The Pros And Cons Of Retaining A Peo

how does a peo work

A professional employer organization is an outsourcing firm that provides services to small and medium-sized businesses . The PEO enters into a contractual co-employment agreement with its clientele. Through co-employment, the PEO becomes the employer of record for tax purposes through filing payroll taxes under its own tax identification numbers. As the legal employer, the PEO is responsible for withholding proper taxes, paying unemployment insurance taxes and providing workers’ compensation coverage.

A major reason companies choose to work with PEOs is to obtain access to a larger pool of benefits options. Take the time to learn what programs the PEO offers, how those programs compare with your current offerings, and what the costs will be. Consider any value-add services offered by the PEO, such as pet insurance or employee assistance programs, that can help you recruit or retain high quality employees. Although PEOs offer multiple cost, time, and administrative savings, working with a PEO may not be right for every business. Even after determining that a PEO can benefit your company, it’s important to select the PEO that offers the right combination of add-on services, range of benefits, and flexibility in service agreements. Since a PEO will have a significant impact on the experience of your employees, consider these best practices to help choose the right PEO that can deliver on your most important needs. That’s why understanding what a professional employer organization is and understanding the potential benefits of using one tooutsource your HRfunctions may open a wider range of benefits to your team.

Typically, small businesses find it difficult or impossible to offer employees multiple options in terms of health care plans, insurance , savings and investment plans (401 and pension plans) and other employee benefits. Due to larger employee pools, PEOs can offer employees of small to medium-size businesses the same level and quality of benefits much bigger companies provide. The results are improved employee satisfaction, better employee retention and the ability to attract high-caliber employees to smaller companies.

Professional employer organization may often be mistaken for an employee leasing provider. To understand the difference between employee leasing vs PEO, it helps to have a clear definition of what each employment arrangement entails. In a PEO arrangement the PEO and the client company share certain administrative responsibilities for employees. The PEO is generally responsible for processing employee pay and payroll taxes and benefits administration. The client company is still responsible for managing their employees and retains control over when to hire, fire, or promote their employees. As mentioned above, a company’s employees can gain access to benefits normally available only to large companies when they leverage a PEO. This can include health insurance, disability insurance, employee assistance and discount programs, 401 plans, and others.

how does a peo work

As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees. In the arrangement among a PEO, a worksite employee and a client company, there exists a co-employment relationship in which both the PEO and client company have an employment relationship with the worker. The PEO and client company share and allocate responsibilities and liabilities. The PEO assumes much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance.

Common Questions About Partnering With A Peo

The company also was burdened with a problem often faced by foreign-owned businesses operating domestically. Because the company did not have very many employees in the United States, it was unable to find an attractive, competitively priced insurance and employee benefits package. Since contracting with a PEO more than three years ago, the company has realized significant benefits. The PEO enabled the company to streamline its accounting procedures, ensure regulatory compliance and obtain a level of insurance and benefits typically reserved for much larger companies.

As today’s business evolves, so does the role of outsourced HR and the professional employer organization . Over the years, small to medium businesses partnered with PEOs to access HR outsourcing services, including payroll processing, benefit options, HR expertise and tax administration.

PEOs have taken advantage of this economic reality by providing their “co-employment services” to lower health insurance premiums and unemployment taxes. Using a PEO could potentially save the time and staff that would be used to prepare payroll and administer benefits plans, and may reduce legal liabilities or obligations to employees that it would otherwise have. The client company may also be able to offer a better overall package of benefits, and thus attract more skilled employees. The PEO model is therefore attractive to small and mid-sized businesses and associations, and PEO marketing is typically directed toward this segment.

how does a peo work

Today, PEOs play a strategic role in growth for small and medium size businesses. Working with a PEO can help business owners and their management teams focus on the business. A PEO is a HR outsourcing service, that can assist a company with the management of employment related tasks, including employee benefits, compliance with state and federal regulations, servicing payroll and risk management. It is essentially a ‘co-employment’ relationship between the PEO and the client-company, where the employees are employed by both, so that the PEO can assume some of the employer responsibilities for the client. Typically, a PEO has a staff with extensive experience in HR, legal, tax, client services, and accounting. Businesses partner with PEOs to reduce the costs of administering benefits, streamline payroll operations, and successfully expand to an international market without having to set up their own entity. Thus, entrepreneurs and businesses are facing increasing costs to maintain the same number of employees.

