renew their certification periodically, proving that they consistently meet fiduciary standards and other requirements.

When you have a trusted PEO partner handling HR administration, benefits management, and regulatory requirements, you can devote more time to high-value business activities and focus on the mission of your business.

A PEO offers you the expertise of experienced, on-staff HR professionals and quick access to their experts in tax, labor law, benefits, and workers’ compensation—all of whom can help improve your company's productivity and profitability.

With a PEO, you can gain access to Fortune 500-level benefits at a reasonable cost, allowing you to be more competitive in your market while also eliminating the challenges and expenses of managing multiple benefits providers.

Though you can never eliminate employment risks, a PEO can help you identify, manage, and mitigate employment-related risks.

In the 1980s, an influx of new laws and regulations surrounding employee and labor issues caused major disruption for business owners and how they approached human resources. For small and midsize business owners, what was once rather simple, suddenly became complex.

As SMBs began to seek alternatives to address their HR needs, there was an increase in outsourcing of HR services, which led to the birth of PEOs. Professional employer organizations offered their clients much-needed HR expertise, along with the compliance knowledge required to manage the ever-changing human resources environment effectively.

Today, between 780 and 980 PEOs are operating in the United States. Also, in each of the last 30 years, PEOs have added around 100,000 worksite employees and 6,000 net new clients.

There are certain traits a company should have to maximize the benefit of a PEO partnership, including:

• Number of Employees. Usually, SMBs with between 10 and 125 full-time employees are an excellent fit for a PEO.
• Growth-Oriented Mindset. PEOs enable business owners and HR leaders to focus on growing their business instead of HR administration tasks. Small and mid-sized companies that want to grow are a perfect PEO client.
• Want to Provide Great Benefits. PEOs offer organizations access to Fortune 500-level benefits, including healthcare, vision, dental, and 401(k) plans.
• Operates within Specific Industries. The services offered by PEOs are well suited to a range of industries, including Professional Services, Financial Services, Technology, and Marketing.