How to Pick The Right PEO Service For Your Business
A Professional Employer Organization can be more beneficial to your organization than you could ever imagine. A PEO offers the ability to take care of recruiting services, automate your payroll services, ensure your company is in compliance with tax and regulatory laws, delegate administrative tasks, and so on. Indeed, PEOs act as an HR solution and support team for startups and small business owners as well as larger companies.
You may have considered outsourcing your payroll service to focus on keeping your business afloat. This brief guide breaks down the entire process of choosing the right PEO service for your business. It also covers the basic concepts of a PEO to aid your understanding of how exactly a PEO works.
Most recommended PEO service providers
These are some of the most recommended PEO on the market:
So, what is a Professional Employer Organization?
Professional employer organizations are full-service human resource outsourcing companies. They enter joint employment relationships with businesses, recruiting and managing talents on behalf of the client company. Considering that they are also employers, the PEOs are also referred to as co-employers.
Basically, PEOs are used by businesses of all sizes to cover all the HR tasks normally under the purview of in-house HR professionals, including
- Benefits: overseeing benefits packages, benefits administration, retirement plans, health insurance, vision insurance, and PTO
- Oversee insurance policies: life insurance, workers’ compensation insurance, liability insurance
- Payroll: payroll taxes, payroll processing, & payroll administration
- Risk management & risk mitigation
- Ensure compliance with labor laws
- Onboarding of new employees
- Workplace safety protocols
- Oversee workers’ comp
How do professional employer organizations work?
The basic mode of operations for PEOs is simple.
- A client company hires them to recruit and manage talents on their behalf. The PEO accesses a large pool of talent and selects and interviews the appropriate talents that fit the client company’s needs. Legally, the employees belong to the PEO. They are simply leasing them to the client company.
- The PEO receives the payment from the client company. This payment covers the employee salaries, taxes, and benefits.
- The PEO ensures that employees are at their best. Also, it pays employee salaries, benefits, and provides a wide range of HR services on behalf of the client company.
- Finally, the client company can focus on serving its customers with minimal worries about the welfare of its employees.
In some cases, client companies retain the right to handle some HR responsibilities. This is aimed at giving the client company better control of its workplace culture as well as upholding the value of its internal HR department. However, the PEO always provides payroll service and compliance expertise.
There may be some confusion on the topic of the difference between a Domestic PEO and a Global PEO ( also known as GEO) which can leave a business wondering what they need exactly. There are also pros and cons to both types, which are essential to understand when making your decision. If you are unclear, read our article on The Difference Between Domestic And Global PEO: Pros And Cons
Types of PEO
All PEOs are not created equal. The first step to picking the right option for you is to understand the four types of PEO that are out there.
1. The Classic PEO
This type of professional employer organization is the typical co-employer. A classic PEO handles full HR and staffing responsibilities for the client company, including hiring talents, compensating employees, filing tax, maintaining compliance, negotiating and paying employee benefits, and all duties that fall under the umbrella of HR. Interestingly, these employees are registered as staff of the PEO, and as such their filings are prepared under the PEO Employee Identification Number. Usually, this type of PEO has a significant influence on your company’s work culture because employees answer to them, basically.
2. Employee leasing companies
In some resources, this type of PEO is dissociated from the network of PEOs. However, they meet the general definition of a professional employer. This type of PEO provides temporary staff to client companies. Most of the employees provided by these leasing companies are time-bound or project-based. So, when a project is completed or the lease period elapsed, the client company returns the talents to the leasing company or discusses an extension of the lease period.
3. HR Outsourcing Organization (HRO)
An HRO may not be responsible for finding and hiring talents for its client company. Instead, its focus is to lift the weight of HR duties from the client company. So, the HR Outsourcing company keeps track of employee attendance and performance, devising ways to rank employee usefulness, handle tax filings, compensations and benefits. By using an HRO, small and medium-sized businesses don’t have to hire a large HR team.
