A Professional Employer Organization (PEO) can help small and mid-sized businesses save money by outsourcing HR tasks. However, it is important to recognize both the pros and cons of a PEO. Keep reading to see if partnering with a PEO is right for your company.
Employees across all industries consistently report that a major factor in retention is a stellar benefits package. Small businesses often find this challenging because it can be cost-prohibitive. With a PEO, you can offer Fortune 500 benefits at Fortune 500 prices.
- When you partner with a PEO, you enter a co-employment relationship. Through co-employment, you and your chosen PEO split the legal responsibilities of your employees. You still keep sole control over your employee's day-to-day duties. Instead, your PEO becomes the employer of record, which enables them to file payroll taxes on your behalf. Co-employment also gives your business access to the PEO’s master benefits plan which was negotiated at scale by experts. This results in major cost-savings and competitive benefits.
- Offering better benefits to your employees gives them what they want. This makes them more loyal, more engaged, and more productive in their work.
- When you offer a best-in-class benefits package, you can attract and retain top talent in your industry.
- Getting affordable workers' compensation insurance coverage presents challenges for small and mid-sized businesses. With a PEO, they do the legwork for you, searching and negotiating with dozens of carriers to find the best price and fit for you. The PEO also pays the deposit up-front, so your only costs are pay-as-you-go monthly premiums.
- Your PEO will take on mundane and repetitive HR administration tasks. These may include benefits administration, legal compliance, payroll processing, and supervisor training. Taking this burden off you and your internal HR team allows you to refocus your team so they can work on revenue-generating tasks. When you have HR experts working with your business, you can focus on your core business needs and goals.
- Another benefit of handing off these HR tasks is that your internal HR team can strengthen your company culture. This furthers your goal of attracting and retaining the highest quality employees in your industry.
- At any time, you can access risk management professionals for hands-on help with employee problems. This provides you ongoing loss prevention which results in better insurance rates.
- The average ROI of a PEO is 27.2%. That means your company saves both time and money.
All of these advantages combine with licensed HR and Payroll professionals that can take on administrative HR tasks, help you build a stellar benefits package, and support your staff.
The PEO services provided to your business are vast. However, some concerns (unfounded or not) remain:
- Through a PEO partnership, you gain access to their HR software. This provides a secure and single source of all of your HR, payroll, onboarding, and other similar functions. However, this will require time to train you and your team to use the new software.
- You and your internal HR team may fear that outsourcing some tasks could lead to your internal HR team becoming redundant and eventually losing their jobs. However, PEOs complement rather than replace your existing HR team.
- The size of your company may detract from the usefulness of outsourcing payroll. At a certain size, usually around 500 employees, owners often believe it makes sense to handle payroll in-house.
- While small and mid-sized businesses will see significant cost savings thanks to PEOs economies of scale, larger employers already take advantage of economies of scale.
- Sub-par PEOs may require you to sign up for every service they offer. That may not align with your goals or your needs. However, best-in-class PEOs will customize their offering so that you make best use of critical payroll processing and workers' compensation services.
- Timing is another item to consider. When you start or stop using a PEO’s services in the middle of the year, the wage base for FICA, FUTA, and SUTA restarts. This means you could have to repay some of those taxes. However, you can avoid the wage base restart by joining a PEO at the start of a new calendar year.
The Pros Outweigh the Cons
As a small or mid-sized business, joining a best-in-class PEO at the beginning of the year makes sense. During this time window, the cons are almost non-existent. But making this change takes some planning, so you need to start your transition process sooner rather than later. Full service PEOs offer seamless transition teams to manage these planning processes.
Your PEO can become your payroll service provider, offer you top-notch healthcare and retirement plan options, manage your open enrollment process, and help your business avoid costly fines by remaining compliant with federal, state, and local labor laws.
All with a positive ROI.
When you evaluate the list of pros and cons of joining a PEO, the advantages vastly outweigh the disadvantages for businesses of all sizes.