What is a Professional Employer Organization (PEO)?
How does it help my business?
How much will it cost me?
When should I use one for my small business?
If you’ve ever had these questions about PEOs, you’re in the right place. From understanding how a PEO benefits your small business, to narrowing down your options for a PEO partner, to making sure you’re only paying for benefits and services that will actually help your business grow (and not a penny more), getting answers can require intensive research. But you don’t have to start from scratch—we provide answers to the most pressing questions right in this article, including:
- What is a PEO?
- What can a PEO do?
- What are alternatives to PEOs?
- What is PEO software?
- How much does a PEO cost?
- How do I pick the right PEO company?
- How do PEOs work across industries?
- Case Studies
- Industry News
Let’s dive in!
1. What is a PEO?
A Professional Employer Organization, or PEO, is a company that enters into a co-employment relationship with an employer (your company) that allows the PEO to manage your human resource functions. The PEO also assumes associated responsibilities and provides ready expertise in human resources management, including:
- Employee onboarding
- Health benefits
- Payroll tax compliance
- Leaves of absence
- Paid time off practices
- Workers’ compensation administration
- Unemployment insurance claims
While your PEO partner assumes much of the responsibility and liability for the business of employment, as a small business, you do not fully remove your responsibility; you simply have an expert who shares responsibility. Your company retains responsibility for managing and developing employees. You also retain control over your core business activities such as product development and production, business operations, marketing, sales, and service.
One important subset of PEOs are certified PEOs (CPEOs). A certified PEO is a PEO that has taken extra steps through an IRS program to increase its credibility and guarantee high-quality service. To become a Certified PEO, a company must meet stringent requirements around payroll tax status, background and experience verifications, and appropriate bonding protections. The CPEO IRS designation is a voluntary program, which means that not every PEO will qualify, nor are all of them willing to undergo the rigorous processes required to become an IRS-certified PEO. Organizations (like GenesisHR) that do become CPEOs demonstrate the importance of their business operations and finances—which will only benefit you as a client.
Another differentiator between PEOs is how they deliver their services. They can largely be divided between technology-led PEOs and relationship-led PEOs. This distinction matters when it comes to the service aspect of a PEO partnership—which is arguably the most important part.
2. What does a PEO do?
Now that you know what a PEO is, you need more specifics around what a PEO can do for your small or midsize businesses—why would you choose to work with one?
PEOs offer a variety of solutions depending on your needs, which are dictated in part by the number of employees your business has and in part by the goals you’re looking to achieve. Your PEO advisor should be your go-to in identifying where you can offload HR tasks to a PEO partner who is an expert in them.
At GenesisHR we offer the following services:
- Dedicated HR and payroll expertise and support
- HR and payroll technology tools
- Employee handbook creation
- Custom management training programs
- Employee relations
- Health, dental, vision, life, and disability benefit plan access & administration
- Pre-tax plans (HSA, FSA, HRA, dependent care)
- Robust 401(k) plan offering and administration
- PTO management & workflow
- Payroll processing & tax filing
- W-2 processing
- Direct deposit
- Proactive review and implementation of the ever-changing regulatory landscape
- Employment recordkeeping and compliance
- Workers’ compensation policy and claims management
- International employee support through strategic partners
- Multi-state payroll processing
- Remote work strategies and guidance
Three of the most important differentiators between PEO are technology, benefit plans (their offerings and plan management), and how they guide clients through the world of compliance.
Everything you can expect from your PEO should be detailed in a PEO client agreement. This is a legal document that precisely spells out who’s responsible for what in the co-employer arrangement. In addition to identifying the responsibilities of each party, the agreement also defines which employees are covered under the agreement. At GenesisHR, our PEO agreement includes terms and conditions, fees and payment terms, a schedule of employee benefit plans, and state-specific provisions.
3. What are alternatives to PEOs?
While PEOs are an excellent option for small and midsize businesses, they are certainly not the only option. Read this article to make sure you understand the pros and cons of using a PEO, and what you can realistically expect from partnering with a PEO firm.
We also encourage you to take a look at some PEO alternatives. Seeing what they offer in comparison to a PEO partnership will give you a good idea of what you can (or should) expect. Some of the main types of alternatives include:
- Administrative Service Organizations (ASO). You could outsource your administrative functions—including employee benefits, payroll, HR management, workers compensation, and safety programs—to an administrative service organization (ASO). The ASO essentially manages the third-party vendors selected by your business.
- Human Resources Outsourcing (HRO). HRO is an arrangement in which you contract with a third-party provider who assumes the management of, and responsibility for, certain HR functions. Many types of HR outsourcing options are available to employers. HRO may also be referred to as BPO, or Business Process Outsourcing.
- Payroll Service Providers. A payroll service provider is a third-party company that handles payroll. Payroll service providers provide direct deposit or payroll checks; they also (in most cases) forward the tax payments to state and federal tax authorities. Payroll service providers may track PTO benefits (including time off, sick time, or vacation time) and offer timekeeping solutions for the purpose of collecting hours and submitting to payroll.
