Why Go with a PEO ?
Five years ago I put together this blog post, when my non-profit employer decided to partner with a professional employment organization (PEO) to help offset some of our HR-related needs. Today, as more and more small businesses go—or stay—fully virtual, and commit to supporting the needs of their employees via a wide selection of benefits, partnering with a PEO or an administrative services offering (ASO) continues to be a great option.
So, what the heck is a PEO?
As mentioned in my Demystifying HR Terms post, a PEO is a service provider that can take on a number of HR related tasks on your organization’s behalf such as:
processing payroll and related taxes and filings
keeping up with changes in federal and state employment law
securing insurance and other related benefits
in some cases, storing and managing your company’s laptops and equipment
The National Association of Professional Employment Organizations (NAPEO) notes that there are 487 PEOs nationwide serving over 173,000 small- to mid-size businesses that employ 4 million employees. That’s a pretty extensive subsegment of the workforce, and it’s growing annually.
How does a PEO work?
When a company partners with a PEO, the relationship is structured as a co-employment of staff. In this contractual agreement, the two employers share employer responsibilities. So, while the PEO is helping with items as those listed above, your organization still handles all aspects of managing staff work, hiring and termination decisions, and staff development. Dividing labor in this way takes compliance and administration duties off of your plate so you can focus your efforts on the HR-related things that you alone can do to move your organization forward. As a bonus, because staff members are legally employed by both you and the PEO, the PEO can pool all their client’s employees to bargain for better rates on group benefits like health, dental, and vision insurance. These discounts can mean big savings for you.
How does an ASO fit in?
In some cases, the PEO will have a minimum requirement on how many employees you need to be eligible for this type of agreement. This requirement has led to the birth of a new structure called an ASO. Unlike a PEO, in an ASO model your company remains the sole employer. The partnering company provides HR compliance and payroll related services (like setting up state required accounts), but there is no minimum number of employees and you can still leverage insurance benefits through the your own small business insurance broker or individually on the marketplace where you live or work.
How do I know if a PEO or ASO is right for me?
I ask my clients a number of questions to help them determine whether a PEO or ASO might be a good solution for them:
Do you have employees or plan to have employees in multiple states?
Do you have infrastructure in place for the administrative aspects of managing employees (payroll system, employee information file keeping system, compliance posters, warehouse storage, etc.)? Are you happy with your current vendors?
Do you have the resources you need (internally or via an HR consultant) to navigate changes to employment law? As employment law is constantly changing on the federal and state level, what risks might exist if you try to do this alone?
How much money have you budgeted to spend on payroll services, health insurance, dental insurance, and other auxiliary benefits?
Partnering with a PEO or entering into an ASO can allow you more time and energy to focus on the high-impact work that supports your business and team.
Additional Resources about PEOs
The National Associate of Professional Employment Organizations (NAPEO) is a great resource in learning more about PEOs and finding one that serves your area or industry.
The IRS also provides a listing of certified PEOs along with providers who are non-compliant so you can verify who’s on the up and up.
Wanna talk more about if these offerings are the right fit for your small business? Click the link below to set up a FREE 30 minute consultation.
