Get ready: You’re about to read the ultimate guide to professional employer organizations, also known as PEOs. In it, you’ll find out everything you need to know about PEOs; we also dispel some myths you may have heard that were possibly holding you back from working with one.

If you are a small to midsize business or nonprofit organization and you’ve never heard of a PEO, keep reading—you’ll be surprised to learn how partnering with a PEO can make your company more attractive to employees, and even help grow your company’s bottom line.

This article covers:

Part 1: What is a Professional Employer Organization (PEO)?

What is a PEO?

Employer responsibilities and PEO responsibilities: What Genesis does

A professional employer organization, or PEO, is a company that works with employers to provide human resource services and expertise the employer may not be able to provide alone. A PEO allows its clients to outsource many of their human resource functions, share employment liability, and, oftentimes, gain economies of scale to bring an improved benefits package to their employees.

PEO services vary in scope. Most offer cornerstone services, handling things like:

  • Health benefits
  • Workers’ compensation claims
  • Payroll processing and tax compliance
  • Unemployment insurance claims
  • Human resources policies and practices

PEOs can also offer more specialized services, including (but certainly not limited to):

  • Employee training and development
  • International partnerships
  • Risk management

At Genesis HR Solutions, our PEO offerings are flexible and grow with you as your company grows—we offer custom solutions tailored to your company’s needs and goals.

Looking for even more information about how a PEO might help your small business? Download our free white paper.

Who needs a PEO?

  • Companies in need of dedicated HR professionals—If your business or nonprofit has employees outside the human resources profession working on HR and compliance matters instead of the tasks you hired them to do, you should consider working with a PEO.
  • Small businesses that want to be more competitive—Many small businesses choose to partner with PEOs to improve their benefits offerings, including healthcare and 401(k) options, giving them a competitive edge to attract better talent. A PEO partnership gives small businesses access to retirement plans, insurance, and other benefits that can help level the playing field with larger corporations.
PEOs provide services to 175,000 small and mid-sized businesses, employing 3.7 million people. (NAPEO)

PEO clients come from all industries and businesses, ranging from accounting firms to high-tech companies and small manufacturers, doctors, retailers, mechanics, engineers and plumbers. Nonprofit organizations also benefit from PEO partnerships. At Genesis HR, we are proud to have strong relationships with a number of PEO nonprofit clients.

Want to grow your business? A PEO can help.

Here are some compelling statistics from the National Association of Professional Employer Organizations (NAPEO):

Businesses in a PEO arrangement grow 7% to 9% faster, have 10% to 14% lower turnover, and are 50% less likely to go out of business.

Those numbers are pretty enticing for company owners faced with the increasing costs of hiring and training new employees. Imagine if, instead of revolving-door employees, you could find and keep the best-of-the-best people at your company. A PEO can help make that possible!

As more and more companies realize the benefits of working with PEOs, the industry itself is growing—between 2008 and 2017, the number of worksite employees employed in the PEO industry grew at a compounded annual rate of 8.3%. This is roughly 14 times higher than the compounded annual growth rate of employment in the economy overall during the same period.

Part 2: Understanding PEOs & Co-employment

To understand how a PEO works, you need to understand the idea of co-employment. (Don’t worry, it’s a simple one!)

Co-employment refers to the contractual allocation and sharing of responsibilities. In the case of professional employer organizations and their clients, that means certain employer responsibilities are shared between a PEO and a client. (NAPEO)

In a co-employment relationship, both the PEO and the client are responsible for certain obligations of employment.

Co-employment is the business model used by PEOs. Among other things, it gives client companies access to a broader spectrum of employee benefit plans, distributes employer risk, and shifts fiduciary liability of 401(k) plans to the PEO. But co-employment is not the same thing as joint employment—you can get the details about that distinction in our article, What is co-employment and what is not?

Risk, PEOs, & Co-employment

With co-employment, risk is shared between the PEO and your company. Similarly, a PEO and the client share certain responsibilities, especially around employer compliance.

As a co-employer, the PEO provides information around state and federal compliance issues that impact you and your business. Your PEO representative will communicate the requirements and in many cases provide guidance on how to meet those requirements. However, in some cases, it is up to you, the employer, to take the action required to meet compliance. For example, the PEO will likely provide the required state and federal labor law poster, but you need to post it in your worksite in an area visible to all employees.

Essentially, in a co-employment relationship, both parties have “skin in the game.” Your PEO will do its best to guide you appropriately in order to mitigate (and minimize) your risk as well as their own.

Part 3: PEO Benefits For Employers

Imagine this: Instead of assigning HR tasks piecemeal across your company or overwhelming your lone HR employee with a deluge of tasks, you could remove the burden completely and distribute it to a team of experts trained in all areas of human resources, compliance, benefits, and more. That’s exactly what a PEO offers.

But that’s not all. Here are four specific benefits you and your team will experience when you partner with a PEO.

1. You’ll have experienced HR professionals working on your behalf.

When employees devote significant hours to tasks that take them away from their job description and mission, companies experience inefficiency, and growth is slow. That’s where a PEO becomes invaluable. With a PEO like Genesis, you and your team can focus on your core competencies instead of must-do tasks.

For example, complex, time-consuming tasks like payroll are simplified when you partner with a PEO. Our PEO payroll services help you manage appropriate taxing and stay compliant, easily administer your direct deposit transactions, and keep thorough, accurate records. The best part: The administrative burden of doing payroll is lifted from you, but you still maintain oversight of the process.

