A Professional Employer Organization (PEO) functions to relieve business owners from cumbersome Human Resources (HR) related tasks. PEOs typically serve small to mid-sized businesses. However, they do work with large organizations as well. A PEO can provide vital service when your business deals with an increasing volume of HR-related administrative tasks.
Your business might be growing or is big enough that its HR-related obligations/tasks are becoming burdensome. Yet your business might not be big enough to warrant having a dedicated HR department. You can outsource some or all of your HR-related tasks to the PEO. Outsourcing to a PEO means that you will have more time to focus on operating and growing your business.
The relationship between a PEO and its business client is a contractual agreement known as a co-employment partnership. In this arrangement, the PEO takes care of all employee or HR-related tasks. Business owners retain control of all other aspects of running the business. In a co-employment partnership, employees working for an organization are technically employees of both the organization and the PEO. For example, employees take direction from the business owners/managers. However, they earn their paychecks from the PEO.
A PEO can service your business in several ways. For example, it can take over all HR functions from recruiting to employee separation. This includes administering payroll, benefits, retirement plans, and workers' compensation obligations. Sometimes a PEO focuses on payroll processing and benefits administration. Alternatively, a PEO can also function as a complementary service to an existing HR department.
Let's examine the functions of a Professional Employer Organization in detail:
Outsourcing HR-related tasks to a PEO means that your business will save on labor costs. A PEO has multiple workers on rotation that can execute HR administrative tasks for you without interruption. The absence or unavailability of in-house HR employees can hold up the processing of urgent HR issues. It is not prudent to pay for in-house HR services if they are inaccessible at critical times. Handling employee injury paperwork, urgent pay matters, and harassment incidents are issues that can pop up out of the blue but have to be dealt with promptly to prevent lawsuits.
Payroll Processing by one person at the business site can be rife with errors. The absence of the payroll employee can delay paychecks and payment of payroll taxes to the government. A PEO can ensure that payroll processing is done accurately and with timeliness. A PEO can save you money by having multiple eyes check for accurate computation of paychecks versus one pair of eyes at the business site.
Group Benefits are a huge expense for small and mid-sized businesses. Large businesses pay much less for group insurance and benefits because they get volume discounts. PEOs group all the small businesses they serve as one big organization. This allows them to bargain for the most competitive rates for group insurance. Using a PEO to reduce the cost of medical, dental, vision, and life insurance is one of the best reasons to work with a PEO.
Workers Compensation is insurance that all employers must pay. This insurance helps to mitigate the cost of injuries sustained by employees during their work shifts. Again, small employers have a more difficult time securing insurance to cover their employees. A PEO can step in and provide this insurance at affordable prices for small to mid-sized businesses. While businesses don't need to provide health, dental, or vision insurance to their employees, businesses are mandated to pay this insurance by law.
Retirement Plans or 401Ks are not typical group benefits. However, they help employees save money for retirement. As a small employer, you might find that designing or shopping for a retirement plan that your employees can pay into can be a complex process. A PEO usually has multiple options that employees can select from to save for their retirement.
Automating Tasks for their clients is a vital service that PEOs provide. Automation helps you to complete HR tasks in-house very quickly. For example, automating the job application process can help you to sort through and process job applications. This convenience saves one from the hassle of dealing with a mountain of paperwork (containing private information) lying around.
Streamlining Tasks is another time-saving service that a PEO can assist businesses with. Business owners can be unaware of how much of their time gets wasted with duplicated tasks. A PEO can trim the number of tasks and the volume of employee-related information that a business needs to track. Keeping a clear, concise track of HR or employee-related information decreases clutter. For example, employee-related information that can be stored securely online does not have to be printed and filed.
Benefits Administration is a tedious task. Besides providing competitively priced group benefits, a PEO can also administer employee benefits on your behalf. For example, they can inform employees when to enroll and how to access their benefits. They can also pay insurance/benefits vendors correctly and on time. Imagine calculating the cost of benefit expenses every time an employee joins or leaves your business or benefit program. A PEO can easily save you time by taking over the process of benefits administration.
Answering Employee Questions or concerns regarding their pay, benefits, and other administrative tasks may not be feasible for you. You might be unavailable when employees need help. Or you might not have the information they need. Outsourcing HR administration to a PEO will direct employee inquiries to dedicated benefits/HR specialists. The PEO will provide uniform service and information to all your employees.
Customizing Workforce Solutions to fit the unique needs of your business is one of the first things a PEO can do to help you. Not only can they assess your needs, but they can also incorporate your specific requests into any workforce plan that they design for you. If your business already has a plan in place, they can reconfigure or improve your plan.