- Staffing Companies. Staffing companies, also called staffing firms or staffing agencies, help you find and hire employees. Staffing companies work with organizations up to the time a position is filled, and are not engaged on the benefits side of employment. They don’t touch payroll, and their sole purpose is to help staff organizations.
4. What is PEO software?
“PEO software” is a generic term that refers to the technology you’ll use when working with a specific PEO. It’s critical to evaluate this before you enter into a partnership because technology is a key component of every PEO’s service offering. Here are four technology-specific things to consider when reviewing your options.
Be aware that many companies only offer software—without any service component—and call themselves a PEO. This is not a true PEO offering. In a PEO, HR is both the product and the service. Learn why this is such an important distinction.
5. How much does a PEO cost?
If you’re considering partnering with a PEO, the question that’s inevitably on your mind is this: How much does a PEO cost?
It really depends on your business and your needs. Here are the two primary factors that determine PEO pricing. While we can’t give you an exact number for every PEO, we have listed our own transparent pricing on our website. Check out how much you can plan to invest with GenesisHR as your PEO partner.
6. How do I pick the right PEO company?
You’re putting no small amount of money (as well as trust) into your PEO partnership, so you certainly want to make sure you explore all the best options, get your questions answered plainly, and narrow down your PEO options to the best fit.
Get started with your search by including these six must-answer questions in every interview you do with a prospective PEO:
- What are the credentials of the PEO company’s employees?
- What is the experience level of the PEO company?
- How well will the PEO company meet the needs of your organization and its employees?
- What technology does the PEO company bring to your organization?
- What is the PEO’s strategy when it comes to health insurance?
- How flexible are the PEO’s offerings?
Every candidate should be willing to answer these questions (and any others you may have). If you get a vague response, consider it a red flag and investigate further or move on.
7. What do PEOs look like across industries?
PEOs provide services to an estimated 175,000 small and mid-sized businesses across all industries and the nonprofit sector. If you’re interested in working with a PEO, you will almost certainly be able to find one that specializes in your company or nonprofit, is located near you, or has similar core values.
In the article How To Find The Best PEO For Small Businesses: 5 Non-Negotiables, we provide five criteria specific to small businesses to help them in their search. Note that number three in the list is important to all small businesses no matter the industry.
As a small business owner, you’re aware that, next to payroll, health insurance benefits are the most expensive line item in your budget. So if you’re struggling to cover it, you’re not alone: One 2021 report reveals that 55% of small business owners say providing health insurance to their employees is the biggest challenge they face!
For that reason, partnering with a PEO who knows the insurance market should be inherent to your business planning. By partnering with a PEO, you can get access to health insurance options your small business would not be able to procure otherwise. You also can rely on your PEO to administer and manage health insurance plans, negotiate with brokers or navigate the marketplace, and plan for the subsequent year’s insurance offerings as well.By partnering with a PEO, you can get access to health insurance options your small business would not be able to procure otherwise. Click To Tweet
Partnering with a PEO can be especially helpful for nonprofit organizations. Limited budgets, complex liability issues, and a lack of experienced HR professionals all pose challenges for nonprofits. Happily, in a PEO partnership, nonprofit leaders have an option for dealing with these issues. Here are six ways partnering with a PEO helps your nonprofit.
Are you an independent contractor? The PEO service model can help you, too!
8. PEO Case Studies
- Grow 7-9% faster
- Have 23-32% lower employee turnover
- Are 50% less likely to go out of business
With respect to employee turnover, the data by industry is noteworthy as well. The percentage points by which PEO client’s employee turnover rate is lower than expected are:
- Professional, Science and Technology Services—23%
- Finance and Insurance—15.4%
- Wholesale Trade—7.3%
- Health Care, Social Assistance—6%
And the PEO model works for more than just PEOs and their partner companies. Following the same idea of a PEO partnership, take a look at how The Battlegreen Run Foundation applied a similar model to the road race, which resulted in huge success.
9. Industry News
One of the most exciting things about being in the business of helping people is that our world is continually changing. Legislation changes and new laws take effect; similarly, people, organizations, and industries change and evolve. It’s imperative for PEOs to be on top of all of these ever-changing events so our clients don’t have to be!
Here are a few noteworthy tidbits that have been important to us at GenesisHR and have been shaping the HR and PEO world at large:
- In 2018, the passing of H.4868, a bill addressing economic development in the Commonwealth of Massachusetts, which included a long provision that called for the registration of PEOs who conduct business in Massachusetts. This is an important piece of legislation that offers consumer protections for small businesses and their employees who partner with a PEO. You can learn more here.
- In 2017, GenesisHR was proud to be among the 84 firms nationwide that were included in the first wave of approvals for Certified PEOs. Previous to this, the passing of the Tax Increase Prevention Act of 2014, which included the Small Business Efficiency Act (SBEA), was something we’d been involved with.
Still not certain that a PEO is right for your small business? Maybe you have more questions you’d like answered, or wonder if having an HR partner could improve the health of your business. Reach out to the GenesisHR team and let’s talk! We’d love to learn more about you and your business, and see how we can help. Get in touch with us online or give us a call at 781-272-4900.