Understanding the Basics: What is a PEO and How Does it Work?

PEOs use the co-employment model to assume some or all of your business’s HR, payroll, and workers’ compensation responsibilities. This enables companies to save money and improve employee experiences through professional HR resources, better benefit packages, and streamlined data tracking.

Many PEOs also offer a wide selection of benefits that are often more affordable than small businesses can obtain on their own, including healthcare, dental and life insurance, flexible spending accounts, retirement plans, telemedicine, and commuter benefits.

Now, what is a PEO? A PEO is a service that takes on the burden of many back-office functions, such as payroll taxes, insurance, and HR support. It acts as a co-employer with its clients to distribute employer responsibilities, allowing you to free up more time to focus on attracting and retaining employees and growing your business.

PEOs also have specialists on staff who monitor the ever-changing state and federal laws that impact employers, such as worker’s compensation, wage and hour, and other regulations. They inform you of the latest changes and provide tools and resources to avoid costly penalties.

Because they manage so many aspects of employee administration, PEOs have the scale to negotiate better rates with benefits providers and often have lower administrative costs than a traditional human resources department. The result is typically a higher ROI on your investment.

Another benefit of working with a PEO is workers’ compensation insurance. PEOs can help you save money by reducing risk, improving claims management, and designing return-to-work programs.

Most PEOs are a one-stop shop for your company’s employee needs, but some have a more limited scope of services. For example, some only provide payroll processing and compliance, while others offer more extensive HR support and benefits solutions. Some also have a specific focus, such as delivering global solutions to companies seeking to expand abroad.

PEO Pricing

PEOs have become famous for small businesses, providing them with comprehensive human resources solutions and impressive benefits packages at a fraction of the cost of hiring a full-time, in-house accounting and HR team.

A PEO will co-employ your employees and provide you with services like payroll management, workers’ compensation insurance, tax filings, and employee training. However, you will still have complete control over the hiring and firing process and all other business aspects.

A PEO can also help you reduce risk and save money by negotiating group rates for big-company employee benefits such as health insurance, retirement, life insurance, and disability policies. PEOs can secure these group rates because they represent hundreds of small and medium-sized companies that pool their purchasing power.

One of the things that makes it challenging to compare PEO quotes is that each provider’s pricing model varies widely. Some PEOs charge a flat fee per employee basis, while others use a percentage of your payroll. Some small business owners prefer a flat fee, which clarifies what they will pay month-to-month.

Some PEOs will also break down what costs are included in their percentage-based pricing model, which helps their clients understand exactly what they are paying for and why. This is known as unbundling and is essential when comparing PEO quotes.

PEO Services

In addition to payroll and HR services, PEOs often provide consulting and training. They also help companies with risk management and compliance issues. They usually have experts in different industries who can offer specialized guidance on specific concerns, which can be especially helpful for companies in highly regulated sectors.

A PEO’s services are usually bundled and charged as a percentage of payroll or as a flat fee per employee. Employers should always ask what services are included in the bundle they’re considering, as this will be a significant factor in determining whether a PEO is suitable for their company.

PEOs can save small businesses time and money by handling critical administrative tasks such as tax filings, workers’ compensation insurance, and human resources services. They also take the complex logistics of hiring remote employees, making it easier for small businesses to recruit and retain talent.

Additionally, PEOs can provide their clients with big-business employee benefits like retirement 401(k) plans, health, dental, life insurance, dependent care, commuter benefits, and Employee Assistance Programs, often unaffordable for smaller companies. PEOs can help boost morale and productivity by providing these valuable benefits while reducing business risks.

They can also help improve profitability and growth by reducing payroll and HR costs and increasing compliance. This mainly benefits startups and smaller companies lacking in-house HR, benefits, or payroll expertise.

PEO Benefits

PEOs can provide a range of benefits to small businesses, including lower workers’ compensation costs and reduced employment risk. They can also help companies reduce labor and administrative expenses by handling employee-related tasks like payroll processing, government compliance, and recruiting support.

PEO services can free up a company’s resources so that the business can focus on more pressing issues, such as growth and expansion. They can also help a business comply with local, state, and federal employment laws, such as new “ban the box” regulations prohibiting asking job applicants about criminal backgrounds or the latest wage equity laws.

In addition to HR management, a PEO can offer recruitment assistance and access to Fortune 500 employee benefits. Recruiters are skilled at sizing up candidates and can help a business find the right person for the job, which can save time and money by eliminating unnecessary hiring expenses.

PEOs can also help a business reduce payroll and worker’s compensation insurance premiums, and they can assist with managing relationships with insurance carriers, following regulatory requirements, and providing COBRA to terminated employees. Generally, they have more buying power than a smaller employer and can negotiate lower rates for health insurance, life insurance, and 401(k) plans.

Additionally, they can often provide industry-specific tools and guidance for specialized industries. Ultimately, a PEO can bring peace of mind to a company’s management by allowing it to concentrate on the core business while being confident that HR concerns are handled correctly and efficiently.

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