A professional employer organization (PEO) is an outsourcing firm that provides services to small and medium-sized businesses (SMBs).
What is a professional employer organization company?
(PEO) is an acronym for professional employer organization. You may have heard PEO services referred to as co-employment, business process outsourcing, or HR outsourcing. “PEOs enable customers to cost-effectively outsource the management of human resources, employee benefits, payroll, and workers’ compensation,” according to the National Association of Professional Employer Organizations (NAPEO). The PEO sector has been established for more than three decades. There are about 700 PEOs in the United States. PEOs are found in every state, serving between 156,000 and 180,000 small and medium-sized companies that employ between 2.7 and 3.4 million people.
A few or all HR services can be outsourced, depending on the PEO and the contract. Companies who do not want to co-employ but want some of the outsourcing benefits might use an administrative services outsourcing (ASO) arrangement.
A PEO may provide substantial benefits, particularly for small businesses that may lack the depth of HR experience or system capabilities for tasks like payroll and HRIS, as well as the time and resources to focus on numerous transactional HR functions.
The following are some of the HR burdens that a PEO may relieve:
- Administration of benefits.
- Recruiting and hiring are two different things.
- Payroll administration is a job that requires a lot of time and
- Administration of unemployment benefits.
- Administration of workers’ compensation.
- Assisting with compliance.
- Programs for drug testing
- Administration of the Family and Medical Leave Act.
What does a professional employer organization do
You’re not alone if you’re afraid that working with a PEO may result in you losing control of your business. When you employ a PEO, the truth is that you will never relinquish control of your company. In reality, a PEO will assist you in making better-educated HR decisions that will strengthen your company.
- Payroll processing, HR compliance, risk management, employee benefits, employment tax, and time and attendance management are just a few of the HR services available to companies.
- Contribute to lowering your obligation for paying wages, payroll taxes, and state unemployment taxes.
- Assist in the recruitment of new employees and the decrease of employee turnover.
- Make your company more appealing to existing and prospective workers.
- Save time so you can focus on your business’s day-to-day operations and growth.
- Take control of your business
- Supply labor to worksites
- Make hiring and firing decisions for you
Employers use a PEO for a variety of reasons. Typically, businesses who outsource HR functions to a PEO encounter the following:
- Positive return on investment. Employers get a 27.2 percent annual return on investment when they use a PEO.
- A higher rate of growth. Businesses that employ a PEO develop 7-9 percent quicker and have a 50% lower chance of failing.
- Employee retention is higher. Businesses that use a PEO have a 10-14 percent lower turnover rate.
- Benefits and health insurance are both competitive. PEOs use their buying power to help small companies get better benefits and insurance at a lower cost.
- Compliance has improved. To decrease risk and keep your organization compliant, PEOs stay up to speed on business rules.
The following are some of the potential drawbacks
- Control over critical processes and people has been lost.
- The impact of an outside corporation on your culture.
- Internal HR department’s value has decreased.
- Employee documentation is not under control or secure.
- There has been a loss of institutional expertise.
- The vendor’s system has security problems.
- Employees are resisting.