Professional Employer Organizations, otherwise known as PEO’s, offer some real advantages to companies of different sizes and industries. The ability to streamline operations of a business by having a professional employer organization assume responsibility for the HR function can be a boon to revenue, especially in small businesses. CPA’s often recommend PEO’s to companies that need to grow, but have limited professional capabilities to properly handle the ever-growing burden of human resource compliance, both regulatory and financial.
Why? How Can an Outsourced HR Firm Grow Sales?
By aligning your business with a Professional Employer Organization, administrative energy can now be focused on other things rather than everyday HR management, so that you can quickly coordinate the hand-off of accountabilities and better manage your business. Your company is actually relieved from HR and other duties by outsourcing, using a PEO. The amount of time normally allotted to your administrative control is actually liberated. Having said that, leadership is still required to continue to harmonize as well as seek advice from the PEO for reasons of day to day work rules, compliance and policy matters. That is a small amount of time compared to the status quo.
What do PEO’s Do?
There is a laundry list of tasks and duties that can be contracted is large, but flexible. Due to the market’s perception, they are not limited to employee leasing and payroll calculation. This notion comes about because although PEO’s help thousands of businesses across the U.S., PEO’s are presently working with approximately 2% of the companies with employees of 100 or less. PEO’s offer a plethora of services, such as the entire payroll function, health and welfare management, recruiting (if necessary) administrative compliance, advice and counsel on matters of policy and much, much more. Because they handle the payroll function, the liability for regulatory compliance and financial liability is now completely in their hands, leaving you to manage more effectively.
PEO’s offer great variety in the level of participation you may wish to outsource. In the event your firm relinquishes further control to include the entire administrative Human Resources function; health and welfare benefits as such, the PEO is assuming complete fiduciary responsibility, as well as the liabilities associated with compliance, management and responsibility for the complete array of administrative duties. Your responsibilities as business owners and/or managers shrink, while the burden now falls directly on the shoulders of the Professional Employee Organization. Retirement accounts, pension, cafeteria plans and healthcare, disability insurances, life, accidental death and dismemberment coverage’s are now the responsibility of the PEO. Your hands are wiped clean of further liabilities and responsibilities.
There are many more aspects that your company presently handles, like employee perks, automatic deposit and more. They are also relieved from your control and responsibility. By contracting with a PEO, you can actually manage the business you are attempting to, while the administrative aspects of HR can be handed off to those that do it best.
Many firms believe that PEO’s are co-employers with their company, but that is not legally the case. The Internal Revenue Service does not agree with the notion of “co-employer” status, and so, the employees are actually the responsibility of the PEO. Some states may have language in their existing legislation that specifies co-employer status, but at the Federal level, it is not the case. Once the contractual documents are signed, the shift of employee responsibility is lifted from the business completely.
But from a fiduciary point of view the perspective of co-employment is both practical and wise. A business that fully engages it’s employees will have better retention and greater productivity and a PEO can not hope to impact that as much as the business owner.
Who Uses a PEO?
As stated earlier, while only 2% of the market utilizes Professional Employer Organizations, they presently serve more than three million U.S. workers, and that number increases daily. Because of the deep level of understanding and a vast learning curve already mastered, PEO’s can serve small to medium sized business well. Due to the buying and negotiating power of the Professional Employer Organizations, they are better capable of arranging better health and welfare benefits packages than the stand alone company, as well as offer benefits that the single employer would not be able to, such as 401(k) plans, HRA’s (health reimbursement accounts) which allow for pre-tax payments for medical expenses, and etc.
And let’s not overlook the complexities of the health care markets. The right PEO will be able to provide resources the typical small business could not even consider.
Does this make great sense for your business? Contact us for additional information, or, consult your CPA as to the advantages of using a PEO to enhance your business’ sustainability.