It seems like there are more and more ways to outsource human resources needs, talent and tasks that Professional Employer Organizations (PEO) are able to handle. As a small business owner who hasn’t worked with a PEO, think about all the time you can save by handing over some of the most laborious tasks you deal with.
Remember that a PEO serves as a business partner who is an expert in HR outsourcing needs. They become the employee of record utilizing employee leasing to reduce costs of insurance and benefits.
The goal is to be cost-effective while maintaining all compliance requirements. Here are 19 of the top reasons to work with a Professional Employer Organization:
Free Up Management Time
The administrative details of hiring, firing and managing employees take up a lot of time. This is especially true for growing companies. By partnering with a PEO, a small business owner is able to hand off most of the administrative and on-boarding tasks of employees to someone trained to do just that.
The reality is that it takes managers who aren’t human resources professionals a lot longer to complete a task than someone who is trained to do it. Without needing to do payroll, update security training and create operations manuals, business owners and managers are able to focus on the things they do best: build the business through operations and marketing efforts.
Compliant Payroll Services
Processing payroll requires more than calculating the hours worked by employees. Small business owners need to make sure payroll is processed on time, accurately, with all the correct withholding elections and pay all the appropriate federal and state taxes. Incorrectly filing payroll taxes can lead to significant penalties and even jail time.
Professional Employer Organizations offer payroll services that take 90 percent of the work off of managers. Managers complete scheduling, approve hours and fund the payroll account. The PEO takes care of all withholding, check or direct deposit processing, and making sure all proper state and federal taxes are paid. This keeps the small business compliant with the least amount of effort by owners.
Group Health Insurance Benefits
Providing employees (and owners) with health insurance is important to keep the team productive and happy. Private health insurance is expensive. Many small business owners even defer to self-insure their own needs because the cost is often prohibitive to the overall business growth needs.
A PEO provides group health insurance benefits to companies as small as one independent contractor. The PEO does this by pooling employees from the PEO’s various client companies. Since the PEO is the employer of record of all employees for all its client partners, it is able to offer benefits based on the entire labor force.
Retirement plans, group health insurance, disability and commuter benefits are components of a comprehensive employee benefits plan. Small business owners rarely have the resources to offer full benefits to employees because administrative costs and program fees are expensive for small groups of people.
Because the PEO operates on the principle of economies of scale, it is able to reduce the administrative costs of benefits plans to any one client company. The PEO serves as the employer and third-party administrator. Small businesses are responsible for their monthly fees and pro rata portion where applicable to get a full benefits package for pennies on the dollar of what it would cost to obtain it on their own.
Cheaper Workers’ Compensation Insurance
Every business that has even one part-time employee needs workers’ compensation insurance. Workers’ compensation coverage is required by law in every state except Texas. Depending on the industry that a company provides services for, workers’ comp insurance can be quite expensive. The PEO is able to shop insurance rates based on state and larger employee groups to reduce rates in most cases.
This is an area where the PEO will be selective on client companies because the price is reflective of a positive claims’ history. As a client company, you don’t want another company that isn’t concerned about safety rules to drive up the prices for everyone with higher claims. The PEO eliminates your Year-End Audits, and handles all of your claims management. Building the right partner relationships and holding proper safety training keeps claims down and costs down for everyone.
Fewer employers are relying only on resumes and interviews as the only source of pre-employment screening. Everything from drug screening, background checks, and personality tests are used to determine if an employee is a good fit for the company. Recruiting and on-boarding talent is an expense that is reduced with smart hiring practices.
The PEO helps facilitate pre-employment screening to give a client company the right information to know if there are financial issues that could lead to theft, drug problems that may lead to accidents or leadership qualities that make someone an ideal candidate for promotion. Screenings look for the good and the bad to help employers find the right person the first time.
Compliant Record Keeping
Employers have to keep and maintain proper employment files for employees. These files are the baseline to protect employees and employers if issues arise in employment, harassment, job performance, or anything else employee-employer related. Files must maintain employee hiring information including any tests and screening that were done. Payroll data and identification information are required.
The PEO doesn’t just gather and maintain files, it keeps them secure for privacy reasons to ensure every employee is safe from an internal or external data breach. As employees complete required training, these details are also recorded for compliance. The PEO becomes the one-stop for all compliance record keeping for everything related to an employee.
Employers often want to save for their own retirement but are fearful about providing plans where they are required to subsidize retirement funds and match employee contributions. It’s a complex issue that involves administrative costs, liability, plan confusion and budget. But, when the right plan options are presented, most employers realize that offering retirement benefits is an asset to their company and worth the costs.
The Professional Employer Organization is able to design plans that are cost-effective for employers. The PEO takes care of your 5500 filing, and ensures your retirement plans are compliant. Once a plan is in the budget parameters, offering retirement plans gives a small business owner the edge on recruiting better employees and keeping the ones they have. The PEO administers the plan, reducing liability and extra work on the part of client companies.
Professional Employer Organization services include employee benefits administration. This can go well beyond employer-funded benefits such as health and retirement plans. It can include voluntary employee benefits such as pet insurance, voluntary disability, life insurance, and commuter benefits. Voluntary means that the employer is not paying or subsidizing the benefits but is making it convenient for employees to get benefits they want automatically deducted from their payroll checks.
For example, pet insurance is rarely something paid for by employers but many employees are eager to find reasonable insurance to care for their furry friends. The PEO is often able to negotiate better rates for employees’ voluntary benefits because service providers see the value of getting exposed to thousands of employees who potentially will opt in with minimal marketing or administrative effort.
Employee Dispute Resolution
The employee file is the legal protection that an employer has if a dispute arises from employment practices. This is one reason keeping good records is critical. The PEO is responsible for maintaining the compliance of these records that truly protect client partners.
