PEOs are a common choice for many small and medium-sized businesses. They offer payroll, benefits, HR, and compliance services to help free up time for leaders to focus on business development and strategic initiatives.
Before signing with a PEO, understand how it works and its services. Also, find out how much it costs and if there are any extra fees involved.
Employee Management
A PEO is a Professional Employer Organization (PEO) that acts as the employer of record on behalf of a client company. They provide several services that can benefit your business and boost employee morale.
In addition to payroll management, a PEO also handles benefits administration, taxes, HR compliance, and risk management. It is different than a standard payroll provider that typically only handles payroll tax and employee pay options.
PEOs are usually larger than payroll service providers, which means they can often negotiate with health insurance and other benefits companies for lower costs. In addition, it allows them to offer their clients a more comprehensive range of corporate-level benefits and give employees access to the same benefits as more established businesses.
Another difference between a PEO and a payroll provider is that a PEO becomes the employer of record, which makes it liable for some of the risks of managing employees. As a result, a small business owner may need to consider establishing a ‘tri-partite’ agreement with the PEO.
Employee management involves several ongoing tasks that require time and attention, such as onboarding, performance review, training, setting up a grievance system, and more. Moreover, it involves interaction with employees, both face-to-face and via email, team meetings, and other methods. It also includes rewarding outstanding work and getting feedback from employees about their jobs.
Payroll
If you’re in the market for a new payroll service, it’s essential to know the difference between a PEO and an outsourced payroll provider, what is a PEO and how can it help your business. While they both process payroll and provide some HR services, they differ.
Unlike a PEO, which provides a full range of workforce support and services, a payroll service provider only handles payroll-related tasks. These include paying employees, depositing employment taxes, and issuing employee W-2s.
The most significant difference is that a PEO is an employer of record. It means it has legal culpability for compliance mistakes it makes.
It also assumes responsibility for all employee benefits. As a result, it can help minimize risk and maintain legal compliance.
PEOs are an excellent option for small businesses that need more resources to handle their payroll and HR processes.
They’re also a good choice for businesses with many compliance issues or tax laws that need to be clarified to navigate.
Lastly, PEOs can help companies save money on employee benefits. Since they have the buying power of a larger group, they can often access better rates on things like health insurance and workers’ compensation insurance.
When choosing a PEO, look for one certified by the IRS and accredited by the Employer Services Assurance Corporation (ESAC). In addition, they must comply with financial and tax reporting requirements, offer quality assurance, and adhere to industry best practices.
Employee Benefits
Small business owners need access to attractive employee benefits to attract and retain top employees. But finding a provider that offers a comprehensive benefits package at affordable rates is challenging.
A PEO can provide these services by acting as a co-employer of many small businesses. It allows them to negotiate with benefits providers on their client’s behalf to offer group rates for health insurance, workers’ compensation insurance, and retirement plans.
This benefit can save businesses significant money, particularly on health insurance and workers’ comp premiums. It can also help them keep up with the changing landscape of employer-sponsored benefits and the laws that govern them.
Another advantage is that PEOs are experts in employee benefits and compliance. As a result, they can answer questions about your company’s benefits, track claims, and ensure employees get paid promptly.
A PEO also takes on the legal responsibility of ensuring that your company adheres to employment laws and regulations. As a result, it can reduce your liability in employee disputes, unemployment, and workers’ comp claims. It can also make it easier for you to comply with state and federal employment tax laws.
Taxes
Taxes are an essential part of a business’s operations. However, they can be a burden if not managed properly. PEOs can help businesses minimize their tax burden and maintain compliance with the IRS.
A PEO is a professional employer organization that performs some or all federal employment tax withholding, reporting, and payment functions related to employees performing services for its clients. In turn, the PEO charges its client a percentage of payroll or another fee for these services.
In addition to handling payroll and taxes, a PEO can offer additional HR services like employee benefits administration, employee management, compliance, risk management, and more. These services can help companies save money and improve their employee retention rate.
Lastly, PEOs can provide various HR solutions geared towards international expansion. It helps businesses reduce costs associated with hiring, training, and maintaining foreign staff and navigate the complex laws surrounding employment regulations in new markets.
The essential advantage of using a PEO is that it can take care of the entire HR function for you, allowing you to focus on running your company rather than worrying about the details of employee management. They can also help you get the best group rates on health insurance, workers’ compensation insurance, retirement plans, and other employee benefits.