When a company considers outsourcing their HR department, they turn to Co-Employment by hiring a PEO firm. The Professional Employer Organization role becomes the employer of record for multiple employee management tasks. Those responsibilities range from employee benefits and payroll, risk and safety management, recruiting and development, along with training and workers' compensation.
A PEO firm helps small and midsize businesses get access to benefits, all or part of the human resource duties, along with managing employee payroll and any associated taxes. Often the business owner hands over any other administrative, employer-related, tasks because they want to put all their energy and focus on growing the business, rather than working in the company.
The top four areas a Professional Employer Organization role helps is with Benefits and Coverage, Employer Compliance Support, Payroll Administration, Retirement and Perks.
Benefits and Coverage – helps your employees access dental, medical and vision coverage at affordable rates. That is done by grouping multiple companies together in clusters, which in turn keeps the costs down for all employees.
Employer Compliance Support – an employer’s related compliance needs fall under employee tax forms, reporting forms, and payroll taxes. Common compliance support includes:
New hire reporting
Employment Practices Liability Insurance (EPLI)
Unemployment Insurance filings
W-2 and 1099 filings
Payroll Administration – there are three areas of payroll the PEO takes care of; 1) automated deposits, 2) one-off payments, and 3) recurring payments. Payments to full-time and part-time employees (salaried or hourly), along with vendors and contractors all fall under payroll administration too.
Retirement and Perks – PEOs provide access to perks employers might not offer. Health and wellness is generally the primary focus that builds employee loyalty. Examples of some perks:
access to 401(k) plans
discounted gym memberships
commuter benefits for transportation costs
Ten Guidelines When Choosing Your Co-Employment PEO firm
Evaluate your workplace. What human resource or risk management needs attention?
Meet with the PEO personnel, who will be assisting you, and discuss how their experience will meet your goals.
Request current client and professional references, that you may call them and gather their feedback about their experience with the Professional Employer Organization you’re interviewing.
Does the PEO firm have a track record of adherence to their industry’s professional performance practices, including responsible financial management of its business?
Check to determine the PEO’s financial statements. Does a CPA independently audit them
Whether the Certification Institute has separately certified their risk management practices
ESAC has independently accredited their operational, economic, and ethical practices
Check whether the PEO firm is a member in good standing of NAPEO. You can use their trade association, Find a PEO search tool for NAPEO members in your state.
Examine the PEO’s administrative and management skills and know-how.
What experience and knowledge does their staff possess?
What professional training or designations do their senior staff have?
Does the PEO corporate staffing match the PEO’s marketed services?
Understand how the employee benefits get funded.
Is the PEO partially self-funded or fully insured?
What is the name of the third-party administrator (TPA) or carrier?
Can the TPA or carrier used, conduct business in your state?
How are your employee’s benefits tailored to fit your employee’s needs?
Review the service agreement carefully.
What guarantees should you expect?
Are the respective parties’ responsibilities and liabilities laid out?
Under what terms allow you or the PEO to cancel the contract?
Does the PEO business meet all state requirements? If not why?
Should You Consider Outsourcing The HR Dept to a Co-Employment Firm?
From what you’ve read so far, it sounds good. But let’s not stop there. In a 2017 study, PEOs: Good for Businesses and Their Employees, by economists Laurie Bassi and Dan McMurrer, shows that small businesses using a PEO firm grow 7%-9% faster, have up to 14% less employee turnover, and close to 50% are more likely to not go out of business.
Of those three categories, what’s most important to you?
Grow 7%-9% faster
Get 14% less employee turnover
You’re 50% more likely to not go out of business
If you’re like most entrepreneurs, all three are equally important. To uncover more about PEOs, check out their industry’s recognized group, National Association of Professional Employer Organization at https://www.napeo.org/.