What Is A Peo? Pros And Cons Of Professional Employer Organizations

professional employer organization pros and cons

PEOs with more comprehensive services can charge up to 11% of payroll, making them a bit pricey for the typical small business owner. Some PEOs’ prices are based on your business’s credit rating, workers’ compensation risk level, and health benefits history. Depending on those factors, one employer might pay twice what another employer pays for the same services. Higher health insurance costs are a downside of being a small business. Companies that partner with a PEO can leverage the PEO’s size when purchasing health insurance and other group benefits. The PEO will also carry workers’ compensation and liability insurance. A PEO is a “Professional Employer Organization.” A PEO will handle all of your company’s HR responsibilities and tasks.

Health insurance, 401k plans, education, and many more benefits packages are only available through PEO; otherwise, they’d be reserved only for huge companies. Company safety and risk management, however, represent the most important aspect of PEO. Experts cover everything from tax laws, unemployment insurance, and reporting, to hiring — and make sure the company is compliant with existing federal and state laws at all times. To mitigate the risks, PEOs also provide safety training programs and assist with OSHA inspections, and take care of the Employment Practices Liability Insurance .

professional employer organization pros and cons

On the other hand, companies that are dealing with legal challenges might try HR software to help manage documents. HR compliance checklists can also provide direction when hiring foreign employees. Less paperwork- Companies without automated HR processes are usually reliant on HR staff to complete a wide range of tasks.

Although this can be a beneficial aspect of hiring a PEO, employees will need to learn new software, which can be time-consuming. One of the biggest reasons that businesses choose to work with a PEO is for the cost savings.

The Peo Does All Payroll Functions

During the pandemic, flexible work arrangements have greatly impacted its complexity. Franchisor Opportunities Paycor’s partnership program with franchisors is designed to reduce costs and mitigate risks for your franchise owners. An ROI of 27.3% means that for every $1,000 spent on PEO services, the average business owner would save roughly $1,273, resulting in a net benefit of $273 for every $1,000 spent.

professional employer organization pros and cons

Further, if you exit the PEO on a non-calendar year, your employees are technically “new employees” and their status and Social Security wage withholdings will be re-set. The employees will get the supplemental withholding refunded, but you must think about the communications.


If you are looking for an insurance company that is there for you every step of the way I highly recommend New City Insurance. A PEO tends to have a much lower employee turnover rate when compared to businesses that operate without the assistance of a PEO. In general, that turnover rate is 10%-14% lower according to a national association in the U.S. that tracks and monitors PEO data. It is also found that businesses who work cooperatively with a PEO see growth rates that are typically 7%-9% higher than the other business in their peer group.In fact, the benefits of using PEOs are numerous. Holly Magister, CPA and CFP, is the founder of ExitPromise and has answered more than 2,000 questions asked by business owners. As burdensome as HR administration can be, small business owners may have difficulty letting go of these duties if they are used to being deeply involved in every aspect of their business.

For instance, if you want your PEO to include recruitment, training, and benefits, you will pay more than when you only need a PEO for staff training and benefits management. But what if your PEO fails to forward employment taxes to the IRS? Some unfortunate companies discovered a significant disadvantage of using a PEO when their provider failed to pay the IRS. Even though you’re entering into a “co-employer” agreement with the PEO, in the eyes of the IRS, you are still the primary employer liable for employment taxes.

Great hiring support, but lacking in integrations and payroll services. Several state licensing laws and regulations require PEO firms to have audited financial statements, so make sure the company you choose demonstrates responsible financial management. The improved benefits that PEOs are able to provide for businesses can improve employee satisfaction and make it easier to retain quality talent in your organization. When a PEO assists your internal HR department with employee relations, it can provide the flexibility and guidance needed to easier solve workplace conflicts. PEOs assume the responsibility for processing payroll and those that are certified by the IRS may also report and remit payroll taxes on your behalf. If you don’t work with a certified PEO, you could be responsible for any unpaid taxes, late penalties or interest. See how we help organizations like yours with a wider range of payroll and HR options than any other provider.

  • Lastly, the PEO relationship with your employees might feel less personal at times.
  • These employee leasing tips are a great starting point for business owners who are exploring…
  • With a PEO partnership, businesses gain access to HR software which acts as a single source of payroll, HR, onboarding, and similar functions.
  • Employing knowledgeable and experienced HR workers to ensure labor law compliance, administer benefits, and draft company policies and procedures can cost business owners more out of pocket than they would like.
  • To reduce the risk of payroll mistakes, partner with a known leader in the payroll space.

When partnering with a PEO, the employer enters into a co-employment arrangement that divides up responsibilities and liabilities. An important aspect of HR is developing policies, procedures and support to keep employees aligned, engaged and growing. From onboarding to termination, legal guidelines must be followed to remain compliant. While PEOs professional employer organization pros and cons have some things in common with HR and payroll software companies, there are key differences. Product Technology Partners Paycor’s technology & service alliances give customers the opportunity to grow and expand their business with fully vetted partnerships. CPAs Instantly access HR & payroll data with real-time analytics to guide decision-making.

Best Peo Services

Businesses that partner with PEOs can enjoy affordable benefits like workers’ compensation insurance. PEOs do all the legwork on behalf of companies, searching and negotiating with carriers to find the best fit and price for the business’s needs. In the United States, human resource services are highly regulated. This includes protection of employees personal information and employment records. An employer can increase their risk exposure when contracting a PEO service because they have no control over the integrity and security of a PEOs workplace or HRIS systems. The financial penalties for a breach of security related to employees confidential information can be severe for an employer.

professional employer organization pros and cons

For a smaller company those are daunting areas of concern for sure. Since a smaller company can’t usually justify the expense of a full-time HR manager, joining a PEO may seem like a smart choice. On the other hand, PEOs offer multiple plans through multiple insurance carriers to their customers based on their geographic footprint. A Massachusetts employer may be offered a Tufts health plan while a Texas employer may be offered Cigna. Each of these contain varying levels of premium, copays and deductibles.

