A Professional Employer Organization (PEO) can relieve companies of many administrative tasks. Also known as employee leasing companies, a PEO becomes the official employer of the client company’s employees. The client still manages its employees, overseeing all work. The PEO takes over some of the admin duties formerly assigned to the Human Resources department or assists HR. This allows HR to focus on strategic company initiatives.
How PEOs Work
A PEO should offer all of the services of an HR department. Typically, the client contracts with the PEO, which then takes over the company’s personnel functions. The PEO leases what are now its employees back to the client. The exact arrangement and services covered are outlined in the client services contract.
Clients are still responsible for worksite safety and similar issues. PEOs work in either union or non-union companies. All collective bargaining agreements remain in effect.
The primary advantage of a PEO is that it removes many of a company’s administrative burdens, allowing it to focus on its core business. A PEO can take over the HR administration of some of the following functions:
- Drug testing
- Employee handbook creation
- Pension assistance
- Retirement savings plans
- Workers’ compensation
Another advantage is you can still use your broker for the benefits and compliance. Your broker can also help guide you to the best PEO as most PEOs work with brokers.
The client can also arrange for a PEO to oversee recruitment and hiring. PEOs provide flexibility for companies when adding workers.
PEOs hold another considerable advantage. Because they manage many smaller businesses, they can negotiate lower health and other insurance rates due to their purchasing power of a larger employee pool.
Some employers and HR manager's will enjoy running everything off of a single dashboard with one login.
Companies may face issues after turning over some or all of their HR administration to a PEO. There is a loss of control over employee paperwork, and that may include a loss of security. Companies managing sensitive information may not outsource certain employee data due to security issues.
PEOs affect company culture. Employees may not like the idea that they work for a PEO rather than their company per se.
Along with the insurance benefits of PEOs, there is also a downside. Healthcare plans and other benefits are usually limited to one carrier and a set number of plans. Providers may change frequently, which affects the amounts employees pay and their care options.
Some PEOs also have two renewal dates in a calendar year. One for insurance and one for technology. Some PEOs have hidden fees.
PEO vs. In-House
For businesses with limited resources, it makes sense to outsource HR functions. Companies may find that as they grow, an in-house HR department may prove more effective. Even if a company decides to retain an in-house HR department, it may still benefit from outsourcing time-consuming and dull tasks allowing HR to focus on strategic company initiatives.
Determining Whether a PEO is Right for Your Company
PEOs are often the right choice for small to mid-sized businesses that do not want to incur the stress and expense of maintaining an HR department. Larger companies can also benefit from PEOs working in conjunction with their HR department and taking on specialized tasks.
As with any business, examine the bottom line. Does writing a check to a PEO rather than employing administrative staff or purchasing the necessary software save your company money? Time, of course, is money. Companies spending too much time on functions they could outsource to a PEO should consider this as a viable option. Contact WD & Associates to learn more or get a quote below.