A Professional Employer Organization, or PEO, allows its clients to outsource many of their human resource functions, share employment liability, and, oftentimes, gain economies of scale to bring improved benefits packages to their employees. A PEO is an extension of your business and engages with your management team to address complex employee-related matters, along with a technology platform to manage all your employee data.
In this article, we’ll discuss the following:
- What is a PEO?
- What Types Of Companies Should Use A PEO?
- Key PEO Services & How They Can Help Your Company
- 6 Major Benefits Of Working With A PEO
- How Much Does Working With A PEO Cost?
- How To Find A Reputable PEO
- Learn More About PEOs & Genesis HR Solutions
Learn even more about what a PEO is—and how to find the right one for your organization. Download Everything You Need To Know About PEOs!
What is a PEO?
A PEO is a business model that provides an outsourced solution for HR management that encompasses co-employment—where the PEO becomes your employer of record in order to provide the services your business needs.
In a co-employment relationship, risk is shared, in this case between the PEO and your company. A PEO and the client also share certain responsibilities, especially around employer compliance. The PEO provides information around state and federal compliance issues that impact you and your business. The PEO representative will communicate the requirements and, in many cases, provide guidance on how to meet them. However, in some cases, it is up to you to take action. As a simple example, the PEO will likely provide the required state and federal labor law poster, but it is up to you to post it in your worksite in an area visible to all employees.
Think of the shared risk as having ‘skin in the game.’ Your PEO is going to do their best to guide you appropriately in order to mitigate (and minimize) your risk, as well as theirs.
See also: What is co-employment, and what is not?
How A PEO Relationship Works: The Division Of Tasks & Responsibilities
PEOs and their clients sign a co-employment agreement in which both the PEO and client company have an employment relationship with workers. The PEO and client company share and allocate responsibilities and liabilities:
- The PEO assumes much of the responsibility and liability for the business of employment, such as risk management, benefits administration, human resource management, and payroll and employee tax compliance. As a small business, you do not fully remove your responsibility; you simply have an expert who shares the responsibility and who handles this administration.
- The client company retains responsibility for and manages and develops employees. It also retains control over core business activities such as product development and production, business operations, marketing, sales, and service.
- The PEO and the client share certain responsibilities for employment law compliance.
- As a co-employer, the PEO provides a complete human resource solution, including a comprehensive benefits package to help you attract and retain top talent.
What isn’t a PEO?
Often, searching online for “help with HR” produces a myriad of options aside from PEOs. Some you may have seen are ASOs, HROs, and SaaS solutions that seem to offer the same benefits as PEOs (but don’t).
Here are other types of HR solutions and how they differ from PEOs:
- PEO vs. ASO: An Administrative Service Offering (ASO) is a service businesses use to outsource administrative functions such as employee benefits, payroll, HR management, workers compensation, and safety programs. An ASO manages the third-party partners you choose, whereas PEOs choose third-party partners and offer them to you. Both options manage insurance partners, but in different ways. The major difference between the two is that PEOs have a stake in the success of their employment relationship with you in all aspects of HR, including compliance; ASOs don’t have any skin in the game. You can read more about ASOs in our article ASO vs. PEO: What’s the difference?
- PEO vs. HRO: Human Resources Outsourcing (HRO) is the process of sub-contracting human resources functions to an external supplier. HRO is also referred to as Business Process Outsourcing (BPO). Similar to an ASO, an HRO is different from a PEO in that it offers management services related to HR partners of your choosing—minus HR expertise and guidance. Companies that partner with a PEO have no need for an ASO or HRO.
- PEO vs. HR Software: While PEOs provide a technology platform to manage your employee data in addition to providing numerous other HR services, HR software organizations offer only a technology solution. While technology does assist with carrying out HR tasks, utilizing HR software means foregoing the expertise and consultative benefits of working with a PEO.
What types of companies should use a PEO?
