The PEO: Employer’s best friend

Everyone knows that the dog is man’s best friend: it’s loyal, very protective of its owner, and is there for you no matter the physical appearance. It might be a stretch, but some have called the PEO (Professional Employer Organization) the employer’s best friend for the same reasons. The PEO is protective of its employer because of its ability to maintain & reduce risk, and can help the employer out with its employees, no matter the situation. For those who don’t know, the PEO uses a method known as co-employment in which it becomes the legal employer of record for insurance & tax purposes. By co-employing many small businesses, it gives the individual employer the benefits of a Fortune 500 Company – lower tax & insurance costs, the luxury of having less liability & risk, and the ability to clearly focus on their business needs instead of worrying about issues such as Worker’s Comp, Human Resources, and Payroll.

I’ve heard a few people over my years say that the PEO is too expensive. I hate to say it, but they just don’t know what they’re talking about. Because the PEOs become the employer of record, and because they pool hundreds and thousands on employees, they get tax rates at a lower rate than the individual small business, and these rates are what the employer under the PEO receive. The only cost - 3-15% of payroll. Now some might say yeah, that’s the catch, but there’s more to it than that. When you do business with a PEO, the services they provide aren’t only for tax & insurance purposes for that % of payroll, they also include basic levels of Benefit Payroll & HR Outsourcing, help with worker’s comp, recruiting, performance management, outplacement services, and background & drug screening. This is what some people fail to mention. Business owners know that all these things are burdens they have to deal with, and soon they forget they’re running a highly competitive business. In some cases, letting the PEO’s co-employ creates an immediate boost in profit for the employer (now how’s that for being ‘too expensive?’). PEOs also help with SUTA cutoffs.

As the famous TV ad campaigns say, “But wait, there’s more!” Yes, for those people still on the edge of making a business move to switching to a PEO for their payroll, HR, and other business needs – they will help you understand different government rules & regulations. We all know that half the paperwork and employee forms we fill out take a bit of time to understand every bit of information, but the PEOs are known for helping in this area. By providing assistance in federal, state, and local laws, the PEO simplifies the process government compliance process.

Some might be wondering if the PEO provides any sort of benefits plans for employees, and the answer is yes of course. To maintain the competitive edge to retain your employees, different PEOs are continuously one-upping another, giving you & your employees the benefit program offered only in large companies. The most common are Long & Short Term Disability (LTD & STD), Life Insurance & Accidental Death and Dismemberment (AD&D), Flexible Spending Accounts (FSA), Health Savings & Retirement Account, and Vision 401(k) options.

Others might have heard me mention Worker’s Compensation and had their eyes light up, because just about every small business owner that I’ve come across has shrugged at those very words. This is where the PEO gets more personal with your business; they offer the Worker’s Comp plan best fit for your employer needs. For those who are paying the PEO more than they are getting back for lower tax & insurance rates, the savings they get in Worker’s Comp may offset the cost of these other PEO services. It’s hard to get specific with different Worker’s Comp plans because again, the plan they will offer for your business is individual more than other Services.

When it’s all said and done, getting all of those cost & time consuming non-core functions of the office can really lift the monkey off your back. When’s the last time you’ve had a full business week without once having to stop your current business plans and deal with those daunting tasks? Let’s face it: it’s near impossible. If you are unlike most, the end result of using a PEO from a cost standpoint ends up losing a minor amount of money (I stress minor because with the lowering of tax & insurance costs it offsets most if not all of what the PEO charges). If this is stopping you from considering a PEO, then take a step back for a moment – not having to worry about payroll, HR, worker’s comp, recruiting, outplacement…. The list goes on. Having you and all your employees on the same page at all times to help you maximize revenue is something well worth the few bucks it costs. Maybe it is worth it?

Well, I hope you have been satisfied with this information about the PEO. Here’s a quick fun fact about this growing industry – the first began in the early 1970’s, and today there are 700 PEOs operating in the US alone, co-employing over 2-3 million workers. The PEOs have even gone international, spanning four different European countries. In a nutshell, for tax & insurance purposes the PEO is a loophole just waiting to be taken advantage of, and this is why there are so many operating today. Chances are you know someone under the umbrella of a PEO, so don’t be afraid to ask them a few questions on what it’s like. You’d be surprised in the answers you get, there are numerous successful PEO case studies found all over world.

If you are like one of the tens of thousands of employers that have interest in working with a PEO, luckily technology has caught up with us today. Because every employer has different individual business needs that some PEOs meet and others do not, finding the right one can be a difficult task. This is where the technology part has come in – there are a few websites that can compare different Professional Employer Organizations for you at no cost. I suggest first checking out PEOcompare.com, where you can fill out a quick survey in less than five minutes and get quick results on the top PEOs being compared. From there, there are 5-10 solid websites that can compare different PEOs for you at a much more time consuming rate, but nonetheless can be effective.

I’d also like to mention that you might come across the term Employee Leasing. PEOs and Employee Leasing companies are basically interchangeable terms, so don’t think that employee leasing is a whole different thing, because it’s not. In the early days they use to be just called Employee Leasing Companies, but the more modern term now is the PEO.