Knowledge and Insights
For business owners, employment-related hassles can sprout like weeds and quickly grow out of control. If you find yourself constantly getting tangled in a thicket of HR and payroll problems, a professional employment organization (PEO) might be just the gardener you need.
Fewer burdens – As their name indicates, PEOs take on employment-related tasks such as:
- Recruiting and hiring,
- Payroll and workers’ compensation processing, and
- Benefits administration.
The need is definitely there. Owners of small to midsize businesses devote a substantial amount of time to employment-related paperwork.
Better benefits – PEOs also can improve the quality of health care benefits. Because these firms are bulk consumers of insurance and other services, they may allow you to offer your staff enhanced plan choices that can help you compete in the hiring/retention market with larger companies in your industry.
What’s more, with the advent of the Affordable Care Act, dealing with health care benefits has become more complex than ever. The right PEO should enable you to keep up with health care reform without having to track every new legal update or IRS guidance.
Legal assistance – In a traditional employer-employee relationship, your federal ID number and the employee’s Social Security number are essentially married. Under this structure, you’re able to direct and control your employees, but you also acquire certain liabilities related to the employee — tax and otherwise — which can cause problems.
For example, let’s say an employee files a lawsuit after suffering a job-site injury, winning a $1 million award. Many businesses couldn’t stay in business following such a judgment.
But the co-employment structure changes that relationship, making the PEO the employer of record and, thereby, shifting some or all liability to it. Thus, the PEO would likely defend the lawsuit in court or help shoulder a settlement.
Plus, better PEOs apply risk management practices to workers’ compensation claims. That can help them obtain better insurance coverage and may boost your bonding capacity.
Due diligence – If you’re interested in engaging a PEO, due diligence is necessary. Ideally, you want a provider that specializes in your industry. If you can’t find a specialist, look for one that’s dealt with companies of comparable size and specialty.
Check prospective PEOs’ references. Assuming at least several of those references are businesses in your industry, contact those companies and get their first-hand impressions of the provider.
Some PEOs could be undercapitalized, so also check their credit references and Better Business Bureau records. For an extra level of assurance, ask whether the PEO has received accreditation from the Employer Services Assurance Corporation (https://www.accessesac.org).
Good questions – When you’ve settled on a likely provider, meet face to face with the firm representative with whom you’ll be dealing. Be sure you’re comfortable with his or her credentials and personality. After all, this person will be an ambassador for your company.
There are a wide variety of good questions to ask. Has the PEO successfully negotiated savings from insurers in the past? How will it present and explain benefits programs to your employees? How often will it re-evaluate benefits to ensure your company is getting the best return on investment?
Also, discuss payment terms for the arrangement. PEOs typically charge either a flat fee or on the basis of a percentage of your company’s total compensation. Your financial advisor can help you identify the best option.
Worthy of thought – Smaller companies may not be able to handle the expense of a PEO. And larger ones may have the staff to handle employment tasks in-house.
But if you fall somewhere in between, and are constantly losing yourself in a dense thicket of paperwork and confusing rules, perhaps one of these providers can prune away the hassles and give you more time to grow your business. © 2014
If you would like to learn more about how a PEO can benefit your business, contact me at firstname.lastname@example.org or 609-689-9700.