Pros and Cons of PEOs

In the increasingly hectic and fast-paced business world, it can sometimes be hard to efficiently run a business without outsourcing some tasks.

Business operations such as accounting, tax filing, and human resources take up a huge amount of time, and generate zero profit for the business. However, they are essential operations, which makes them quite a headache for business owners. Some will choose to hire in-house employees to handle these aspects of the business, while others will hire 3rd-party companies to do the work for them. This article details the pros and cons of a PEO – professional employer organization, which offer human resources services to businesses of all sizes.

PEO Pros:

More Time for What Matters
Perhaps the most obvious, but also the most appreciated, benefit of utilizing a PEO is the time it will save you. While it varies business to business, suffice it to say that a PEO can save you a whole lot of time and hassle in the long run. For the emerging business, outsourcing to a PEO allows one to scale the business without layering in costly administrative support. If you currently have an in house Human Resource department, PEO’s take over the tactical HR functions thus allowing time to then be focused on strategic HR initiatives that move the business forward. In both scenarios, the extra time gained by utilizing a PEO provides a competitive advantage, allowing executives to work on the business instead of in the business.

Better/Cheaper Benefits
In many cases, a PEO can offer your employees a more robust benefit package at a lower price point. They are able to do this because of their increased buying power. They also handle most, if not all, of the benefits administration associated with offering a Fortune 500 benefits package.

Government/Labor Law Compliance
The government, as well as other governing bodies, has many rules and regulation concerning businesses. Each industry has slightly different compliance rules, and it can get very confusing very fast. When you utilize a PEO, you are hiring professionals who specialize in government compliance. They know the ins and outs of the system, and are well trained in every aspect of implementing rules to stay compliant. Researching and implementing these rules on your own could take a very long time.

Limited Liability

In many cases, PEOs can help minimize your liability. They do this in two ways. The first is ensuring that you are in compliance with all labor and tax laws. The second, is by absorbing certain liabilities from you. The liabilities absorbed by the PEO can vary drastically, so be sure to go over the terms before finalizing anything.

PEO Cons:

Potentially Higher Insurance Rate
For a long time, PEOs have claimed that they have the ability to obtain cheaper health insurance prices for their clients’ employees. While this is true in many cases, it’s not always that way. If a PEO has lots of clients, there is a decent chance that some of their clients have unhealthy employees in high numbers. In a case like this, the rate you are quoted by the PEO might be the same, or even higher, than the rate you could obtain on your own. This is entirely case-by-case, and it never hurts to compare rates.

Unneeded Services

Professional employer organizations offer business owners an array of services to choose from. While they are all useful, they may not all be needed right away. Some PEO’s package too many unneeded services together and charge for them whether or not they are used. An example of this would be recruitment and selection services. When selecting a PEO, it is vitally important to select a company that offers flexibility within their offering.

The Fine Print
Every PEO has different rules and terms. It is very important to go over each and every detail of the contract before you sign it. It would be wise to consult with a 3rd-party lawyer, as well. Short of that, you should talk to the PEO’s legal advisor. You should be 100% sure about EVERY aspect of the contract, before you sign it.

PEOs Need To Be Profitable
Unlike an in-house HR representative, a PEO is a business on its own. In order to stay in business, it needs to maintain profitability. So, if your business starts costing them too much time or money, they may place you in a higher-risk category, and may even raise your rates.

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