Running your own business can be difficult and rewarding. The majority of successful businesses grow with the addition of employees. Many businesses can suffer from the side effects directly attributable to employees. Side effects (like headaches, nausea, itchy rashes) are typically in small print for a reason. Employees can be a needy bunch, with wanting paychecks and insurance benefits, and somebody has to handle all that!
A Professional Employer Organization (PEO) is a company organized to perform the on-going functions of payroll, payroll tax administration and deposit of taxes out of its own accounts. This function differs from other payroll providers in that the employment relationship with the employee now becomes a shared role that is intended to be long term and not temporary. In other words, the PEO co-employs the employees you hired who work in your business, under your direction. The same ones you have now.
By paying the employees, the employer taxes, and by assuming other administrative duties, the PEO becomes a co-employer. This relationship enables independently owned companies to enjoy the freedom and satisfaction of being in business for themselves, while enjoying the security and benefits of a large corporation.
In the role of co-employer, the PEO may secure the right to include all of the employees under a single application for group health, life, dental and disability insurance. Specifically, the size of the PEO group determines the employee population viewed by the insurance company as the eligible group. Frequently this number is in the thousands, and in the case of some national PEO companies, the employee population is in excess of 100,000 employees strong!
With some PEO companies, 401(k) retirement plans, flexible spending accounts (FSA), employee assistance plans (EAP) and a whole menu of voluntary benefits are offered to the employees of the PEO. If the benefit plans currently in place are something the firm does not wish to change, the technology behind the employee administration tools allows for deductions and credits to be reconciled on one system.
Workers’ compensation coverage works similarly. Put simply, more employees’ payroll equals more workers’ compensation insurance premiums, which equals more volume discounts. The employee leasing companies are incentivized to prudently manage their workers’ compensation insurance programs, and thus encourage good practices within their client companies by providing proactive safety training, OSHA compliance assistance and thorough claims processing.
PEO companies provide their client companies with an improved level of professionalism for their human resource functions. Web enabled information systems can be highly sophisticated with time and attendance features, employee self service reports and benefits communication. Management professionals can utilize the system for a myriad of administrative functions, such as tracking continuing education requirements for staff, communicating vacation requests, and equipment management tracking for items like cell phones and laptops. Standardized forms, policies and employee manuals can be provided for implementation and most PEOs make available professional human resource specialists (PHR) to assist their client companies. Employer Practices Liability Insurance (EPLI) is frequently provided for a very low cost.
There are an estimated 2-3 million leased employees nationwide in law firms, bakeries, welding shops, shoe stores, etc., according to the National Association of Professional Employer Organizations (NAPEO).
Understanding the relationship between the PEO, the employer and the employee is crucial in evaluating the cost to benefit ratio under such an arrangement. All PEO companies are not alike and understanding the measurable differences is an important step for a firm considering the concept. The consultative services of SB Recommend are at no fee to the client company. Find the right PEO provider with our help.