A Professional Employer Organization (“PEO” for short) is a company that provides human resources services for small to mid-size business clients. Rather than these businesses incurring the costly overhead of staffing an in-house HR department, they instead opt to outsource their human resources needs to a PEO whose sole business it is to provide HR services. Services typically include payroll, withholding, benefits administration and employee record keeping. Full-service PEOs may offer legal services such as consulting or in some cases legal representation.
How Does a PEO Work?
Once your business hires a PEO, the PEO assumes legal responsibility for your employees be becoming the “employer of record”. That means the PEO is responsible for all employee paperwork including payroll, benefits administration and hiring/firing, as well as any audits or litigation that arise from these responsibilities. But unlike working with a temp agency, the business owner has complete control in deciding who works for the business.
In addition to assuming legal responsibility for a business’s employees, a PEO also provides access to affordable benefits packages by working with the clients provider or arranging for a provider and then administering those providers. This means that small to mid-size businesses can get access to corporate-style benefits that would normally be far out of reach in terms of cost.
Will a PEO Save Money?
We’ve all heard the saying “Time is money.” A study done by the Small Business Administration¹ (SBA) estimated that the average small business owner spends from 7%–25% of their time handling employee-related paperwork. As government regulations increase (they never seem to decrease!), business owners find themselves getting buried in compliance activities that take them away from growing their business.
Many business owners find that, by hiring a PEO, they not only free up their valuable time for activities directly related to their business, but that they save money as well. In the same study cited above, the SBA estimated that the average annual cost of federal regulation, paperwork and tax compliance for businesses with fewer than 500 employees was a staggering $5,282 per employee! PEOs typically charge a percentage of gross payroll expenses, so businesses with only a few employees pay less than larger firms for the same high level of services.
There’s Never Been a Better Time to Hire a PEO
In today’s tough economic climate, using a PEO makes more sense than ever. Small businesses are finding that they need to offer more products or expand into new markets just to stay afloat in the competitive economy. Freeing up time to focus on the core business is a key to success. A PEO like HR Support, with more than a decade of experience.