They offer businesses a wide variety of services—including payroll management, employee benefit design and administration, tax filing and administration and compliance with state and federal workplace legislation. This organization provides comprehensive human resources services for small and mid-size businesses.

Are Peos Recognized As Employers At The State And Federal Levels?

The PEO and the client will share certain responsibilities for employment law compliance. An export company with 50% Japanese ownership and a subsidiary in Japan found management was increasingly bogged down with paperwork associated with regulatory compliance matters.

The PEO client/business owner retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities per a client service agreement . The PEO will generally only assume responsibilities associated with a “general” employer for purposes of administration of benefits and remittance of payroll and payroll taxes. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for remittance of payroll and employment taxes, may maintain employee records and may retain a limited or general right to hire and fire, as delineated in the CSA. Because the PEO also may be responsible for providing access to workers’ compensation coverage, many PEOs also focus on and provide assistance with safety and compliance. In general terms, the PEO will focus on employment-related issues, and the client will be responsible for the actual business operations.

What is an employer organization?

An employers’ organization or employers’ association is a collective organization of manufacturers, retailers, or other employers of wage labor. Employers’ organizations operate like trade unions and promote the economic and social interests of its member organisations.

Once confined to production-related areas, outsourcing has grown to encompass a broad range of business operations. CPAs and other financial executives whose employers do not already use PEOs should understand how they work—and how to select the right one—so they can decide whether the PEO route is a good solution for their companies.

They also assume the burden of proof—recordkeeping, documentation and explanation—in these areas. Because employment-related filings and compliance requirements are all a PEO focuses on, it can do so more efficiently than a small employer. As a client company increases in size, the efficiencies of outsourcing increase. Exposure to penalty and interest charges for late-filed or -paid payroll taxes and sanctions for technical administrative or regulatory shortcomings belongs to the PEO, not the client. In addition, a company may be able to reduce its internal administrative staffing requirements enough to compensate for the fees the PEO charges. ore than ever before, CPAs are advising their bottom-line-conscious employers to use outsourcing to cut costs and improve efficiency.

Employees seek financial security, quality health insurance, a safe working environment and opportunities for retirement savings. When a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, training, employee manuals, safety services and improved communications. The PEO’s economy of scale enables each client company to lower employment costs and increase the business’s bottom line.

Certified Professional Employer Organizations

PEOs supply services and benefits to a business client and its existing workforce. PEOs enter into a co-employment arrangement typically involving all of the client’s existing worksite employees and sponsor benefit plans for the workers and provide human resources services to the client. In most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for the worksite employees of the business client. If a PEO relationship is terminated, the worksite employees’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client. The contract between your business and a PEO distributes the employer responsibilities. Through this sharing of employer responsibilities, your company can leverage economies of scale.

how does a peo work

In general terms, the PEO will focus on employment-related issues and the client will be responsible for the actual business operations. PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise. Perhaps the single most attractive advantage a company gains when entering into a PEO relationship is the ability to offer employees a much wider selection of benefits—at considerably lower costs.

How Can A Peo Help My Business?

Thus, small businesses could see their health premiums increase by 20% or more, even if only one or two employees are sick in the year. They are able to blend a large number of employees to lower the cost of health insurance and unemployment taxes we pay. PEOs provide their services by charging a fee that is commonly based on a percentage of your gross payroll. PEOs supply services and benefits to a small business client and its existing workforce. In most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for the worksite employees of a small business client. If a PEO relationship is terminated, the workers’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client.