2. You’ll have an expert resource for compliance issues.

Small businesses and nonprofits are often inexperienced in HR matters, especially in the overwhelming federal, state, and local compliance regulations. PEOs advise their clients in areas of compliance, so you don’t have to figure out tricky regulatory issues alone. We know you can’t afford to have any missteps; with a PEO like Genesis, you can avoid the costly penalties that arise when regulations are glossed over or misunderstood.

PEOs advise their clients in areas of compliance, so you don’t have to figure out tricky regulatory issues alone. Click To Tweet

3. You’ll get access to more robust benefits for your employees.

Partnering with a PEO makes your small business more competitive when vying for talented employees against larger companies. Our PEO offers our clients Fortune 500 benefits, health insurance, and more choices, which evens the playing field and allows you to attract better talent.

Take health insurance, for example. In one 2018 report, almost 80 percent of small business owners surveyed said they worry about the cost of health benefits—and outside of salaries and payroll, it’s the biggest cost center for most companies. PEO health insurance is a huge draw for small business owners, and with Genesis, employers have access to Blue Cross Blue Shield of Massachusetts insurance.

4. You stay in control of your organization.

Worried you won’t be the decision-maker of your nonprofit if you partner with a PEO? As we explained in the previous section, the employer and the PEO have a contractual allocation to share employer responsibilities, which means both your company and our company (as your PEO) have a stake in the decisions made. Ultimately, however, you are the final decision-maker in all things regarding your company.

Additional PEO Resources:

Part 4: Information about Certified Professional Employer Organizations (CPEOs)

As you search for a PEO company you may be interested in working with, one thing you should pay attention to is whether or not they are a Certified PEO.

What is a certified professional employer organization (CPEO)?

The IRS defines a CPEO as follows:

The IRS established a voluntary certification program for professional employer organizations (PEOs). These organizations typically handle various payroll administration and tax reporting responsibilities for their business clients.

Certification affects the employment tax liabilities of both the CPEO and its clients. A CPEO is generally treated as the employer of any individual performing services for a client of the CPEO and covered by a CPEO contract between the CPEO with the client, but only for wages and other compensation paid to the individual by the CPEO.

To become and remain certified under the new program, CPEOs must meet certain requirements in the areas of tax compliance, background, experience, business location, financial reporting, bonding, and more. Certified PEOs take on additional responsibilities with regard to payroll administration and federal employment tax reporting and payments of their clients. CPEO IRS designation is a voluntary program. Who raises their hand to say they want to be audited by the IRS? Certified PEOs do! They accept the additional auditing of financials and operational information in order to obtain the designated CPEO status.

Genesis HR Solutions is proud to be among the 84 firms nationwide that were included in the first wave of approvals for Certified PEOs. We strive to do the absolute best for each and every one of our clients, and becoming a CPEO was just one more way to do that.

Part 5: PEOs vs. Other Options

If you’ve read this far, you may be curious about when a PEO is a good option for your business, and when you should look elsewhere for HR help. PEOs are an excellent solution, but they may not be right for everyone. See below for some other options, or take a more detailed look at some PEO company alternatives here.

PEO vs. ASO

Administrative services organizations (ASOs) and professional employer organization (PEOs) both offer administrative services to small and midsize businesses, but they should not be confused for the same thing. With an ASO, businesses get one partner who manages the vendors your business chooses to work with. This is in contrast with PEOs, who choose third-party partners and offer them to you, and can offer you volume pricing for benefits (which ASOs can’t do). To learn more about a PEO vs. an ASO, check out this article.

PEO vs. Employee Leasing

The concept of employee leasing is actually an antiquated term to describe what we now call a PEO. “Employee leasing” has been replaced by the term “PEO” to be more clear about the co-employment relationship companies like Genesis HR provide, and to avoid confusion with the concept of temporary labor.

PEO vs. Staffing Companies

Staffing companies, also called staffing firms or staffing agencies, help companies find and hire employees. In other words, they are recruiting firms, and help find job candidates for employers to interview. This is very different from a PEO; in fact, many companies who choose Genesis as their PEO also partner with staffing companies to help them recruit talent. You can absolutely use both!

PEO vs. HRO

Human resources outsourcing (HRO) is the process of subcontracting human resource functions to an external supplier. HRO may also be referred to as BPO, or Business Process Outsourcing. HROs manage HR- and benefits-related options, but you choose your benefits on your own, without gaining access to volume pricing for benefits. You also don’t get the guidance and shared liability reassurance you get with a PEO. Companies who partner with a PEO have no need to work with an ASO or HRO.

Genesis HR can help!

If you’re interested in working with a PEO, you may be wondering what you should look for in a PEO partner. This free checklist can help.

As one of the first certified PEOs in the nation, Genesis is an asset a single in-house hire can’t compete with. Our CPEO partners with small to midsize businesses (10-200+ employees) in the New England region, and we’re proud of the relationships we build with each and every one of our clients—you’re never just a number to us!

We’d love to find out if we can help you next.

Let’s schedule a free discovery call now to talk about how Genesis HR Solutions can help relieve your organization of the burden of HR, payroll, benefits administration, and more, so you can focus on what you do best—grow your bottom line.

Download Now: PEO Infographic