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What Is a PEO and How Can It Help Your Business?

What Is a PEO and How Can It Help Your Business?

Updated June 17, 2019

When small business owners reflect on how their companies are performing, they often realize they’ve been working round the clock, juggling multiple roles, drowning in paperwork and have been unable to focus on their strategy for continued business growth. In fact, a Wells Fargo/Gallup Small Business Index survey found 57 percent of small business owners in the U.S. work six days per week and more than 20 percent work seven days per week.

By outsourcing tedious tasks like payroll, benefits, risk management and human resources to a PEO, small and medium-sized business owners can free up valuable time and experience many more great benefits.

According to NAPEO, when small businesses partner with a PEO, they grow 7 to 9 percent faster, have 10 to 14 percent lower employee turnover and are 50 percent less likely to go out of business.

Which businesses are more likely to partner with a PEO and how do they benefit

What is a PEO?

So, what exactly is a PEO? Short for professional employer organization, a PEO provides comprehensive HR solutions to small and medium-sized businesses through a co-employment relationship. This relationship is a true partnership where employer responsibilities are shared between the PEO and the business owner. The business owner’s employees will also have an employment relationship with the PEO, allowing the PEO to become the employer of record. This enables the PEO to take over the filing of payroll taxes.

Additionally, the PEO is responsible for human resources functions, payroll, benefits administration, risk management and workers’ compensation duties to help keep the company compliant. However, the business owner still retains full control over the core business functions, including the direct supervision of employees and management of the work performed.

A PEO provides comprehensive HR Solutions to small and medium-sized business through a co-employment relationship.

why use a PEO

PEO Benefits

In addition to having a dedicated team of experienced professionals working hard to ensure a positive employee experience from the benefits, safety, payroll and HR side of the business, they also help keep your business compliant, free up your valuable time so you can focus on growing your business and enable your organization to gain access to the latest HR technology. But that’s not all. When you partner with a PEO, your employees gain access to Fortune 500-style benefits packages at an affordable rate. And for some business owners, this alone is what originally brought them to seek out a PEO. Through co-employment, the PEO is able to combine all of their clients’ employees together into one large pool. This allows the PEO to gain access to similar benefits packages as large corporations at some of the most competitive rates available. This save you time, money, increases employee retention and makes your small business more attractive when recruiting talent, especially in the tight labor market we’re in today. You can read more about small businesses, health insurance and the PEO option here.

When small and medium-sized businesses partner with a PEO, their employees gain access to Fortune 500-level benefits at an affordable rate.

Common Misconceptions About PEOs

Many business owners fear they will lose control of their employees, or they will need to replace their current HR manager with the PEO. And as daunting as it is to process payroll alone, handing it off to someone else scares some business owners (read more here). Or they may even fear their employees will not like the change. We’re happy to say, none of these are true. A PEO works to support small and medium-sized business owners and their worksite employees bringing knowledge, helping hands and peace of mind. PEOs are used to working directly with HR managers, keeping them up-to-date with ever-changing, complex HR and tax laws. And if a tricky situation arises, they will provide expert guidance.

A PEO works to support small and medium-sized business owners and their worksite employees bringing knowledge, helping hands and peace of mind.

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But what about the employee experience? Once a PEO is involved with your small business, the employee experience goes up. With anytime, anywhere, any device access to the latest HR technology and great benefits packages, you’ll soon see your employees are more engaged and productive than they were before. For answers to some of the most popular PEO questions, check out our PEO FAQ page here.

Just remember, not all PEOs are created equal. Look for PEOs who have completed the voluntary, rigorous certification process through the Internal Revenue Service (IRS), earning the designation Certified Professional Employer Organization (CPEO). Not all PEOs will pass the certification process which includes a thorough review of the PEO’s financials and other company information. Find out more about what the CPEO designation means and why it matters here.

*Disclaimer: The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations, go to www.irs.gov.

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Written by Gerald Diddle