Professional Employer Organizations for Small Businesses

Professional Employer Organizations for Small Businesses

In an increasingly complex and regulated business environment, owners must manage a plethora of complicated personnel matters, such as employee health benefits, retirement plans, workers’ compensation compliance, payroll, taxes, and unemployment insurance claims. Short of hiring or expanding full-time human resources expertise, many business owners find themselves juggling these unproductive details themselves. Worse yet, some owners leave themselves exposed to potential liability by operating outside of required government standards or find it difficult to compete with their more efficient rivals.

A Professional Employer Organization, or PEO, enables a business owner to keep current staff yet outsource much of the human resources management function, including payroll, benefits, and workers’ compensation. Working with a PEO frees the business owner’s valuable time from these necessary distractions and allows him or her to focus more energy and talent on core business activities that generate revenue and make the company more profitable.

How a PEO Works

According to the National Association of Professional Employer Organizations, the PEO industry is approximately 30 years old, with 700 PEOs operating across all 50 states. Through a shared employment relationship referred to as “co-employment,” the business owner and the PEO agree to share employer responsibilities. Under this arrangement, the business owner typically remains the work site employer and continues to handle decisions related to hiring, termination, job requirements, work assignments, and promotions. The PEO can step in as the administrative employer, taking on functions related to payroll, benefits, and compliance with employment laws.

A typical PEO client is a small business with between 10 and 50 workers, although larger organizations are beginning to utilize PEOs as well. The types of businesses turning to the PEO model are diverse. PEO clients include accounting firms, manufacturers, universities, medical offices, government agencies, and others.

Benefits of a PEO

In addition to relieving the business owner from unproductive time-consuming administrative tasks, contracting with a PEO has other advantages. A PEO relationship can allow an employer to offer enhanced employee benefits that may otherwise be too expensive. PEO sponsored benefit packages can include 401(k), healthcare plans, dental, vision, employee assistance programs, and more.

A PEO may also enhance the work site and contribute to a safer working environment. Staffed by certified human resources specialists, the PEO focuses on safety programs, workplace risk management, and sound human resources practices. Other services may include recruiting, pre-employment screening, and planning for wages and compensation.

In an economy that continues to challenge employers to control costs and rein in spending, a PEO can be a viable alternative for many business owners. Employees can benefit as well, through greater access to valuable and meaningful benefits, in addition to the peace of mind that comes from knowing they work for an employer that is better positioned to remain strong and competitive.