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What is a PEO and how does it work?

What is a PEO and how does it work?

Infographic to simplify the many ways a PEO helps small businesses. Reduce your responsibilities and liabilities while still maintaining control.

Professional employer organizations (PEOs) supply human resource services to businesses of all sizes—paying payroll and related taxes, providing workers’ compensation, as well as assisting with human resource compliance associated with numerous state and federal rules and regulations. In addition, several PEOs provide workers with access to 401 (k) plans, health, dental, dependent care, and other benefits not typically given by smaller businesses. In doing so, PEO’s will enable clients to cost-effectively outsource the management of human resources, employee advantages, payroll and workers’ payment. PEO customers can focus on their core competencies to maintain, plus grow their own bottom line.

The PEO and its customers enter into a co-employment agreement using a contract (each PEO has their own) that establishes the terms of their agreement.  In general, the PEO becomes the employer of record for liabilities like all the payroll related tax withholding, tax payments, and any other regulatory deductions and payments like child support, IRS levies, and more.  The particular PEO also issues the Form W-2 for its client companies paid by it under its EIN.  The client company retains all of normal day-to-day responsibilities including standard business functions, marketing and advertising, sales, and service, and day to day management of the employees.  Most PEO’s take on liability for the same set of employer responsibilities, however, this is where understanding the differences in their contracts is important.  An example of this difference might be in who is responsible for the Form I-9 verification and record storage.  Being a co-employer, the particular PEO will most likely provide a full human source plus benefit package deal pertaining to worksite employees aka the client employees.

Business people want to focus their particular time and energy in the “business of their business” rather than over the “business of work.” As businesses grow, many owners do not possess the necessary human resources knowledge or time to effectively manage their growing payroll, the knowledge associated with regulatory compliance, or the skills in risk management, insurance plus employee advantage programs, and more to satisfy the demands of being a larger employer.  

PEOs give small employers access to numerous benefits and employment amenities they will not have otherwise.  A PEO’s economy of size enables each client organization to lower work costs while raising the business’s value. The customer may preserve a simple in-house HR infrastructure or choose none at all depending on the particular PEO. The client can also reduce hiring overhead.  Some of the time, the customer can pay a small up-front cost for any significant technology and support needed to create integration between the client tools and PEO tools.  Most times, there are no upfront costs like this.  Outsourcing these responsibilities, time consuming tasks, and expensive administrative software and tools enables the business owner to focus on the company’s primary competency and grow the bottom line.

By way of a PEO, the workers associated with small businesses gain access to big-business employee advantages for example:

  • 401 (k) programs,
  • wellness programs,
  • dental care,
  • lifestyle programs,
  • ancillary insurance products

as well as other benefits they could not really generally obtain since employees of the small company. And, when a business works with the PEO, the person who was doing all these functions prior to using a PEO typically experiences job security  improvement because the PEO implements efficiencies to reduce employment expenses enabling the employee to do more profit generating tasks.  Job satisfaction plus productivity is enhanced when workers are provided with professional useful resource solutions, enhanced advantages, employee manuals, protection providers and enhanced communications as well as other perks that normally are only offered by large employers.

Although all PEO’s deliver similar services to their customers, not all PEO’s are the same.  PEO’s operate in various niche industries.  Finding the right one for you might not be immediately obvious.  Selecting the right PEO is as important as the decision to use a PEO.  PEO’s can vary based on:

  • Health insurance provider if they offer one,
  • which industries their workers’ compensation carrier will allow,
  • level of human resources support,
  • various technologies,
  • and more.

Using a PEO broker or agent is the best way to ensure your business partners with the right PEO for you.  A professional broker will be able to get a few competitive quotes from PEO’s that will meet your needs and supports your industry.  The PEO broker understands market pricing for theses services and has the relationships to get you the best option at the best price.  PEO brokers work on a commission basis from the PEO so, they do not cost you anything and often save you money.

Bridgely Key Options is an experienced PEO agency.  We work with a wide portfolio of PEO’s.  We would be happy to help you learn more about your options, team you up with the right PEO for you.  To learn more, call us today 855-899-4880 or locally 941-896-4880.

Professional Employer Organizations (PEOs) are America's human resources partner. PEOs allow business to focus on what they do best.

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