As any business leader knows, efficiently managing resources is a key to success. And the most critical resources are your employees. With a Professional Employer Organization, or PEO, employers can simplify their operations and maximize the potential of their team. A PEO will not only help save time and money; it will help with compliance, retention, and productivity.
Common Employment Challenges
To be successful in today’s competitive and litigious environment, employers must attract the best employees and efficiently manage the entire range of employment responsibilities. In small and mid-sized operations these duties often fall on the owner or a manager. However, without adequate time, knowledge or training, even simple HR-related decisions can have dire consequences if mishandled.
Common HR challenges include:
- Making daily employment decisions that comply with all state and federal laws;
- Maintaining a safe and productive work environment;
- Procuring and managing employee benefits programs;
- Remaining compliant with Health Care Reform;
- Tracking and verifying working hours;
- Remitting employment taxes to the appropriate agencies.
Instead of pushing paperwork, most executives would rather spend their time focusing on strategic goals, such as expanding market-share, developing better products or services, and building customer service. Enter the PEO.
What is a PEO and How Does it Work?
A PEO is an organization that provides an integrated, cost-effective solution for managing employee administration and human resources functions. Business owners partner with a PEO for support while still maintaining full control of their operations. This allows them and their management team more time to focus on growing their enterprise and managing the productivity of their team. According to the most recent reports by the National Association of Professional Employer Organizations (NAPEO), it is estimated that between two and three million Americans are currently employed under a PEO arrangement.
The PEO takes on many of the administrative functions relating to employment. This includes:
- Regulatory compliance;
- Employee relations assistance;
- Benefits procurement;
- Health Care Reform compliance;
- Payroll processing and tax administration;
- Safety and workers’ compensation insurance;
- Safety and loss control strategies.
Benefits to the Employer
A PEO arrangement offers benefits to both the employer and the employee. For the employer, PEOs offer economies-of-scale by packaging insurance products, such as health insurance, voluntary benefits and workers’ compensation, under an umbrella policy. This results in increased buying power and lower insurance premiums. It also reduces the overall costs related to payroll and accounting expenditures.
Beyond savings, a PEO provides professional assistance with employment-related challenges. The PEO’s experienced human resources staff assists clients with:
- Compliant hiring and termination practices;
- Discrimination and harassment guidance;
- Consistent employment policies;
- Compliant management practices;
- Health Care Reform administration;
- Wage-and-hour compliance;
- Compensation strategies.
If mismanaged, any one of these challenges can lead to employment lawsuits, penalties and fines. Under the PEO relationship, the employer is protected and receives guidance through the entire employment life-cycle.
Additionally, a PEO manages the cumbersome administrative tasks that are often fraught with errors and distract employers from focusing on their core, day-to-day business operations. PEOs oversee:
- Payroll and tax administration;
- Workers’ compensation claims and risks;
- Workplace safety programs;
- Benefits administration;
- Employee Handbooks;
- Unemployment and COBRA administration.
Benefits to the Employee
Working with a PEO not only helps the employer; it provides valuable benefits and services to the worksite employees as well. The PEO offers a comprehensive benefit package that would otherwise be out-of-reach for most small and mid-sized employers. Benefits available to employees through a PEO include:
- Group Medical Insurance: HMO, POS and PPO plans
- Dental, Vision, Life and Disability Insurance
- 401(k) Retirement Savings Plan
- Pre-Tax Cafeteria 125 Plans
- Credit Unions
Training and development has become a top priority for employers looking to advance talent and improve productivity. PEOs offer broad training programs ranging from time management and customer service, to legally hiring, wage-and-hour compliance and documentation and record-keeping. Employers are encouraged to avail themselves of these opportunities.
Research has consistently shown that a healthy, balanced lifestyle in and out of the workplace makes a significant, positive impact on the productivity of employees (not to mention the cost of health insurance premiums). Many PEOs offer health and wellness incentives, work/life balance programs, and discounts to health clubs and gyms. Ultimately, these enhanced employee benefit programs make the PEO client’s workplace more attractive for job seekers, improves morale and productivity of the staff and reduces turnover.
Between 2012 and 2014 the national association of the PEO industry, NAPEO, conducted a series of surveys and studies to determine the economic impact PEO arrangements have on employers. They compared business growth rates, administration costs, employee turnover and business survival rates to national data available from the Bureau of Labor Statistics (BLS). The findings were significant. Below are some of the highlights of their studies:
HR Administration costs, per employee:
Cost per employee (U.S. overall): $1500+
PEO Clients: $1187
Average differences in actual and expected employee turnover rates, PEO clients, 2012.
Expected turnover rate (U.S. overall): 41.6%
PEO clients: 13.5%
Average differences between actual and expected annual business failure rates:
Expected failure rate (U.S. overall): 8.0%
PEO clients: 4.1%
Percentage of workers participating in a retirement plan (10 – 49 employees):
All employers (U.S. overall): 23%
PEO clients: 52%
While many small and mid-sized employers may try ‘go at it alone’, engaging the services of a PEO offers significant competitive advantages. Reducing labor costs, minimizing employment risks, reducing workplace injuries and improving employee productivity are just a few benefits of engaging the services of PEO. If you are small or medium business struggling to get by in today’s competitive and dangerous environment, a PEO may just be the answer your business needs.