Professional employer organization (PEO) is a type of human resource outsourcing known as co-employment. In this arrangement, the PEO handles various employee administration tasks, like payroll and benefits administration, on behalf of the business.
This article will explain how a PEO works and why you should consider using one for your business.
How PEO payroll services work
The PEO and the business share the workload and responsibilities in a co-employment relationship. The PEO tends to be responsible for processing payroll, withholding and paying payroll taxes, maintaining workers’ compensation coverage, and administering employee benefits. And the company is accountable for managing regular business operations, like providing services to customers and deciding which employees to hire or terminate.
What businesses could benefit from PEO payroll services?
Most co-employment relationships involve small and midsized businesses, though larger organizations can also benefit. PEOs are a good fit for most industries, including the following:
- Computer services and technology
- Real estate and property management
- Security brokers and dealers
- Health services
- Legal services
- Insurance
- Business services
- Plumbing, HVAC, and electrical
- Wholesale
- Nonprofits
What does a PEO not do?
While a PEO can help handle payroll and HR administration, you should maintain control of your organization. PEOs should not:
- Make business decisions for you
- Help with marketing, sales, or product distribution
- Dictate pay rates, hours, or schedules
Why should a company use a PEO?
Hiring a strategic PEO can help you grow your business and give you the peace of mind of having an expert help you. PEOs typically help companies with the following:
- Payroll and tax filing. PEOs are responsible for processing payroll and can pay local, state, and federal employment taxes. Many can also integrate payroll with time and attendance, helping to reduce duplicate data entries and errors.
- Benefits administration. Most co-employment arrangements also provide access to high-quality, cost-effective health insurance, dental care, retirement benefits, and other employee perks. The PEO typically handles the employee enrollment for these benefits and processes any claims for you.
- Compliance. PEOs generally have knowledgeable compliance experts that can help protect your business from fines and penalties. Areas of expertise may include payroll tax law, reporting requirements, unemployment insurance, workers’ compensation, hiring, and HR compliance.
- Risk and safety. Along with workers’ compensation insurance, some PEOs offer safety audits and training programs to help you limit claims. They can also assist with Occupational Safety and Health Administration (OSHA) inspections.
- Human resource support. In most cases, PEOs have human resource (HR) professionals who provide services and support. And even if you already have an in-house HR team, the PEO can help with strategic and administrative tasks.
- Talent management. Some PEOs provide talent services, like recruiting, employee training and engagement, and performance management.
How to choose the right PEO for your business
Finding the right PEO for your business is essential. This means you should shop the co-employment market as you would for other strategic business needs. You’ll want to select a PEO that:
- Has a strong track record and fiscal stability
- Can meet the needs of your business and employees
- Supply references from previous and current clients within your industry
- Providing comprehensive support and compliance expertise
- Offer services and coverage where you do business within the United States
- Are certified by the Internal Revenue Service (IRS) or accredited by the Employer Services Assurance Corporation (ESAC)
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