PEO for Small Business? Yes, Yes, and Why.

All small business owners should know about professional employer organizations (PEOs), which enable companies to outsource their human resources responsibilities. A PEO for small business can help the company save money and reduce employee turnover. According to the National Association of Professional Employer Organizations, small businesses that work with a PEO service are 50% less likely to go out of business.¹

This article will explain what PEOs are and discuss how they help small businesses meet the challenges of HR administration with limited resources.

What is a PEO?

A PEO is a professional employer organization. Professional employer organizations provide payroll services and handle other administrative HR tasks for companies, usually small or midsize businesses. In addition to payroll administration, a PEO may administer health insurance and other employee benefits. They can also handle payroll taxes, workers’ compensation coverage, employee onboarding, employee training and development, and more. They do all this while helping to ensure that the company remains in compliance with employment laws and regulations.

PEO companies have a co-employment arrangement with their clients. This means that the PEOs and the businesses with which they work share the responsibilities of being employers.

A PEO gives a business the opportunity to outsource its HR administration functions instead of handling them in-house. Freed from these tedious administrative tasks, business owners and employees can focus time and energy on the core missions of the business. PEOs also save companies money, have the expertise to provide compliance support, help with risk management, and may provide employees with benefit packages that the employer would be unable to provide on its own.

Some PEOs choose to be certified by the Internal Revenue Service, which entitles them to be called certified professional employer organizations, or CPEOs. They can also apply to be accredited by the Employer Services Assurance Corporation (ESAC), a nonprofit accrediting and financial assurance organization.

Why use a PEO for small business?

PEOs can be especially useful for small businesses. Essentially they provide HR services that would be difficult or impossible for a small business to provide by itself. PEO companies can help small businesses meet these challenges when they lack the in-house HR professionals they need.

Insufficient staff to handle payroll in-house

By virtue of their size and developmental stage, small businesses typically don’t employ large HR departments like big businesses do. The growth process is a balancing act. And they often struggle to juggle all the complex and exacting tasks required to properly administer payroll.

Furthermore, hiring and training a competent payroll admin may be too expensive. PEO companies relieve small businesses of the need for an in-house payroll specialist. PEO services typically include payroll processing, payroll record keeping, collecting and administering payroll taxes, and sending out W-2s. They’re also equipped to answer employees’ most intricate payroll questions.

Not enough time to keep up with changing employment law

Businesses must comply with the Americans with Disabilities Act, the Family and Medical Leave Act, and numerous other complex laws and regulations. It’s a lot for a small business to deal with, especially when the business owner lacks expertise in this area. In addition, these laws and regulations often change.

Failure to comply can result in fines, penalties, and/or lawsuits. PEO companies have the expertise to help keep up and comply with all applicable employment laws and changes.

Trouble offering employees attractive benefits packages

When a small business contracts with a PEO, it benefits from the PEO’s larger size. One advantage of working with a PEO is its ability to negotiate better deals with health insurance and benefits providers. This can provide employees with greater benefit options at a better price. Benefits provided may include health, dental, life, and disability insurance, COBRA coverage, and others. Better benefits make it easier to recruit and retain top employees. In addition, the PEO will handle benefits administration and necessary filings.

Not enough resources to manage employees

A small business may need employees but lack the time or personnel to conduct effective hiring, onboarding, training, and development. Some PEOs offer talent management as part of their service package. HR solutions span the gamut, from recruiting, hiring, and employee onboarding services to performance management, employee benefits administration, and beyond.

Administering workers’ compensation claims

A PEO is equipped to properly handle workers’ compensation claims administration for the business with which it works.

Could PEO be right for you?

For many small businesses, contracting with a PEO provides cost-effective advantages. Still, you’ll need to find the right fit for your company, and for that, a PEO broker can help. But working with a PEO may not be right for every business. So there’s a lot to consider. For example:

• What HR functions do you want to outsource?
• What should you look for when selecting a PEO?
• How do you evaluate which PEO company provides the best PEO services for your needs?
• What does a prospective PEO provider charge for its services?
• You’ll also need to weigh how the costs of PEO ultimately compare to other in-house or outsourced HR solutions.

PEOs can provide much-needed HR administrative services to small businesses. By outsourcing HR tasks, small companies can streamline their business operations and focus their attention on company growth. Contracting with a PEO is a big step. Companies should act with due diligence to select a provider that offers the best PEO services for their situation.

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1 What is a PEO