How Can a PEO Benefit Small Business?
Does your company have a fully-fledged human resources department streamlined for all functions, from hiring and payroll to compliance and benefits? Sometimes, a small business is better off outsourcing employee management to a professional employer organization (PEO). However, how can a PEO benefit your organization, and how does it work? Read on for more.
What Is a PEO?
A PEO is a company that leases workers to another and manages employee-related responsibilities on the client’s behalf, such as:
- Payroll
- Computing employee taxes
- Compliance guidance
How Does a PEO Work?
Contracting a PEO to take over your company’s HR administration allows you to focus on offering products or services to customers and other core business functions. The contract will spell out the HR responsibilities that the PEO assumes, such as:
- Payroll processing
- Management of employees’ tax withholdings
- Administration of employee benefits
- Expert advice on complying with all local, state, and federal employment laws applicable to your business
Common Misconceptions About PEOs
- PEOs are staffing agencies: When you hire a PEO, you still control the employment relationship and can even hire your own HR manager. In fact, some PEOs don’t lease employees.
- PEOs are for bigger companies: PEOs can help new small businesses in many ways, such as accessing benefits like health care plans typically available only to larger firms.
How Can a PEO Benefit Your Organization?
You can expect multiple PEO benefits depending on your specific business needs. Typical perks include:
- A PEO can reduce your liabilities as an employer by offering workers’ compensation and Employment Practices Liability Insurance (EPLI) or tax liability protection
- A PEO can save you precious time by managing employee benefits, such as health insurance and commuter benefits
- Helps you to comply with applicable regulations, which is often challenging for smaller startups
- Takes a ton of important work off your plate, including payroll processing, workers’ comp program, and Family and Medical Leave Act (FMLA) administration
- Takes over recruiting and hiring processes so you can focus on the things you have to do to effectively run your business
Common Concerns to Address Before Switching to a PEO
You may need to resolve potential obstacles to working with a PEO, including:
- Cultural conflict: If you want to preserve your company culture, you can negotiate this requirement with the incoming PEO.
- Switching back to in-house HR: Choose a PEO that can help you smoothly revert to in-house HR if you ever want to do that in the future.
- Data security: Investigate the data security and privacy practices of your preferred PEO
- Employees buy-in: Have an open-door policy and be transparent in handling initial pushback from your current workers.
Tips for Choosing the Right PEO for Your Small Business
- Check the company’s CPEO certification (Certified Professional Employer Organization) by either the Employer Services Assurance Corporation or the IRS
- Request for references (a list of the PEO’s happy clients)
- Ensure the PEO can provide the employee-related services you’re after, such as administering health care in your specific location
- Check the price model (options include a predictable flat fee or a variable payroll percentage)
A PEO can be a lifesaver for your small business, especially as you get started.
Learn More about PEO and Its Benefits with Stan McKnight Associates
Whether small or big, at Stan McKnight Associates, we are committed to helping every business improve. Contact us today to learn more about how PEO can help your business and how you should choose the right PEO.