A PEO will research how businesses from the same industry that are of comparable size to your business administer their HR-related tasks. They will also research businesses that are subject to laws that are similar to the laws that your business is subject to. The in-depth research and analysis is the basis on which a PEO designs customized workforce solutions for its clients. Efficient PEOs also allow for periodic reviews of the workforce solution that they design for their clients. They will tweak their solutions to refine the quality of their service as needed.
The Quality of Service provided by a PEO is helpful to both the employers and employees of a business. PEOs provide access to up-to-date employee-related information on their platforms to employers and employees. Employers can track all employee-related events/ incidents/actions/milestones quickly and efficiently. Employers are also able to update and edit information quickly and easily.
From the employee standpoint, the ability to update personal information such as home addresses and direct deposit information without waiting to go through an HR employee makes PEO-provided HR services more convenient to use. Employers and employees feel less stressed when they can access and update the information that they need without hassles.
Staying Current With Changing Laws can be a complicated matter for business owners. Having multiple business locations can add to the confusion with how to keep up with the changing laws. Adding remote employees to the mix adds another layer of complexity. A PEO can help its client to keep up with changes in labor and payroll tax laws concerning every jurisdiction that affects the employer.
Paying Employment Taxes on time and accurately is an activity that employers can get lax on. Underpayment and delayed payment of payroll taxes can result in stiff fines and penalties. A PEO computes payroll taxes accurately and sends out tax payments on time.
Recruiting/Hiring Procedures are bound to certain laws. A PEO can help set guidelines about the hiring process. Business owners/managers can avoid potential lawsuits by following legal recruiting and hiring processes.
Complex HR issues can arise in the course of doing business. A PEO generally employs HR professionals who collectively have deep expertise over a broad spectrum of HR topics. Therefore, a business can consult with experts at the PEO regarding complex issues. A PEO is not a substitute for legal advice. However, a PEO can assist with understanding and dealing with complex issues. For example, how do you pay an employee who is off work due to both a work-related and non-work-related injury?
What if this employee is also up for a review and a raise? Dealing with multiple issues concerning one employee can take up all the time of a business owner/manager. This is where expert advice from a PEO can help an employer to navigate complex HR issues and avoid lawsuits.
Reducing Employee Turnover is a big focus of most businesses. Reducing turnover or increasing employee retention is a direct consequence of increased employee engagement. Engaged employees are happier and more productive on average. They also tend to quit less often than disengaged workers. A PEO usually contributes to increased employee engagement. It can also simplify and smooth the process of employee onboarding. Plus, it can process employee requests uniformly.
They also apply consistent standards when handling employee-related matters. They inform and educate employees about their benefits and options. They also inform all employees about upcoming changes that can affect their benefits. A PEO will often alert employees about any pending tasks that they need to complete. Simple, informative, transparent, and timely service from a PEO is enough to see a positive change in employee engagement.
Prudent Risk Management can help reduce the cost of doing business. Lawsuits and workers' compensation claims can hit the bottom line of any business. These are the two costs that can drive most small businesses out of business. Since a PEO has extensive experience with all aspects of HR administration, it can help shape safety and conduct protocols at the workplace. For example, it can educate business owners/managers on how to conduct themselves with employees to prevent inviting lawsuits.
A PEO can also mandate that new employees get proper safety and conduct training upon hire. They can also mandate ongoing training in the areas of safety and conduct. Such practices will ensure that employees know how to work safely and behave at work. Education and enforcement of safety and conduct protocols can help reduce costs associated with lawsuits and injuries.
Sharing Liability with a PEO is a benefit of contracting the services of a PEO. For example, a business may be facing an employee-related lawsuit despite following proper rules and regulations. In such an event, the PEO will have to share the cost of the lawsuit with the business.
Tracking and Analysing Employee-Related Data is a specialty of PEOs. A PEO can forecast business and industry-related workforce trends for its clients. You can use this information to plan and develop for the future. Data-driven solutions can help you to recognize the aspects of HR operations that need to be modified. For example, is employee turnover related to unrealistic expectations or a poorly designed benefits package? Data analysis can reveal subtle HR-related issues that might not be observable.
A Professional Employer Organization (PEO) can help you to focus on growing your business by providing you with HR-related services at an affordable price. Consider how a PEO can reduce your cost of doing business by allowing you to bypass the hiring of costly in-house HR professionals. A PEO can assist you with all your HR needs for much less than the cost of an on-site HR department.
LinkHCM is a seasoned provider of workforce solutions. We can assist you with every aspect of your organization’s HR needs.
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