Payroll, HR, and tax compliance are three tasks that weigh down businesses of all sizes. HR can be especially taxing when you consider all the work that goes into recruiting and hiring. A solution for a lot of businesses is found in the professional employer organization (PEO).
A PEO is a company that provides HR, payroll, benefits, and tax services to small- and medium-sized businesses. What makes the PEO different from third-party service providers is one of co-employment. In other words, PEOs share employment responsibilities with clients.
PEOs are legal in all 50 states. Some states have licensing requirements, and all are subject to strict federal laws regarding co-employment and taxes. Knowing that, the question is one of why a company would partner with a PEO.
Lack of Time
Time constraints are a problem in nearly every business. There's never enough time in the day to get everything done. Owners and managers can find themselves pulling their hair out attending to HR and payroll issues when they should be concentrating on their company's core products and services. As such, a lack of time is a very good reason to partner with the PEO.
Understand that a PEO offering both payroll and HR takes care of everything in both regards. For tax purposes, the PEO acts as the employer of record for all employees who work at the client's site. It is the PEO that handles time and attendance. Their staff processes payroll, handles withholding, and makes tax payments. The same thing applies to HR tasks. The PEO worries about recruiting and hiring, benefits packages, and the like.
Lack of Resources
Part and parcel with a lack of time is a lack of resources. Simply put, a business may not have the resources to develop a full HR department capable of providing employees with the kind of service they deserve. PEOs do.
It should be noted that PEOs often can provide benefits packages at a lower cost than employers. How? By leveraging much larger employee groups based on combining the staff members of a larger group of employers all located in the same general area.
The employer's lack of resources might be limited strictly to financial issues. It might be a lack qualified HR staff with the knowledge and experience to run a full-fledged HR department. A business may operate in a space that doesn't have room for an HR office. The point is that you don't need to limit resources to HR and payroll when you use a PEO.
Not a Temp Agency
In closing this post, it must be made clear that a PEO is not a temp agency. These are two different kinds of models, both practically and under the law. Let us look at a few key differences that make the point clear.
A temp agency recruits and hires its own employees. Those employees are furnished to clients on a temporary basis. A PEO, while it may recruit and hire, does not exclusively employ workers. Rather, it enters into a co-employment situation. The PEO is the employer of record for tax purposes; the client is the employer of record for scheduling, assigning tasks, managing work, etc.
Temp agencies also provide workers that make up only a fraction of an employer's total workforce. In a PEO situation, all of the employees are co-employed by both the PEO and the client.
If you find your business struggling with a lack of time and resources for payroll, HR, benefits, etc. you might want to consider a PEO arrangement. It might make an enormous difference.