  • As the legal employer, the PEO is responsible for withholding proper taxes, paying unemployment insurance taxes and providing workers’ compensation coverage.
  • The PEO enters into a contractual co-employment agreement with its clientele.
  • Through co-employment, the PEO becomes the employer of record for tax purposes through filing payroll taxes under its own tax identification numbers.
  • A professional employer organization is an outsourcing firm that provides services to small and medium-sized businesses .

They pay employee wages, handle tax issues, and assist with regulatory compliance. More businesses are turning to PEOs or GlobalPEO as a cost-effective way to outsource their HR duties. Once a client company contracts with a PEO, the PEO will then co-employ the client’s worksite employees. The PEO typically remits wages and withholdings of the worksite employees and reports, collects and deposits employment taxes with local, state and federal authorities. The PEO also issues the Form W-2 for the compensation paid by it under its EIN. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities, as determined in the CSA.

Whats The Difference Between A Peo And Simply Using Hr Software?

Client companies also enjoy reduced volatility in unemployment and workers’ compensation insurance rates. Congress is addressing the PEO’s responsibility to its workers for employment taxes and for other employee benefits such as 401 and other retirement plans. In addition, the legislation would enable client companies to recognize contributions a PEO makes to its benefit plan. Some states recognize them as “coemployers” since they assume certain legal rights and duties related to employees who work at client locations. (The IRS does not use the term coemployer—it recognizes PEOs as employers.) The rights and duties PEOs assume are set forth in a contract between the PEO and the client company. Typically, a PEO’s responsibilities include the general aspects of the employer’s role—for example, paying employee wages and associated withholding taxes. (The PEO is responsible for paying these taxes whether or not the client actually pays the PEO.) The PEO also must provide employees with workers’ compensation, federal and state unemployment and statutory disability coverage.

The client retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities. The PEO will generally only assume responsibilities and liabilities associated with a “general” employer for purposes of administration, payroll, taxes and benefits. The PEO will be responsible for payroll and employment taxes, will maintain employee records and reserves a right to hire and fire. Because the PEO also may be responsible for workers’ compensation, many PEOs also focus on and improve safety and compliance.

What is a PEO model?

The Person-Environment-Occupation (PEO) model is a model that emphasizes occupational performance shaped by the interaction between person, environment, and occupation. The occupation refers to the groups of tasks that a person engages in and meets his/her self-maintenance, expression and fulfillment.

The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line. MORE THAN EVER BEFORE, BOTTOM-LINE-CONSCIOUS companies are outsourcing HR functions by making use of professional employer organizations. PEOs perform a wide variety of tasks ranging from payroll management and employee benefit design and administration to tax filings and compliance with state and federal workplace legislation.

The company believes its strong benefits package helped it attract and retain the best U.S. employees. Most important, top management is free to focus on important revenue-related matters rather than being burdened with administrative tasks. Engaging a PEO enabled the company to offer a better benefits package and a higher level of HR services—all at significant savings. The company also found executives had more time to focus on critical operations—time previously devoted to payroll, benefits and compliance issues. Where the company’s vice-president of finance previously spent considerable time understanding employee benefits regulations, employment law and related subjects, his time is now free to focus on corporate finance issues.

Professional employer organizations provide human resource services for their small business clients—paying wages and taxes and often assisting with compliance with myriad state and federal rules and regulations. In addition, many PEOs also provide workers with access to 401 plans, health, dental and life insurance, dependent care, and other benefits not typically provided by small businesses. In doing so, they enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation. PEO clients can thus focus on their core competencies to maintain and grow their bottom line. During your research, you may have heard PEO services referred to as co-employment, business process outsourcing, or HR outsourcing. PEOs operate in every state and provide services to between 156,000 and 180,000 small and mid-size businesses, employing between 2.7 and 3.4 million people.