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Professional employer organizations, or more often called PEO companies, provide full-service human resources outsourcing that performs different employee administration tasks and strategic services on behalf of your company.
The industry of PEO services in the United States have 173.000 clients as small and mid-sized employers and employs 4 million people, according to the National Association of Professional Employer Organizations (NAPEO).
These companies serve as the expert employers for their client's business requirements and employee strategies.
For example, the client reports wages under the PEO’s federal employer identification number (FEIN). Then, the employee liability is shifted to the professional employer.
That’s when your organization has more time and staff to invest in other key areas of your organization’s growth and improvement.
What Do PEO Organizations Do?
With the strategic guidance of the experts, your company can typically get help with the following:
- Payroll and tax filing: One of the basic tasks is processing payroll and managing employment taxes. Many teams prefer to integrate the payroll with attendance and time, which reduces the possibility of duplicate data and errors.
- Employee benefits administration: An employment arrangement often comes with the handling of these benefits in the enrollment process:
- Health Insurance
- Dental Care
- Retirement Benefits
- And more
- Compliance: Compliance experts can help you protect your company from fines and penalties. This may include payroll tax law, reporting requirements, unemployment insurance, and hiring and HR compliance.
- Human resource support: If you already have an in-house HR team, the PEO firms can partner with them administratively and strategically.
- Talent management: Some PEO organizations offer an end-to-end talent service such as employee training, recruiting and strategic hiring, and performance management.
PEO services can help you realign your practices to improve your employee retention and reduce the final turnover. Expert teams can also include the following services:
- Recruiting and hiring
- Unemployment administration
- Workers' compensation coverage
- Drug testing programs
- Family and medical leave act administration
Why Hire PEO Firms?
There are several advantages of PEO companies, especially for employers with less knowledge or experience in the sector of human resources.
These organizations can reduce the costs involved in workers’ compensation by 25% percent, most often for small businesses.
Privately-held businesses are approximately 50% less likely to fail when collaborating with professional employer organizations.
Some of the most notable benefits are as follows:
- Improved employee engagement
- Reduced administration costs
- Access to HR expertise
- Access to employee benefits
- Improved risk mitigation
When it comes to HR outsourcing statistics, international PEO services market statistics are showing a continuous growth:
- The global IT outsourcing market will see growth by $98 billion by 2024, expanding at a compound annual growth rate (CAGR) of 5%.
- In the U.S., outsourcing financial services will continue to rise by about 7.5% annually.
- The value of the outsourcing market is projected to increase to $81.5 billion by 2023, expanding at a CAGR of 3.51%.
- Digital marketing outsourcing follows at 34%
In addition, around 51% of executives working in the tech industry say they prefer to outsource application and software maintenance.
Therefore, hiring the right business partner means time efficiency leading to your experts having enough time for your company's business development goals and mission.
How Much Do PEO Organizations Charge for Their Services?
PEO companies typically charge by the percentage of payroll or based on the number of employees your company has.
The price will vary depending on your organization, from about $40 per month (per employee) to $160 per month (per employee). When it comes to percentage, it goes between 2% and 12% of wages.
Consider the following when evaluating the costs:
- Cost analysis of payments being allocated to payroll, workers’ compensation, benefits, etc.
- Data insights to improve your return on investment
- Talent management that will provide you with even more time and energy
How to Find the Right PEO Services for Your Business?
To choose the right team to provide you with the PEO services for your business, follow the next four steps:
Step #1: Look for Referrals
The world of employment law is complex and companies face audits when they fail to comply with the regulations regarding taxes, payroll, benefits, etc.
Look for referrals from other companies from your niche because you need the knowledge and practice for your field. This comes only with careful research and monitoring inside your industry.
Step #2: Search for Specialized Teams
For small businesses, in particular, it can be expensive to provide medical care and similar benefits as this can be cost-effective only in businesses with a larger pool of employees.
PEO organizations can help small businesses in an economical and practical way to offer benefits that can improve recruitment and employee retention.
Step #3: Ask About the Company’s Data Security Measure
There are several cyber security regulations and one of them is the General Data Protection Regulation (GDPR). It established key security rights for individuals’ digital data.
Data that businesses keep on their clients and employees needs to be in a secure digital place that is accessible to the individual and safely transferable.
Your future business partner should have knowledge about managing a GDPR-compliant platform together with all of its requirements and regulations.
Step #4: Acknowledge Certification and Accreditations in The Field
Certified PEOs (CPEOs) are teams who have met the rigorous financial and legal requirements of the Internal Revenue Service (IRS). This means certain financial protection and tax benefits.
For example, a CPEO can pay federal taxes on the behalf of your organization. Only a small percentage of PEO firms are certified by the IRS.
10 Questions to Ask When Interviewing PEO Firms
Question #1: What Services Do You Include in The PEO Package?
Select PEO services can include HR consulting expertise that gives you access to specialists that help guide you with their best practices. This helps your business avoid administration issues while simultaneously gaining access to top-notch consulting.
Question #2: What Kind of Technology or Software Does Your Company Use?
PEO companies should have a reliable HR platform that manages several facets of your company’s human resources. Always ask about the technology or software and ask if you can preview their platform. This allows you to determine if the technology can be integrated into your business operations.
Question #3: Does Your Company Provide Training or Professional Development?
For businesses that look to increase employee satisfaction, professional development sessions and training can be one of the essentials. Personal development opportunities show your employees that you are invested in their long-term success.
Question #4: Do You Provide Benefit Plans?
Most PEO companies provide access to an employee benefits plan. You should inquire about the ones that are relevant to your industry and what they need most. Then, you can be in a better position to attract the leading talent and retain the current team at your company.
Question #5: What Should We Know About Compliance and Taxes?
Always discuss these details with your prospective business partner before moving forward with the partnership as the services that are provided can vary. Most teams will provide you with the best-practices guidance under different laws and this can allow you to relax and focus on other fields of your business.
Question #6: Will Our Company’s Data Be Protected?
Data security is always a top-of-mind for businesses, especially when your future associate will transmit sensitive personal information in order to provide their services. Be sure to work with the team who is safeguarding your personal information and employs technologies intended to protect your data.
Question #7: What Kind of Accreditations Do You Have?
PEO organizations that meet certain guidelines are accredited by the Employer Services Assurance Corporation (ESAC) or the Internal Revenue Service (IRS) which qualifies them as a Certified Professional Employer Organization (CPEO).
Question #8: Who Will Be Our Point of Contact?
Ask for clarification regarding the process of communication and make sure that you know how your account will be handled. Learn the protocol for contacting your HR consultant before you select your future experts, so you’re better prepared for your partnership.
Question #9: Can You Share Feedback from Previous Clients?
High-quality PEO companies share their client references to help you get more confident about your decision. Ask for references from clients who are similar in industry, size, and geographical location. You can also check their reviews, case studies, or individual team members’ experience to find out more about their work.
Question #10: What if the Employee Quits?
There is typically an agreed-upon notice period if an employee quits. But, be sure to ask the company on the interview if there is a specific procedure that they prefer.
Takeaways on PEO Companies
Working with the best PEO organizations means having support in human resources management, so your in-house team can have enough time to focus on strategic initiatives.
Professional employer organizations help your business grow and accomplish your goals. Their services can include tasks from talent management and compensation guidance, to leadership training and employee support.
Remember to check our agency directory to find the top-notch companies that might be your next partner!
Best of luck!