PEOs are best suited for small to midsize businesses with 10 to a few hundred employees. Business owners who are concerned about their company’s exposure and liability, as well as their own ability to successfully manage complex employee benefits, payroll, taxes, and more, will find value in a PEO partnership. At GenesisHR, we’re focused on building PEO partnerships with small to midsize companies and nonprofit organizations in the New England area.
Key PEO Services & How They Can Help Your Company
A PEO like GenesisHR Solutions helps your business manage complex employee-related matters. PEO services include administration of the following:
- Health benefits
- Payroll tax compliance
- Leaves of absence
- Paid time off practices
- Workers’ compensation claims
- Unemployment insurance claims
A PEO contracts with your business to perform these processes, assume associated responsibilities, and provide ready expertise in human resources management.
At GenesisHR Solutions, we offer a suite of integrated services to effectively manage your critical human resource responsibilities and employer risks. We deliver these services by establishing and maintaining an employer relationship with the employees at your worksite, and by contractually assuming certain employer rights, responsibilities, and risks.
Here’s a look at some of the most common PEO services your company can take advantage of by working with us:
1. PEO Insurance Offerings & Health Insurance
Under a PEO partnership, small businesses have a huge advantage in finding competitive insurance plans because the PEO selects a carrier or carriers. PEOs have access to more expansive product offerings, which they can then make available to their small business partners, who likely wouldn’t have access to these offerings on their own.
At GenesisHR, we offer the following insurance options:
- Group health, dental, and vision through Blue Cross Blue Shield of Massachusetts, Delta Dental, and Vision Service Plan
- Long- & short-term disability coverage with UNUM
- Life/AD&D products with UNUM
Arguably, health insurance is the most important benefit you provide to your employees. While a PEO does not provide health insurance, we do select and manage a comprehensive, best-in-class benefit offering so you can recruit and retain the best employees. Our plan selections will always be a good match for your company’s budget and your employees’ needs; we also guide you through the administration, education, and training aspects of health insurance.
Also, as a PEO partner, you’ll have the opportunity to access all the health insurance plans we have available through our partner, Blue Cross Blue Shield of Massachusetts. Learn more about how PEO health insurance works for small businesses.
2. Competitive Benefits
To get top talent, you need competitive benefits. Don’t miss out on great employees because your small or midsize business can’t afford the benefits your competition offers. In addition to the insurance benefits listed above, GenesisHR offers the following:
- 401(k) plan options
- Employee assistance plan (EAP)
- Retail & entertainment discount program
- Employee self-service tools for onboarding, benefit enrollment, and paid time off management
In addition to the actual products, we also offer benefit plan administration. No longer do you have to spend time figuring out the Affordable Care Act, determining if you’re getting a good plan, addressing compliance issues, or even communicating plan details to your employees. We help you choose the best strategies for your needs and even manage insurance vendor relationships.
A PEO partner should also manage payroll and taxes, and ensure your payroll taxes are deposited and filed in an accurate and timely manner. We handle these PEO payroll tasks:
- Single- and multi-state payroll
- Online processing
- Time clock feed options through our partner, TIMECO, or through your current time clock feed
- Holiday, sick, vacation, and other accruals
- Unbundled, transparent payroll reporting
- Child support and miscellaneous garnishments
- W-2 preparation and distribution
- State unemployment insurance tax account (SUTA) management
- Employer tax deposits and filings; Form 940, Form 941, and W-3 transmittal—our tax engine uses your ZIP code to calculate correct tax info, so we know the exact amount to tax your employees.
4. Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA), and Flexible Spending Plans (FSA)
To find and retain top talent, you need benefits offerings that are in line with those offered by large enterprises, including tax-advantaged health savings accounts. GenesisHR offers HSA, HRA, and FSA options for our partner companies and manages these accounts, so you can focus on recruiting top-notch employees and on managing your core business—not on administrative work.
