MANAGING YOUR BUSINESS: PEOs—A Remedy for Business Woes

Launching a new business takes courage and creativity. Growing the business can be a great challenge. Being able to efficiently focus on the “art of the business” while managing the critical administrative details can be overwhelming. However, the addition of a Professional Employer Organization (PEO) to the small business mix can help to keep growth plans on track. A PEO can manage the administrative demands of payroll, workers’ compensation claims, unemployment insurance, health benefits, and much more.

PEO Spelled Out

A PEO is an organization that helps small to mid-sized businesses outsource human resource and administrative functions, which do not generate revenue for the company. It also reduces and potentially eliminates many responsibilities and liabilities associated with being an employer. The PEO facilitates these activities by helping businesses in areas such as human resources, employee benefits, insurance, payroll administration, legal issues and compliance as well as safety and loss control. The PEO helps a business become more efficient, increase operating leverage, and re-focus its efforts on core business competencies.
In today’s workplace, employees want their employers to provide financial security, good health insurance, a safe working environment, and an environment in which they can save for retirement. A PEO can deliver these services in a cost-effective manner by consolidating all of its clients into a larger organization to obtain preferred rates on insurance and benefit packages. As a result, the PEO’s small business clients are able to provide their employees with Fortune 500 quality benefits, helping them to attract and retain top talent.

How PEOs Work
A PEO is the optimum means to provide a wide spectrum of administrative and financial services to businesses. In a PEO arrangement, the PEO and client company maintain a co-employment relationship. The PEO assumes many of the traditional responsibilities and liabilities of the “business of employment,” including risk management, human resources, labor law compliance, payroll, and employee taxes. The client company manages product development and production, marketing, sales, and service. The PEO establishes and assumes an employment relationship with the worksite employee and provides a complete human resource and employee benefits package. This line-up and delivery of services streamlines efficiencies for small to mid-size business owners and allows them to focus on the bottom line.
The flexibility and benefits offered by the PEO arrangement makes it attractive to a wide variety of businesses in virtually every profession. According to the National Association of Professional Employer Organizations, there are an estimated two to three million Americans co-employed in a PEO relationship. About 700 PEOs offering a wide array of employment services and benefits are operating today in 50 states. According to the National Association of Professional Employer Organizations (www.napeo.org), the PEO industry generates approximately $51 billion in gross revenue annually.

Cool Economy—Hot PEOs

During a slow economy, a PEO can help control benefit costs through its large group buying power and enable the business owner to tighten up expenses. In addition, a softer economy may allow business owners to be more particular in hiring as the labor pool becomes larger and more diverse. PEOs can help business owners locate, attract and retain high-quality employees through competitive benefits packaging.
At the same time, PEOs can help manage employee liability if layoffs become necessary. As an example, PEOs can assist with terminations and outplacement service for qualified employees.

Ten Steps to Selecting a PEO

Since every company’s needs differ, the business owner should first evaluate what they want from a PEO relationship. One business may need only a specific service such as payroll administration or a benefits package­­­ while another may require more extensive assistance. Whatever the case, approach a PEO as you would the selection of any other valued partner in your business. Here are some factors to consider when selecting a PEO:

● Evaluate your work environment to determine your management and human resource needs.

● Just like you would with other vendors, make sure to check the PEO’s financial soundness by confirming credit and banking references. Have the PEO document that their payroll taxes and insurance premiums are paid up.

● When you hire employees you check professional or client references. You should do the same when interviewing prospective PEOs.

● By meeting the PEO’s employees, you will be able to determine if that particular organization will meet your business needs.

● Check to see if the company is a member of NAPEO, the national trade association of the PEO industry. NAPEO members share a commitment to continuing education, professional development and the Association’s Code of Ethics.

● Research the PEO’s administrative and risk management service competencies by evaluating the depth and level of experience of their internal staff.

● Learn how the employee benefits are funded. Are they fully insured or partially self-funded? Who is the third party administrator or carrier? If required in your state, is their Third Party Administrator (TPA) carrier licensed?

● Understand how the employee benefits are tailored. Determine if the benefits meet your employees’ needs.

● Carefully evaluate the service agreement. Are the respective parties’ liabilities and responsibilities well detailed? What guarantees are provided? What provisions permit you to cancel the contract?

● Make sure the PEO you are considering is licensed or registered, if your state requires such.

Establishing a relationship with a local PEO can free you up to grow your business. To find a PEO in your area, log-on to www.napeo.org.