The acronym PEO stands for Professional Employer Organization. PEOs work with small and medium-sized businesses to help them manage payroll-related taxes, certain human resources functions, access to benefits, and other employer-related administrative functions necessary to run a business. This allows you to focus on what matters most: growing your business.
Think automated deposits, one-off payments, and more. PEOs help administer payments to full-time and part-time employees (salaried and hourly). To put it simply, they handle the nitty-gritty of payroll administration.
A PEO will support your employer-related compliance needs for payroll taxes, employee tax forms, and reporting forms.
Compliance support offered by PEOs often includes:
PEOs help with various components of benefits administration, such as benefits onboarding, claims, and other benefits-related paperwork.
They can help you access medical, dental, vision, life, and disability coverage for your team at affordable rates. Through economies of scale, PEOs can harness the buying power generally reserved for much larger businesses.
Many PEOs also provide access to additional benefits and perks for their clients and their employees. These can range anywhere from discounts on movie tickets and other entertainment deals to access to wellness services like mental health support. PEOs can also provide access to retirement savings plans like 401(k)s to support employees' financial security.
PEOs can take on such responsibilities for you because of a practice called co-employment.
According to the National Association of PEOs, co-employment is “a contractual allocation and sharing of certain employer responsibilities between the PEO and the client.”
PEOs help small businesses access top-notch benefits to assist them with various compliance worries.
The contract between your business and a PEO distributes the employer’s responsibilities. With this contract, the PEO becomes an employer of record with the authority to handle payroll administration and related tax filing, as well as provide HR support and access to benefits. At the same time, your company retains responsibility for your employees’ day-to-day operations and management. Through this sharing of employer responsibilities, your company can leverage economies of scale.
Although it is up to each organization to decide if a PEO will be a good fit for their company, there are a few advantages that PEOs can bring to your business.
PEOs work directly with health and benefits insurance carriers to leverage their bargaining power and access rich benefits at low rates. This means that the PEO can provide the employees' access to health coverage and rates typically only available to large groups.
More than 33% of small businesses get fined every year for making payroll mistakes - and that's just for payroll! The reality is that compliance can be complicated, and there is a lot of paperwork to file and insurances to secure. While you can do this on your own, you probably didn't start your company to become a compliance expert, and the cost of getting things wrong can be pretty high.
PEOs are experts on employment-related compliance. They know the paperwork you need to file, and, in some instances, they can file it for you.
A PEO will manage a lot of your employment-related paperwork for you, as well as provide HR support. As such, many companies find that employees who once devoted a significant amount of time to HR functions can be freed up for other tasks and more efficiently utilize their time.
Running your own business can sometimes be a race against the clock. There's always more to do and not enough hours in the day to get it done. If you join a PEO, a lot of employment-related administrative work can be taken off your plate, regaining multiple hours back in the week for you and your employees.
PEOs can take on much of a business’s administrative burden, but they can’t do it all. It’s important to note what a PEO generally will not do.
First, although co-employment allows the PEO to take over many responsibilities for their customers, they won’t take over the running of your business. It remains up to each employer to manage their team and their operations.
Also, as a general rule, PEOs aren’t legal or tax advisors. While they can help with any number of forms and filings, as well as support, each company still needs to be familiar with the laws applicable to their business and be responsible for compliance.
The way that a PEO makes money is by charging you to handle these services. Many companies charge per employee, while others might charge a percentage of total gross payroll. So if they charge $125 per employee per month and you have a 25-person team, you’ll be paying $3,125 per month, or $37,500 a year.
At Current HR, for example, our monthly fee depends on how many employees you have, the industry you are in, and which of our services you want to utilize. Customers often save hundreds per month by getting access to less expensive employee benefits.