February 23, 2022 | 4-minute read (690 words)
When a firm hires a professional employer organization, more commonly referred to as a PEO, the organization assumes responsibility for a plethora of HR responsibilities, from hiring and firing employees to training and development. Co-employment, which is a contractual allocation and sharing of certain employer obligations between the PEO and the firm that hires them, allows a PEO to take on these tasks.
According to a National Association of Professional Employer Organizations study, 70% of firms that hired a PEO reported that their sales had improved since becoming a customer, while 66% reported their firm’s profitability increased.
A PEO provides a small business with these five advantages:
1. Savings – By managing HR needs at a lower cost than an in-house team, a PEO helps companies save money on their operating expenditures. It also potentially saves them money on insurance rates, as the PEO can negotiate insurance prices on behalf of its clients. This allows PEOs to achieve much cheaper group insurance rates, workers' compensation rates and in some cases, a lower state unemployment insurance rate.
2. Improved compliance with employment and tax rules – Keeping track of federal, state and local employment and tax requirements can be time-consuming and difficult for a small- or medium-sized firm. But such businesses can protect themselves from legal concerns by outsourcing to a PEO, which has a team of professional experts to guarantee that all rules, such as wage, hour, payment, break legislation, insurance requirements and so on, are followed. A PEO can also create an employee handbook that addresses regulations on areas such as harassment, discrimination and the Affordable Care Act.
3. Payroll assistance – Finding the right employees is vital, especially for smaller businesses. According to Harvard Business Review, poor recruiting decisions cause up to 80% of employee turnover. A PEO offers formal hiring experience and a more extensive recruitment network. Matters such as salary negotiations, onboarding and general compliance can all be handled by the PEO.
4. Improved HR technology – Small firms typically lack the funding and resources to invest in cutting-edge HR technology, such as an advanced human resource information system. But employees and businesses can benefit from the access to an HRIS that is provided by a PEO. Employers can use it to handle performance evaluations, as well as to generate, save, access and remove employee information. Employees can use the HRIS to log hours, request time off, view and print pay stubs, and access HR forms and other benefits programs.
5. Increased emphasis on core company operations – Founders and CEOs need to dedicate their time to revenue-generating activities, like business growth and customer relationship management. By collaborating with a PEO, they effectively secure an entire staff of specialists who can handle all HR administration duties.
Tips for choosing the best PEO for your small business
It's important to find a skilled and dependable PEO for your company. Take a look at these five suggestions to make sure your business is in excellent hands:
1. Check that the PEO you've picked is accredited – The most important item to look for before choosing a PEO for your company is accreditation. The Employer Services Assurance Corporation accredits PEOs that are dependable, financially healthy and that satisfy their certification requirements.
2. Examine their work – Research the kinds of organizations the PEO collaborates with. This can help you determine whether they'll be able to handle your needs. The PEO and the individual assigned to your account must have the necessary knowledge, skills, experience and competence to meet your requirements.
3. Check reviews and verify references – In addition to reading customer reviews, ask the PEO for recommendations from previous and current clients, and be sure to speak with them. These are the people who can tell you whether a PEO will be beneficial to your business.
4. Work within your budget – A reputable PEO will provide you with reasonable pricing based on your budget, company size and needs.
5. Inquire about benefits packages – A reputable PEO will be able to provide many more advantages, such as insurance, than your firm on its own, so select one that provides a comprehensive benefits package for your employees.