PEO (Professional Employer Organization)

As your business grows, HR, payroll, and compliance tasks quickly become more complex. That’s where a U.S. Professional Employer Organization (PEO) can help you with payroll processing, tax administration, HR compliance, workers’ compensation insurance, and more.

When you reach 15 workers, you have to start following the Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act of 1964, Pregnancy Discrimination Act (PDA), and Title II of the Genetic Information Nondiscrimination Act (GINA). At 50 workers, you have to comply with the Family and Medical Leave Act (FMLA), Affordable Care Act (ACA), and similar employment laws.

You can’t afford to ignore these laws because of the penalties and reputational risk involved. However, maintaining your organization’s legal compliance takes time and money. With a PEO, essentially, you get to outsource your HR responsibilities while maintaining full operational control.

At its heart, a PEO is a third-party organization that forms a co-employment relationship with your business. It’s a human resources business that can handle your HR services, benefits, payroll, and compliance. You maintain your day-to-day control of the company, but the PEO shares the role of employer. 

PEOs are significantly different from traditional outsourced HR providers. A PEO is like a co-employer that handles your company’s payroll, HR, and compliance responsibilities, taking on much of the regulatory risk. With outsourced HR providers, you still bear all the legal burden as an employer.

Think back to all of the I-9 forms and W-4s that you have ever filled out with new hires. Because a PEO is in charge of the new hire paperwork, they would handle all of these forms and other employment documents. You simply have to make the hiring decisions and devote your entire focus to building your business.

As your co-employer, your PEO is in charge of a few essential tasks. 

Payroll Processing and Tax Administration

Whether you’re a small business or large corporation, payroll processing costs can quickly add up. A typical CPA charges $100 per hour to complete payroll. 

However, you can’t simply go without expert help. A one-time violation of the Fair Labor Standards Act (FLSA) can easily add up to hundreds or thousands of dollars.

By turning to a PEO, you can get cost-effective expertise. A PEO handles the payroll processing and tax administration burden, so you don’t have to worry about whether you’re in compliance or not.

Employee Benefits Procurement and Management

Finding the best source of pet insurance or an inexpensive retirement plan can be challenging for business owners and entrepreneurs. However, poor benefits could drive your workers away. According to a Gallup poll, the number one thing workers look for in a new job is better benefits and pay. 

A PEO simplifies the entire process of finding and managing employee benefits. They pre-screen the best options for you to choose. Afterward, your employees can decide whether they want to take part.

HR Compliance and Risk Management

From the Americans With Disabilities Act (ADA) to the Pregnancy Discrimination Act (PDA), there are many HR compliance rules you need to follow. If you fall afoul of major HR laws, it can result in penalties and potential lawsuits. A skilled PEO can help you create an employee handbook, attract new hires, and ensure your interview process is in compliance with the ADA and other important laws. By doing so, your PEO can reduce compliance risks to your firm. Read more in our comparison of PEO and HR outsourcing.

Onboarding and Offboarding Support

In total, 69% of employees say they’re more likely to stay with a company for three years or more if they have a good onboarding experience. During the pivotal first few months of a new employee’s role, a PEO can help you achieve consistency and clarity in your training process. For example, you can get support designing onboarding materials, creating a mentor program, and building performance feedback tools. You also need professional help with offboarding to ensure you don’t violate any employment laws, such as state-by-state laws about when and how to give a final paycheck.

Workers’ Compensation Insurance

While workers’ compensation isn’t a legal requirement in every state, it’s a wise decision for private and public employers. If an employee becomes injured, workers’ compensation helps to decrease the impact it has on your bottom line. At the same time, your workers’ comp insurance will ensure the employee has access to the medical funds and support they need. Because managing workers’ comp can be a headache for employers, it pays to have a PEO on speed dial. 

Optional Services

A PEO can handle as much of your HR, payroll, and compliance processes as you need. Add-on services, such as employee training, recruiting, and performance tools, can help your company become leaner and more effective.

If you want a scalable solution to common HR and payroll compliance issues, PEO services are an excellent option. Many small and medium-sized businesses turn to PEOs because they want better employee benefits and world-class administrative processes, but they aren’t large enough to set up these programs internally. Similarly, many startups use PEOs so that they can get top-rated HR support without having to hire an in-house team.

As your company expands into new territories, it pays to have professional payroll and HR support. Each state has different rules about minimum wage laws, overtime requirements, paid leave, and the kind of interview questions you can ask. In fact, individual municipalities can even have their own payroll and HR rules. To maintain your compliance as you expand into a new state, you need the support of a PEO.

More importantly, a PEO reduces your employment-related liability. Because the PEO is in charge of employing the worker, it shares in the risks for all of your HR decisions, tax filings, and legal paperwork.

Your corporation has a few different ways it can set up its HR and payroll systems. Other than using a PEO, you can set up an in-house HR team, use an Employer of Record (EOR), or hire an Administrative Services Organization (ASO).

