If you run a small to medium-sized business that relies on employee labor, you’re probably already aware of the complexities that must be managed in order to keep everything operating smoothly. With so many daily, routine tasks competing for your attention, it can be difficult to dedicate enough time to the core functions of the business. Partnering with a Professional Employer Organization (PEO), however, may shift this scenario for the better. In a nutshell, a PEO helps your business to become more successful by providing a wide variety of essential human resources-related products and services. Compared with running your own dedicated Human Resources (HR) department, a PEO can offer these valuable services at much lower costs and can do so with greater efficiency. The result is significant: you gain more time and money, which can be reallocated to your business however you best see fit.
PEOs typically function as an extension of your business by completing payroll and taxes, improving the hiring process, providing employee benefits such as health insurance or 401(k) plans, and taking care of compliance and legal issues. Because the PEO model operates on an economy of scale, small businesses working with a PEO are able to benefit from reduced employment costs and even gain access to employee benefits normally only accessible by large corporations. Research shows that employees who are provided with professional HR services, including quality benefits, training and safety modules, and better communication materials will typically experience an increase in job satisfaction and productivity. This creates a positive feedback loop for your business that, over time, attracts even more talent, productivity, and profitability.
Besides partnering with a PEO, another potential option for outsourcing your HR-related tasks could be to use an Administrative Service Offering (ASO). However, it’s important to understand the primary differences between an ASO and a PEO to know which would make a better fit. An ASO acts as a consultant, offering à la carte services, meaning you only pay for the services you actually need. In this arrangement, you are also responsible for choosing your own third-party vendors, including insurers. This may be ideal if your business needs less of a helping hand or if you would prefer to retain greater control over its HR processes.
Unfortunately, an ASO cannot match the volume pricing offered by a PEO, effectively excluding your company from accessing those alluring benefits and services normally only available to much larger businesses. Additionally, an ASO does not assume any risk, leaving your business responsible in the event of any legal issues. A PEO, on the other hand, technically functions as a “co-employer,” which means it has a vested interest in both the success of your company and also in mitigating any liabilities that may arise along the path.
If the all-in-one style and the added peace of mind of the PEO model appeals to you, then it may also be worth considering a CPEO (Certified Professional Employer Organization). Basically, the certification process for PEOs adds further layers of protection and reliability. In order to get certified, a PEO must apply to the IRS after providing extensive financial and background information. The added certification effectively removes any liability from the client and places sole liability with the CPEO. This means that the IRS will work exclusively with the CPEO to resolve any outstanding issues rather than coming to you for resolution. Depending on the needs of your business, this extra bit of added value may be particularly attractive.