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PEOs: What You Need To Know

If you’re a small business owner just now learning about professional employer organizations (PEOs), you’ve taken the first step toward providing your company with more efficient and unique practices for handling your most precious assets: your employees. But what exactly is a PEO, and how does it work?

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PEO Definition: What is a Professional Employer Organization (PEO)?

PEO stands for professional employer organization. During your research, you may have heard PEO services referred to as co-employment, business process outsourcing, or HR outsourcing. According to the definition provided by the National Association of Professional Employer Organization’s (NAPEO) definition, “PEOs enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll, and workers’ compensation.” The PEO industry has been around for 30+ years, with more than 700 PEOs nationwide. PEOs operate in every state and provide services to 208,000 small and mid-size businesses, employing more than four 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 (please view a more comprehensive list of what PEOs can do for your business below). 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. 

PEO Services: 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

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:

  • Positive ROI. Employers see an average annual return on investment of 27.2% from using a PEO.
  • Faster growth rate. Businesses who use a PEO grow 7-9% faster and are 50% less likely to go out of business.
  • Greater employee retention. Businesses in a PEO partnership have 10-14% less turnover.
  • Competitive benefits and health insurance. PEOs leverage their purchasing power to negotiate more affordable benefits and insurance offerings for small 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

1. Do PEOs work in my industry?

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)

2. What is the difference between a PEO company and a payroll company? 

A PEO company 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. 

3. Is a PEO the same as a staffing agency? 

Although PEOs and staffing agencies are often referred to interchangeably, 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. 

4. How does a PEO help control HR costs? 

PEOs assist in reducing the overall cost of human resources by optimizing all employer operations. PEOs save businesses time and money by streamlining procedures relating ot HR, payroll, benefits, and taxes. PEOs also help protect from 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 fill out the form below to start a conversation about how GMS can make your small business simpler, safer, and stronger.  In the meantime, visit our Education Center to learn more about PEOs.

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