4. Administrative Service Organization (ASO)
This type is similar to a classic PEO. The main difference is that an ASO files employee compensations and taxes under the client company’s Employee Identification Number. Also, an ASO doesn’t assume liability on behalf of the client company. So, damages (like worker injury, etc) will be settled by the client company.
Benefits of Using a PEO
According to NAPEO, 98% of PEO client companies would recommend the idea to small businesses. This stat informs the benefits of hiring a PEO to cater to your HR needs. Some of these perks include the following.
Reduced employee turnover
A survey by NAPEO revealed that companies using PEO have reported 10-14 percent lower employee turnover compared to non-PEO clients. Small businesses that are focused on ensuring the investment in their workforce translates to improved productivity may find the services of PEO helpful.
Increased bottom line
As your business grows, the need to hire a large HR team becomes inevitable. The cost of running a large HR department combined with an increasing workforce culminates into an expense that often exceeds the pricing of using a PEO.
Not only will a PEO alleviate the need for a huge HR department. It will also negotiate a more favorable employee benefit and cover your employee insurance, all at a significantly reduced cost. So, you can channel the extra resources into serving your customers the best way you can.
Circumvent employee liabilities
When you hire employees, your business is responsible for the welfare of those employees. So, liabilities like employee injury, healthcare, and wellness are your responsibility. Using a PEO, on the other hand, lifts these liabilities from you. Lawsuits regarding worker injuries and other work-related conflicts will be filed against the PEO and it will be their responsibility to settle them accordingly.
When managing a large number of employees, filing for taxes and complying with the numerous employment laws will require a team of experienced HR and legal personnel. Finding and hiring personnel is not a walk in the park. However, professional employer organizations are well experienced in employee tax and regulatory policies. Hiring them gives you access to this pool of compliance expertise.
Factors in Choosing the Right Payroll Service
Payroll service is a top service provided by PEOs. When choosing the PEO to cater to your payroll needs, these factors should be on your list of considerations.
Experience and Qualification
When trying to narrow down your list of payroll providers or PEO, you should consider how long they have been in business. Also, how many client companies do they serve and how long has their oldest client been with them?
The answer to these questions reveals the provider’s level of experience as well as competence.
Qualifications matter too. The best companies are always recognized for their outstanding performances in several areas (eg customer support, HIPAA compliance, etc).
Look up the qualifications that your chosen payroll provider has earned during its time in business and you will get a glimpse of how compliant they are. Moreover, who better to help you comply with regulations than a company that has earned a reputation for compliance?
Some payroll providers and PEOs may have been in business for a long time but have failed to catch up with the advancements in technology. As such, they offer limited features and perform their business processes in obsolete ways. When choosing a PEO and payroll provider that is right for you, make sure to review the features that they provide to see how it fits with your business needs.
In business, reputation is everything. There’s been news of payroll companies disappearing with client company’s money, leaving to answer to IRS and employees’ endless lawsuits. Some others may have a reputation for dodging responsibilities when it comes to misfilings and compliance issues. When choosing a payroll service or PEO, research to know their reputation with past clients. A negative reputation is a red flag.
Hiring a payroll service doesn’t mean changing your communication and file sharing channels completely. As you wade through your list of potential payroll providers, look out for those that offer flexible options for communicating, sharing files, and filing reports. For tech-savvy providers, these options are evident through integrations (e.g. Dropbox and OneDrive for file sharing; HRIS options for employee data sharing: etc).
Another vital question to answer is how your money is protected. The right payroll providers secure client deposits in an escrow or other available security alternatives. This allows the client access to the money if anything goes wrong. Also, it creates an intermediary or mediator when there is a misunderstanding between the payroll provider and the client company.
In the professional employer organization industry, leading brands like Oasis professional employer organization and Illinois professional employer organization are setting the pace for the industry, serving big businesses. However, small businesses and medium-sized businesses maximize their productivity and bottom line by using HR experts and the range of services offered by providers likeADP and Remote PEO.