• In-house HR Teams: With an in-house team, you have to hire and train each HR worker yourself. Before you can scale your business, you also have to scale your HR team, creating an unnecessary hassle.
• EOR: While a PEO hires with you, an EOR hires for you. EORs make more sense when you’re expanding internationally and need someone to handle the hiring legwork for you. If you still want control over your company’s decisions, a PEO is a better choice.
• ASO: An ASO doesn’t allow for any co-employment options. Instead, they handle services while you take on all of the legal risk. If you’re going to devote organizational resources to HR and payroll services, it makes more sense to use a PEO that’s willing to shoulder their share of the compliance risk. Read more in our PEO vs ASO Guide.

By turning to a PEO, you get a partner that is willing to share in your employment risks. A PEO handles HR and payroll tasks, so your company can focus on what it does best. With this type of provider, you get a cost-effective, scalable solution to your administrative and compliance needs.

Thanks to demographic changes, the number of older adults outweighs the number of children in almost half of U.S. counties. In fact, around 10,000 people turn 65 every day in the United States. Because of the changing employee base, attracting top-quality workers is only going to become more challenging for employers. 

By working with a PEO, you can boost your employee retention rates and job satisfaction levels. Through a PEO, you can access the same benefits that Fortune 500 companies offer their workers, making it easier to attract top talent in a competitive job market.

Besides talent acquisition, your PEO can help reduce your legal risks and improve your overall compliance. They know what it takes to navigate legal requirements in different states, so you get a one-stop shop for all of your multi-state compliance needs. 

Plus, a PEO helps you lower your expenses from the first day you start using them. Because they manage all of the HR and payroll legwork, your company can decrease its administrative burden.

While a PEO is an effective tool for many companies, it isn’t the right choice for everyone. Often, this tool is only available for workers who are based in the United States. If you need international support, PEOs can only provide limited flexibility.

Because of how the PEO sets up its services, the co-employment structure may be confusing for your workers. Additionally, handing off administrative tasks inherently means that your company will be in control of fewer HR activities. 

All of these limitations need to be weighed carefully before making your decision. While there are drawbacks to consider, using a PEO is a useful way to scale businesses and lower administrative costs at many corporations.

Each PEO provider is different, so the cost can vary. However, you can typically expect to pay around 2% to 12% of your gross payroll amount. Alternatively, some PEOs charge a flat per-employee fee instead.

The PEO cost you pay covers many different services.

• Payroll and Tax Handling: One of the PEO’s major responsibilities is managing payroll and filing taxes.
• Benefits Administration: PEOs provide an impressive array of benefits. If your company elects to offer these benefits, the PEO will handle the administrative tasks involved with setting up each worker’s account and managing their benefits.
• Workers’ Compensation Coverage: Workers’ comp reduces your company’s risks, but it takes time and expertise to keep your workers’ comp up to date. By partnering with a PEO, you can avoid the administrative headache while reducing your company’s risk profile.
• HR Compliance Services: Staying in legal compliance can be challenging, which is why it makes sense to let the PEO deal with your HR forms and procedures.

When it comes to cost, it’s important to keep in mind that PEOs often have minimum employee counts. In some cases, the PEO will require a long-term contract. This is because setting up new companies and running payroll each month takes a huge investment of time, so the provider needs to make sure that a minimum of their costs are being covered.

As a business, there are a few questions you should ask different PEO providers to find a company that works well for your needs.

• Are you a certified PEO (CPEO)?
• How do you ensure you’re in compliance with state, federal, and local laws? What do your compliance processes look like?
• How many years have you been in business under your current company name? 
• How is data security handled?
• What do you do to stay up to date on the latest changes to employment laws?
• Can you handle multi-state compliance?
• Can I see what an unbundled fee schedule looks like?
• Who is going to take care of all my questions and needs?
• What are your retirement plan options?
• How will you keep my company out of trial in a legal dispute? 
• What’s included in your pricing?
• If I hire you, will I be locked into a contract? 

To make sure you are working with a reputable provider, there are a few qualities you should look for.

Review Certifications and Accreditations

 
First, you want a provider that is certified by the Internal Revenue Service (IRS) or that has its Employer Services Assurance Corporation (ESAC) accreditation. The ESAC accreditation, in particular, is known as the gold standard for reliable, financially stable PEOs.

Ask About Industry-Specific Experiences

 
Next, you’ll want to ask about the company’s industry-specific experience. For example, fisheries in Alaska have a huge seasonal workforce, so HR and payroll processes must immediately ramp up to meet the industry’s needs. Each industry has different HR and payroll compliance needs, so you’ll want to find a PEO that has worked with businesses like yours in the past.

Review Tech-Stack and Consider Integrations

 
Most likely, your company has existing technology platforms that it already uses. Because of this, you need to find a PEO that has an integrated technology platform that easily works with your existing systems. 

Check for Transparent Prices

 
As a corporation, you can’t afford to switch from one company to another at a moment’s notice. Your company needs continuity, so you have to find the right PEO to start with. To make sure the PEO is a good fit for you, check for a transparent pricing model. Make sure to get a list of all the services covered in writing so that you won’t have any hidden fees or unexpected surprises later on.

Review Their Customer Support

 
Even with the most reliable partners in the industry, there will still be hiccups from time to time. Before you hire a PEO, think about the type of customer service and HR support you’ve received during the research and onboarding process. You need a PEO with strong customer service, so you can get immediate help as soon as a problem appears.