A professional employer organization, or PEO for short, can add a tremendous amount of value for small businesses. There’s no set definition for PEOs and some of them offer different services. In essence, however, these organizations will take over certain employment responsibilities from other companies, which can help reduce some liabilities and costs. This can be especially useful for small businesses.
Below, you’ll learn about many of the benefits offered by PEOs. If you should decide that you want to work with such an organization, you can use your favorite search engines, such as Google or Bing, to search for PEOs in your area. You might use a search term like Kansas City PEO or PEO in Miami, for example.
Keep in mind that the services and arrangements offered by professional employer organizations can vary, so it’s smart to carefully consider your needs. Then you can start to research various potential partners to find the organization that will add the most value. In turn, this could pave the way for your company’s success.
The Basics of PEOs Explained
When a small business works with a PEO, its employees will actually be employed by the professional employer organization. This means that wages and the like are reported under the PEO’s federal employee identification number, and many of the liabilities associated with employing people will be shifted to the professional employer organization.
As a result, a PEO is often considered a co-employer. “Co-employer” can be a bit of an intimidating term. You wouldn’t be blamed for thinking that a “co” company will be taking over portions of your business and thus that you might have to give up control in some areas. In practice, however, PEOs allow companies, and especially small businesses, to focus on their strengths, such as selling goods and services. Ultimately, day-to-day operations are typically left in the hands of the small business.
The PEO, meanwhile, will step in to handle various tasks, typically related to human resources. For many companies, and especially smaller firms, managing human resources can turn out to be quite a burden, and without careful management, HR departments can get rather bloated. Yet it’s crucial for a company of pretty much any size to have effective and responsive human resource management.
A PEO can handle many different things, including administering benefits, managing payroll, handling unemployment claims, and assisting with compliance, drug testing, and the like. For small companies and entrepreneurs just starting up their businesses, handling all the above can prove especially challenging.
Common Concerns When Working With PEOs
Given how close the professional employer organization and their clients must work together, it’s crucial to find PEOs that you can depend upon. An upstanding PEO can add tremendous value. A poorly managed PEO, however, can create some headaches.
For example, small businesses that rely on PEOs may not develop the institutional knowledge to manage human resources on their own. Yet this doesn’t have to be the case. Many professional employer organizations will actually help small businesses acquire skills and develop policies should they later decide to set up their own human resources department.
Further, while PEOs take on many liabilities, that doesn’t mean that the small business is completely insulated. Take cybersecurity, for example. If a professional employer organization suffers from lax cybersecurity and a small business thus experiences a data breach, it could affect both the PEO and their client. The PEO might have to deal with legal authorities, but the small business could still lose clients and revenues because of the breach.
Of course, the best professional employer organizations will provide security that goes above and beyond what many small businesses enjoy. Human resources often means working with sensitive data, like Social Security numbers and bank account information. A well-managed PEO will ensure that such data is kept secure and confidential. This can ultimately protect clients and their customers.
Ultimately, if a small business decides to work with a professional employer organization, the most crucial step is finding the right partner. A poorly managed PEO could create some headaches, whereas a well-managed service provider can help share the burden, provide top-notch expertise, and ultimately mitigate various risks.