The PEO has its own need to maintain compliance, since it is the employer of record and utilizes employee leasing to let client companies use the employees.
Imagine a recruit sues the small business owner for age discrimination. It is important that the PEO has maintained a record not just of how the prospect was recruited and what questions he was asked in the interview process, but that the entire system was uniform for all employees. Records of assessments and notes from interviewers provide insight as to why the prospect wasn’t hired. This is the legal basis to defend the small business from the claim.
Part of what the PEO does with interview pre-screening tests is to identify people for future development. Many companies utilize leadership competency profiling to determine whether a person has leadership abilities and if they have qualities that can be developed.
Training and promoting people from within saves money and builds a loyal workforce because people feel they have a path for growth.
When a company is looking to grow and promote, it can look to the Professional Employer Organization with all the HR outsourcing tasks it offers and implements different survey, development and training programs.
Improved Recruiting Efforts
When employers hear the phrase, “The job market is competitive,” they aren’t necessarily thinking that many people looking for a job makes it easy for them to hire great new people.
Recruiting is a two-way street when it comes to competition. Prospects are competition with other highly qualified prospects; thus, many will work for less. At the same time, the best talent knows they deserve more than just a fair wage – they deserve comprehensive benefits.
When a business partners with a PEO, it reaps the benefits of elevating its employer status to new recruits. With the help of the organization group, the small business looks like a bigger company with more to offer top talent. A company with health insurance added benefits through payroll and retirement planning almost always has an edge in recruiting than a company this simply offering industry competitive wages or salary.
When an employer partners with a Professional Employer Organization, everyone has access to the company portal. This means that employers are able to log in and access anything they need to regarding personal information for their own accounts, benefits, and payroll. It also allows every employee to review their payroll deposits, tax withholdings, insurance benefits, and all other benefits.
This reduces the amount of extra work an employer has when employees need access to documents. Rather than have someone physically pull information and get it to the employee, the employee is able to see it even from home if logging into the system. Employees may need access for loan applications, health care costs, or retirement investment planning.
A self-employed person doesn’t have to work without benefits. In fact, the Professional Employer Organization model, make it possible for self-employed independent contractors or sole proprietors to afford benefits and workers’ compensation.
The Affordable Care Act (ACA) required everyone to have insurance but it was very expensive for most business owners who couldn’t qualify for Marketplace subsidies.
The PEO structure provides a benefits platform that is available and reasonably priced for a self-employed person. The sole proprietor doesn’t need to forego benefits or find other programs that might now be as robust in what a PEO can offer. Healthcare becomes affordable allowing a self-employed business owner to have health benefits with some money left over for retirement or disability benefits.
There are many rules and regulations to owning even the smallest of businesses with just one or two employees. Not only must you properly hire them, process payroll, and pay federal taxes according to state and federal regulations, you must maintain the privacy of employees and train them to maintain the privacy of fellow employees and consumers. Rules regarding discrimination and money laundering are highly regulated.
Most small business owners know these rules exist but don’t know the day-to-day minutiae that is required. This puts business owners at risk for inadvertently violating rules they are liable to maintain. Working with a PEO transfers the liability to the employer of records, the Professional Employer Organization whose primary job is to keep companies current on all human resources issues.
Regulations Compliance and Updating
Part of how a PEO helps keep the liability risk down for client companies is to stay abreast of new changes in the regulatory environment. As the rules change, a company needs to adapt its processes and update forms or files.
One example of a significant regulatory change was when the Affordable Care Act passed and many small businesses became mandated to offer health care to employees. Rather than navigate the entire system on their own, many small business owners turned to PEOs.
Even small regulatory changes require immediate action. If privacy laws and training changes, a plan must be established to implement the changes. The Professional Employer Organization is responsible for not just implementing compliance programs, but knowing when changes need to be met. This prevents unwanted penalties, fines and even lawsuits to client companies.
Improve Company Culture
By providing employee benefits, a company shows its team that it cares about them. This is the foundation of a positive company culture. It is the foundation of productivity and loyalty. The benefits extend beyond this foundation.
With comprehensive medical coverage and wellness programs, employees miss fewer work days, keeping the company productivity in line with daily production goals and not burdening others to carry the load.
Going even further with developing a positive company culture, the PEO’s training and development programs give employees a better vision of their own future. When people are able to set goals, they are more inclined to do the work to achieve them. The result is a motivated workforce that sees opportunities for promotion and career growth.
Small Business Employer Happiness
People who succeed are willing to do the work that others don’t want to; often this isn’t fun or easy. Most small business owners start off doing it all, from human resources to janitorial on top of running the primary operations. Sometimes it’s a necessary evil in growth. But, small business owners who can use HR outsourcing for payroll processing, tax planning, insurance services, and benefits administration find a renewed spark in running their business.
By outsourcing human resources, and partnering with a Professional Employer Organization, a small business owner can focus on the tasks he loves and started his business to do. While there will always be components of human resource management that the small business owner can’t outsource, getting as much off his plate as possible frees up time, creative energy, and emotional health.
Options for Customization
Every business is different thus every business’ human resources requirements are different. Find a PEO that understands your industry, geographic location needs, and ancillary requirements. You may want to have drug screening while another company has a bigger priority in developing employee handbooks or safety protocol. It could be you only want the basics of insurance and employee benefits.
PEOs vary in size and what they offer. You can work with a small regional PEO for personalized service that is designed to satisfy small business needs in certain areas while national carriers often provide more robust solutions.
Talk to us about the best solutions for your small to mid-sized business. A PEO broker’s job is there to assess your company needs to find the right solution, not just the cheapest or first one available.
You don’t pay an extra dime for our services, so you can confidently know we are working on your behalf.