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5 Questions Every Employer Should Know about Professional Employer Organizations (PEO)

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The term Professional Employer Organization, otherwise known as PEOs, still remains somewhat unfamiliar to the small business owner. Despite a sustained 15% – 20% annual industry growth and growing visibility in the media with dozens of news mentions weekly, many employers still do not understand how PEOs can help a business, or how they differ from temporary staffing firms. Below are five fundamental questions that all employers should know about Professional Employer Organizations (PEOs).

1. Why would a business use a PEO?

Employers in today’s economy must focus their efforts on reducing costs and minimizing employment risks, while motivating their staff to be more productive. At the same time, employment administration is as complex as ever: labor law compliance, employee benefits, worker’s compensation, risk management, UI claims, payroll and tax compliance, employee training and recruiting are just a few of the areas that bog down employers.

PEOs offer a comprehensive HR solution, providing valuable advice regarding the entire employee life-cycle, from hire to termination. Their human resource experts help employers reduce HR risks and employment costs, while increasing efficiencies and employee productivity.

Additionally, PEOs offer competitive workers’ compensation insurance programs, and assist clients in making available an array of robust employee benefits, from health, dental and life insurance, to 401 (k) and pre-tax Cafeteria plans.

2. Does a business owner “lose control” over their employees in a PEO relationship?

No! The PEO and the client create a contractual arrangement wherein the business owner retains complete control over the day-to-day operations of the business, including hiring, firing, setting wages, and directing the daily activities of the employees. The PEO assists with the administrative aspects of employment, such as payroll, taxes, workers’ compensation and employee benefits, while providing HR support to help clients comply with applicable employment laws and regulations.

3. What is the difference between a PEO and a Staffing Agency?

A Staffing Agency provides temporary or long-term employees at a client’s workplace. A PEO provides employment support services and administrative assistance to the business’s existing, on-going workforce.

4. What types of businesses use a PEO?

There is really no “typical” PEO client. On average, most employers with fewer than 200 employees, or those without a dedicated HR staff, can benefit from the PEO’s economies-of-scale and human resources expertise. Industries include medical, manufacturers, hospitality, retailers, warehousing, non-profits, business services and high-tech.

5. What does a PEO cost?

PEOs typically charge either a fixed percentage of gross payroll, or a per-paycheck fee. This fee can vary greatly based on numerous factors, such as employee size, gross payroll and industry. Many employers find that once they engage a PEO, the fees they pay are often offset by the savings they experience in the areas of reduced administrative overhead and discounted insurance premiums.

As the economy meekly limps forward, business owners continue to investigate new and innovate ways to reduce overheard, streamline human resource functions, motivate their staff, and minimize employment related risks. Professional Employer Organizations have proven to successfully address each of these areas, and should be given serious consideration by small and mid-size employers alike.

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