What is a Professional Employer Organization (PEO)?
A professional employer organization, or PEO, is referred to as a co-employment relationship, business process outsourcing, or HR outsourcing. According to the definition provided by the National Association of Professional Employer Organizations (NAPEO), “PEOs enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll, and workers’ compensation.” The PEO industry has existed for over 30 years and has over 500 PEOs nationwide. PEOs operate in every state and provide services to 200,000+ small and midsize businesses, employing more than 4.5 million people.
How Does a PEO Work?
Partnering with a PEO means businesses can delegate some of their employer responsibilities, streamlining their HR operations. PEOs assume tasks such as processing payroll, ensuring HR compliance, handling employee benefits, and more. Although PEOs help alleviate some employer responsibilities, businesses ultimately manage important hiring and firing decisions. A PEO aims to optimize employer procedures so that companies save time and resources to focus on core business operations, such as building an effective team and growing profits.
What PEOs Can and Can’t Do For Your Business
If you’re concerned that working with a PEO means you’re going to lose control of your company, you’re not alone. The reality is that you will never lose control of your business when you hire a PEO. In fact, a PEO will help you make more informed HR decisions that will make your business stronger.
What PEOs DO
- Handle comprehensive HR services for employers, including payroll processing, HR compliance, risk management, employee benefits, employment tax, and time and attendance management
- Help reduce liability for payment of wages, payroll taxes, and state unemployment taxes
- Assist with employee recruitment and reduction of employee turnover
- Make your business more attractive to current and potential employees
- Save you time so you can focus on the day-to-day operations and growth of your business
What PEOs DO NOT Do
- Take control of your business
- Supply labor to worksites
- Make hiring and firing decisions for you
Benefits of Using a PEO Company For Your Business
There are many reasons why employers use a PEO. Businesses that outsource HR services to a PEO typically experience:
- Increased ROI: Employers see an average annual return on investment of 27.2% from using a PEO.
- Faster growth rate: Businesses that partner with a PEO grow two times faster and are 50% less likely to go out of business.
- Greater employee retention: Businesses in a PEO partnership have 12% less employee turnover.
- Competitive benefits and health insurance: PEOs leverage their purchasing power to negotiate more affordable benefits and insurance offerings for small to midsize businesses.
- Improved compliance: PEOs stay up-to-date on business regulations to reduce risk and ensure your company remains compliant.
Source: NAPEO
Frequently Asked Questions
Yes! PEOs work with companies in all industries, ranging from accounting firms to small manufacturers to doctors and mechanics. Many different types of professionals benefit from PEO services, including:
- Construction
- Transportation & utilities
- Retail
- Manufacturing
- Wholesale
- Agriculture/forestry/fishing
- Other (public administration, finance, insurance, real estate, and mining markets)
A PEO provides more extensive services than a payroll company. While a payroll company is limited to just processing payroll, a PEO handles human resources, employee benefits, employment taxes, risk management, and more.
Although PEOs and staffing agencies are similar, they are not the same. While staffing agencies focus on recruiting and hiring employees, PEOs offer more encompassing services that extend beyond the hiring process.
PEOs help reduce the overall cost of human resources by optimizing all employer operations. They also save businesses time and money by streamlining procedures related to HR, payroll, benefits, and taxes. PEOs also help protect against additional expenses by providing expertise in risk management and government compliance.
Any Business Can Find Value In a PEO Relationship. Ready to Learn More?
Give us a call at 330-659-0100 or contact us here to start a conversation about how GMS can make your business simpler, safer, and stronger. In the meantime, visit our Education Center to learn more about PEOs.