Employee Leasing and Utilizing a PEO

The biggest mistake we see business owners make is trying to do everything, including HR, on their own. It is a common fallacy that if you want it done right, you must do it yourself.

While this strategy might work for some, for most people it is far too much responsibility and stress to handle. Other business owners will hire in-house employees to handle different aspects of their business. This is an ideal choice, but it is not cheap, and requires adding on at least one full-time employee. For savvy business owners, there is a little-known third option: hiring a professional employer organization.

A professional employer organization, or PEO, offers a comprehensive approach to managing the human resources aspect of your business. Hiring a PEO is basically like hiring an HR manager, but much cheaper and more efficient. A PEO exists solely to handle human-resources-related tasks, such as payroll and health benefits. Human resources is all they do, so it’s a safe bet that they are good at it. Not only can you save money with a PEO, you can also save a lot of time and avoid a lot of headaches, by outsourcing the time-consuming HR tasks that plague business owners everywhere.

There are many different kinds of companies that can handle different aspects of your business for you. It is important to understand the difference between them, before you make a decision. A PEO is different than a payroll administration company, staffing agency or temp firm. Basically, a PEO is all those companies combined, and more! By offering a comprehensive selection of HR services, with the ability to choose individual services or package deals, a PEO is truly a complete solution for business owners looking to lighten their workload. Some of the HR tasks that a PEO can handle include:

  • Distribution of employee benefits
  • Payroll and payroll taxes
  • Employment administration
  • Workers compensation
  • Recruiting/hiring
  • Government compliance
  • Determining policies and best practices
  • Employee training and development
  • Performance management

When you hire a PEO, you need to understand the legal and tax implications. Working with a PEO will change the way your business is run, and the way you pay taxes.

The Co-Employment Relationship

When you hire a PEO, your employees continue to work for your business. However, from a legal standpoint, your employees now work for both your company and the PEO. This relationship is called co-employment. The PEO will take responsibility for all the HR aspects of management (or at least the ones you choose for them to handle), while you manage the day to day activities of your workforce. Since, from a legal standpoint, your employees are now employed by a separate entity, that entity (the PEO that you hired) absorbs some employer-related liabilities. Be sure to confirm which liabilities the PEO will be absorbing before you sign any contracts.

Business owners often feel like they are losing control of their businesses when they first switch to using a PEO. It’s important to understand that, while the PEO manages your human resources responsibilities, they ultimately have to answer to you. No major decisions can be made without consulting you, the client, beforehand. For instance, the PEO has no power to fire employees without first getting your approval. They can make recommendations and suggestions, but any important decision is ultimately made by the business owner. It’s good to think of the PEO you hire as just another employee.

Utilizing a PEO can provide a vast array of benefits to your company. An obvious PEO benefit is the time you will save by avoiding everyday administrative task and HR activities. Another, less obvious benefit is that, with a PEO, it will be more affordable to provide benefit packages to your employees. If you do not offer benefits, many people will quit in search of a better job. It will usually be the better employees, as well, as they feel they are capable of getting a higher-paying job, or one that offers more benefits. Using a PEO can help you keep your best employees happy, assist in recruiting “A” player candidates, and ultimately keep your bank account happy as well.

Another benefit is that the people working at a PEO know everything there is to know about labor and tax laws. They can make suggestions for workplace policies to help minimize liability, suggest small tweaks to your policies to save you money, and work one-on-one with you to customize the way you run your business. They also know the ins-and-outs of government regulatory compliance, and they can ensure that your business is up to code, to avoid costly penalties charged by the federal government. They also take a lot of the stress out of your life. When working with a PEO, you can sleep well, knowing that your employees are taken care of, even if you decide to go on vacation.

One of the biggest benefits a PEO can offer you is reduced benefit costs. Obviously, to stay in business, a PEO needs to have several clients. Most of these clients purchase benefit packages through said PEO. The manager at the PEO will then bundle all the benefits packages together, and apply for a new, lower rate from whatever insurance or benefit company they choose to work with. This can help save you a lot of money in the long run, as it gives you the buying power necessary to get rates like the big, blue-chip companies get, without needing to have 1000′s of employees.

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