Why Use a PEO to Outsource Your HR
In this down economy, outsourcing non-core business functions is an effective way to manage costs. With that in mind, if you own a small-to-medium sized business, it may be to your benefit to utilize the services of a professional employer organization, or PEO. By outsourcing your human resources, you can eliminate much of the overhead associated with hiring, providing benefits, and ensuring compliance.
Co-Employment Defined
Typically, when a business contracts the services of a PEO, employees are hired under a co-employment agreement. With this arrangement, the PEO acts as the administrative employer and the business acts as the work site employer. In other words, the PEO becomes the employer of record for tax and insurance purposes. They are also the company responsible for paying wages, providing insurance, handling paperwork, and ensuring proper procedures are followed. The business is responsible for keeping track of hours worked and controlling the daily activities of employees.
This helps medium-to-small sized business because they can reduce time spent on administrative tasks and take advantage of economies of scale that would not otherwise be open to them.
What Are the Benefits?
There are a number of reasons that businesses might want to outsource their HR functions. With a PEO partner, businesses can focus on revenue-generating tasks rather than spending time and money building a human resource management department. If needed, a PEO company can even take care of hiring and training new employees, which can eliminate the need for running ads and conducting initial interviews.
Since a PEO’s main focus is providing quality HR services to a variety of clients, often the HR services that are offered are more comprehensive than those that could be offered by the company itself. The PEO can often offer a better benefits package than the business itself, which benefits the employee and makes the business a more attractive place to work for top talent.
Is a PEO Right for Your Business?
A PEO offers a number of substantial advantages to smaller businesses that can help them stay competitive with larger corporations. Many find that partnering in this way helps them stay focused on core competencies, and thus increase profits while lowering expenses. A PEO can also help ensure legal compliance and improved risk management.
This type of co-employment relationship can help your business get ahead of the competition by providing a number of benefits for your company and your employees. Whether a PEO is a good decision for your business is something that you should consider.
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Well written article. I think more and more business owners are becoming aware of the PEO and are open to using it for their business. As businesses grow and find it difficult to stay on top of the latest employment law regulations, they turn to a PEO for their expertise in all human resource systems.
Even thoughs PEO can provide valuable administrative services, to ensure legal compliance, employers, whether large or small, should consult with their employment counsel.
PEO’s offer valuable services, but are not panaceas and are sometimes oversold. The client typically remains at least one of the workers’ legal employer, with the resulting potential liabilities. And I recently resolved a case where the small business had relied on the PEO’s advice to terminate an employee after an FMLA leave of absence without adequate precautions about the FMLA retaliation/ADA discrimination issues. This resulted in a substantial settlement. As a previous commentator noted, a PEO is not a replacement for competent legal advice.
PEOs definitely aren’t for all businesses and I appreciate the feedback from all of you.