6 Major Benefits Of Working With A PEO
In our three decades as a Massachusetts-based PEO, we’ve seen our clients benefit from the PEO relationship in myriad ways. PEO benefits include:
- Relief from the burden of employment administration
- Access to the expertise of a team of professionals with wide-ranging personnel management experience
- Reduced liability due to improved employment practices, compliance, and risk management
“Small businesses that work with a PEO grow 7 to 9% faster, have 10 to 14% less employee turnover, and are 50% less likely to go out of business.” —NAPEO
- Competitiveness in the labor market thanks to a comprehensive employee benefits package
- In some cases, financial savings for employers and employees because the employer can offer more cost-effective benefits
- Improved productivity and profitability
What are the considerations of working with a PEO?
A common belief is that working with a PEO is “too expensive.” However, this doesn’t accurately reflect the reality most small and midsize businesses are facing—one that requires them to either hire an HR resource on staff or outsource this role to a qualified competent partner like GenesisHR Solutions. Either way, in order to make sure you are in compliance and being efficient with your time, you need someone who’s solely dedicated to the HR aspects of your company.
The cost of a PEO will always be lower than hiring a staff resource. It is also important to note that you can’t hire the expertise that a PEO like GenesisHR can bring—and you certainly can’t do it by hiring just one individual. From this perspective, it is truly more costly for businesses to operate on their own, without a PEO partner.
How much does working with a PEO cost?
The cost of hiring a PEO varies considerably; providers, company size, and industry all play a role in PEO pricing. However, that cost is often offset by the financial and time savings your company gains through this working relationship. Partnering with a PEO on things like employee benefits, retirement accounts, and workers compensation can save you money. You can also save a tremendous amount of time with a PEO, which translates into a positive return on investment.
At GenesisHR, we do not “bundle bill” (a common billing tactic in the HR industry). Instead, the amount you pay for our PEO services is based on a set amount per employee per month. We break out your costs this way because transparency in billing is important to us.
Learn more about our pricing structure—and get answers to other frequently asked questions—here.
How To Find A Reputable PEO
According to NAPEO, there are almost 1,000 PEOs currently operating in the U.S., providing services to 173,000 small and midsize businesses. How do you find out which PEO is the best fit for you?
NAPEO suggests taking the following steps when choosing a PEO:
- Assess your workplace to determine your human resource and risk management needs.
- Make sure a PEO is capable of meeting your goals, and meet the people who will be serving you.
- Ask for client and professional references.
- Find out if the PEO has a demonstrated history of adherence to the industry’s professional performance practices, including responsible financial management. Check to determine if the PEO’s financial statements are independently audited by an accountant, whether their risk management practices have been independently certified by the Certification Institute, and if their operational, financial, and ethical practices have been independently accredited by ESAC.
- Investigate the company’s administrative and management expertise and competence. What level of experience and depth are represented by internal staff? Does the PEO corporate staffing allocation follow the priorities of the PEO’s marketed services? Does senior staff have professional training or designations?
- Understand how the employee benefits are funded. Is the PEO fully insured or partially self-funded? Who is the third-party administrator (TPA) or carrier? Is their TPA or carrier authorized to do business in your state?
- Understand how the employee benefits are tailored and then determine if they fit the needs of your employees.
- Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out? What guarantees are provided? What provisions permit you or the PEO to cancel the terms of the contract?
- Make sure the company you are considering meets all state requirements.
We would add the following must-do’s:
- Identify the level of customer service you expect from your PEO. For example, GenesisHR clients are matched with a dedicated payroll specialist and an HR specialist on our staff, and are provided their direct numbers and personal email addresses. If service-oriented, human interaction is important to you, investigate how the PEOs you’re considering stack up.
- Make sure the PEO’s technology meets your needs. Don’t wait until you’ve already signed on with a PEO to evaluate their tech tools. The last thing you want is for you (and your employees) to discover that the solutions the PEO offers aren’t modern and user-friendly when it’s too late to make a change. Ask before you commit to make sure you’re on the same page.
Learn More About PEOs & GenesisHR Solutions
Hopefully, we’ve answered your question, “What is a PEO?”—and you’re ready to learn more! If you’re a small to midsize business located in the New England region—our PEO may be a good fit for you. A free consultation is the best way to get your questions about PEOs answered. Feel free to reach out anytime—we’d love to meet you.