For small and medium businesses, administrative costs can eat up a significant portion of their available operating profits. When moving into a new location, these costs can represent an even more significant burden. One of the most useful things that SMEs can do to minimize this administrative burden is to hire a PEO business to assist them. If you have never heard of a PEO before, read on to find out everything you need to know.
What Is A PEO Business?
PEO can be confusing, so we are breaking down what is PEO exactly? PEO businesses are businesses that take on human resources and administrative functions on behalf of another company. It is generally small and medium-sized businesses that engage a PEO’s services, often during the process of expanding their own operations. The range of services offered by PEO varies from provider to provider; it is up to the subcontracting business which services they require.
For example, one of the most common services offered by PEO businesses is a payroll function. A PEO can administer the payroll for another business, ensuring that employees are paid on time and in full according to the employees’ schedule. In many cases, PEOs also ensure that vendors and other independent contractors are paid accordingly. Administering the payroll can be difficult when a business expands into a new market and takes on a new set of workers.
Hiring a PEO to handle payroll enables the hiring business to focus on growing their operations without having to get bogged down in the nitty-gritty of the administrative side of things.
Besides handling the administration of the payroll, professional employer organizations will also often take on responsibility for administering employee benefits. These benefits include everything from initial onboarding, claims for subsequent benefits and bonuses awarded to employees for time served, or meeting specific targets.
Which Businesses Utilize PEO Services?
Just about any business can utilize a professional employment organization if they choose. But it is only generally small and medium-sized businesses that benefit. Larger businesses usually have sufficient resources to handle the duties a PEO would traditionally take over.
Businesses might choose to engage PEO services for a variety of reasons. A small or medium enterprise that is expanding into a new foreign or domestic market may well choose to use the services of a PEO to ensure that all of their admin is dealt with appropriately. Expanding is always a fraught process; ensuring that it goes off without a hitch will be a priority for any business.
Even if a business isn’t planning an expansion anytime soon, utilizing a PEO can save them the trouble of worrying about their legal obligations to their workers, while still ensuring that these obligations are met. If necessary, PEOs will work with a business’s existing human resources department to be absolutely certain that they have all their bases covered.
There are currently somewhere in the region of 180,000 US-based SMEs utilizing the services of PEOs. Together, these PEOs are responsible for almost 3.5 million people. Clearly, PEO services are in high demand.
How Does A PEO Work?
Once a business has made the decision to engage the services of a PEO, they will enter into a formal contract with them. This contract will specify the scope of the work that the PEO will conduct on their behalf and the services they will render.
Once the contract has been signed and the relationship has begun in earnest, the PEO will begin employing workers at the hiring businesses workplace. Legally, the PEO is the employer of record for these workers. In other words, the PEO will be considered the employer of these workers rather than the business that has hired the PEO. Because the PEO is the legal employer of these workers, they are the ones who take on the legal responsibility for ensuring that property taxes are withheld and that any unemployment insurance and other relevant taxes are paid. They are also the ones responsible for providing workers compensation coverage to workers when necessary.
However, the original business is still responsible for overseeing the day-to-day management of these workers. The PEO retains responsibility for employment-related administrative issues. Still, they do not supersede the original business in terms of delegating work to those employees or deciding what the business’s overall goals and objectives should be.
Why Use A PEO?
There are several compelling reasons that a small or medium business might want to use a PEO. Peace of mind and convenience are just two considerations. For example, according to the Intuit Small Business Employment Index, since 2000, small businesses that have engaged the services of professional employer organizations have achieved a growth rate of more than 7% higher than comparable businesses who have not done so.
As well as a faster growth rate, businesses that utilize PEOs have also reported lower turnover consistently over the same time period. In this case, the difference has been even more dramatic with companies using PEOs achieving a 10% to 14% lower turnover rate than average.
Whether a business is expanding into a new market or not, utilizing a PEO can save them time and enable them to focus on the more essential aspects of running a business. Compliance is critical; falling afoul of laws and regulations can be a costly lapse for any company. Using a PEO gives businesses confidence that they remain compliant without requiring them to monitor the situation continually.
Another significant benefit of using a professional employer organization is that they are generally able to offer more comprehensive benefits packages than small businesses can. Because the PEO is the official employer of the workers they hire, they are the ones who are able to administer employee benefits. Under a PEO, many workers can expect to receive benefits packages more reminiscent of larger employers than small businesses. These benefits can extend to health and dental care, as well as life insurance and retirement plans.
Finally, the use of a PEO often leads to significantly reduced costs for small businesses. Professional employer organizations are well versed in the best practices required to minimize administration costs. Not only this, but the reduced turnover rate also means that employers can reduce the amount they spend on hiring and firing.
How to Choose The Right PEO
The number of PEO businesses out there has been steadily increasing over the years. The internet has made it significantly easier for small and medium businesses to find the assistance they need and has also led to a general increase in the prevalence of outsourcing opportunities. Now that the pool of available PEOs is so large, choosing the right one can be difficult. GlobalizationPedia has a list of the best PEO companies operating today. This website is a goldmine of useful information regarding PEOs; they also match companies and individuals thinking of expanding globally.
Professional employment organizations provide an invaluable service to SMEs, reducing their costs and enabling them to maximize operational efficiency. The range of businesses engaging PEOs is expanding almost as quickly as the number of businesses providing the service. Any business that is about to undertake an expansion or move into a new market can benefit from a PEO service. If this applies to your business, it is something well worth considering.