Pros and Cons of Professional Employer Organizations (PEOs)

Has your organization considered using a Professional Employer Organization (PEO) to streamline benefits administration?


Before looking into PEO partners, you must consider whether a PEO is the right solution for your business.


A PEO is an organization that enters a joint-employment relationship with an employer, allowing employers to outsource their human resource functions. This co-employment relationship allows the PEO to manage many employee-related responsibilities and assume liabilities.


What is the primary goal of a PEO?

A PEO relationship provides employees with access to cost-effective comprehensive benefits without the administrative and regulatory burdens that are costly and overwhelming to employers.


PEOs allow your business to access assistance with managing payroll, human resources, benefits and other employer-related administrative functions.

  • Payroll – Automate the payroll process and decrease processing costs—including withholdings, W-2s and garnishments

  • Retirement Plans – Provide access to a retirement savings program that includes 401(k) plans

  • HR Compliance - Avoid fines and stay compliant and up-to-date with the latest HR laws, regulations and rules that apply to your business.

When determining if a PEO is right for your business, it is beneficial to weigh the pros and cons of the partnership.


Pros of a PEO

A PEO can help a business:


Stay Compliant

Non-compliance with employer rules and regulations can be costly for your company. A PEO can provide your business with information and resources regarding federal, state, local and industry-specific regulations. Your PEO partner will handle the business transactions required for you to ensure your business meet requirements and stays compliant.


Provide Competitive Benefits

PEOs have access to a network of select carriers to obtain employee benefits that a typical small or mid-sized employer doesn’t normally have access to. This allows your business to expand your benefits offerings and offer employees cost-effective health insurance solutions.


Free Up HR’s Time

Your HR team will continue to have direct control over the day-to-day activities of their business—the PEO becomes an additional employer of record for purposes of human resources administration. This partnership streamlines HR administrative and compliance tasks and allows you to keep focused on growing your business.


Cons of a PEO

Some disadvantages of PEOs might include:


Decentralization of HR Activities

A PEO takes over most of your business’ HR tasks and functions, making it difficult to access HR data and reporting that is useful when looking to scale your business. When your HR activities aren’t managed in-house, it makes it more difficult to make quick updates to policies and decisions.


Inflexibility

PEOs work with select carriers, providing only certain group health insurance plan options. If you need to prioritize having more options and plan flexibility for your employees, then having limited options may be an issue for your business. If a PEO decides to move to different benefits carriers, you and your employees will need to adjust to the new options.


Cost

The costs of many PEOs can be negotiable, making it unclear to employers if they are getting a reasonable price. Unfortunately, many companies have also seen price changes in the costs of their health insurance premiums, and because of the inflexibility of plans, employers and their employees have limited options.


Are PEOs right for your business?

Each business has different considerations, so one solution won’t fit all when it comes to employee benefits.


Contact our team today for a consult on creative benefits solutions for your business.