Using a PEO allows the client company to share the employee-related functions and liabilities with a company that specializes in those responsibilities. A PEO also allows a company to reduce the costs related to hiring internationals.

PEOs hire international, remote workers and serve as their “Employer of Record” for insurance and tax purposes while taking on a range of administrative and compliance responsibilities. While they are the employer on paper, these employeesstill receive their work assignments and instructions from you. The PEO also helps the employer stay compliant with handbooks, safety training, HR procedures if needed by the client. Another of the pros of a PEO is that you don’t need to employ a Human Resources professional to handle HR administration, benefits and workers’ compensation issues. The average salary for a full-time human resources manager is $68,399, plus an additional 40 percent, or $27,336, for recruitment, benefits, and taxes. The Society for Human Resources Management says businesses need 2-3 HR team members per 100 employees to deliver essential HR services. Unlike domestic PEOs, a GEO can hire remote workers from any foreign country.

Business Types That Benefit From Peos

It is imperative that a business owner give them sufficient time to do so. Otherwise, the entire endeavor is doomed to failure and a waste of everyone’s time, effort and money. Unfortunately, many owners don’t realize that they bring a level of subjectivity to the process that a PEO does not. This lack of objectivity can result in some serious morale and legal problems if all employees are not treated fairly or all the same. Omnipresent makes it easy to hire, pay, and support your international team. Here we’ve outlined the main PEO benefits, what you need to watch out for, and how Omnipresent’s global EOR service can help you cover all your employment needs abroad. Prompt, accurate payroll and tax administration is a critical HR responsibility.

  • Reduced control- Company leaders and HR managers know that talent is the most important asset to their growing business.
  • Employers should be sure to ask about what services are included in the bundle to ensure they are getting exactly what they need—no more and no less.
  • PEOs offer a wide range of benefits, which is the reason companies choose this option to begin with.
  • Instead of jumping into an agreement with a PEO service provider, try automated HR Software.
  • Lori Stagliano is a licensed REALTOR®️ focused on residential real estate.

Employees not actively at work won’t be covered under the life, LTD and STD plans unless the “actively at work” requirements are specifically waived by the new carrier. In fact, the employer was able to leave the PEO, with a similar plan at a rate that was slightly less than the expiring rate that had been scheduled to rise by 47%. A group such as that would be totally pooled in Massachusetts, i.e., its rates would be based solely on the ages and zip codes of the members on the plan.

What Is A Professional Employer Organization Peos?

Like any other payroll administrator, a PEO can do all these tasks for you. But there are advantages to partnering with a PEO vs a payroll broker. When tax time comes around, your PEO, not you, will file the litany of related employment tax forms. Simply put, the employer no longer has the ability to design plans or offerings that reflect the unique culture and specific needs of the workforce.

Employers are often blindsided by the unpredictable pricetag of PEOs. Typically, they do not charge an unchanging fixed amount for their services.Here are some common pricing models that businesses should consider before handing over their HR responsibilities. When a company works with a PEO, any workers hired by the PEO are actually considered employees of the PEO.

It can sometimes be had to assess the ROI and see whether or not the PEO services are worth it for your industry, type of employment. When shopping for a PEO, be sure you understand what they charge, including miscellaneous fees – and ask if these charges will be clearly itemized on your invoice. In fact, it’s best to ask the prospective PEO service provider to unbundle the quote before you agree to work with them.

  • As a result, customer service can feel slow or impersonal, and often a business doesn’t have a dedicated support person, but rather must communicate with whichever representative is available.
  • You will need to create a new handbook and set up your own HR department with its own documents or use another PEO.
  • Perhaps most importantly, the PEO can help you retain top talent and reduce turnover.
  • Unfortunately, many owners don’t realize that they bring a level of subjectivity to the process that a PEO does not.
  • For business owners, there are support services available, such as state-specific HR systems with on-demand consulting services and compliance and risk management.
  • Contact us to learn more about how StaffScapes can alleviate the HR administration for your business.

A PEO is very different from a payroll solution provider or a staffing agency. The quality of your staff is what distinguishes your business from the rest.

What Is A Global Employment Organization?

The downside of an HRO is that you are still responsible for decisions surrounding the minutiae of your human resources administration. You’ll still need at least one expert on staff who can make these decisions. Another disadvantage is that your company won’t enjoy lower benefits costs when you partner with an HRO. Having some of that work taken off of your hands sounds great, right? Well, although some of those benefits would be helpful, it’s important to investigate all of the information before you sign on the dotted line. As you make your decision about whether a PEO might be right for your business, here are a few things you should keep in mind.

What Are The Professional Employer Organization Pros And Cons?

PEOs also take care of all employee documentation and compliance reporting, including new hire paperwork. ASO stands for “Administrative Services Organization.” Unlike an HRO, an ASO will administer all of your HR tasks. But unlike a PEO, an ASO does not provide workers’ compensation or liability coverage. Also, partnering with an ASO will not help your company save money on benefits coverage. Keep in mind https://adprun.net/ that doing business with PEO isn’t the same as just outsourcing the HR task to an outside HR company. Unlike outsourcing, the co-employment you have with PEO makes it possible to share the responsibilities and provide your employees with generous benefits. Section 3511 of The IRS Code gives PEOs the right to withhold and remit federal income and unemployment taxes for the client company employees.

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