If you run a small business, it’s likely that your legal and compliance responsibilities have increased along with time-consuming HR-related administrative tasks. A PEO can be a valuable partner to help employers protect their workplace and avoid costly compliance violations.

What is a PEO?

A Professional Employer Organization (PEO)is an organization that helps businesses through a co-employment relationship with your business to take over specific tasks, such as benefits administration and payroll, for example, which allows more time to devote to running your business.

Both companies, the employer and the PEO, have rights and share responsibilities for employees. The employer maintains control over business decisions and operations, day-to-day activities, and core job functions of its workers, and the PEO takes care of certain HR-related responsibilities, such as payroll processing and benefits administration. 

How are responsibilities shared? PEOs provide HR services and benefits – it does not provide employees. The co-employment partnership is designed to complement your business as well as protect your business and employees. It’s designed to help your business -- not control it. 

Here are examples of how the responsibilities are shared between the employer and the PEO:

Employer responsibilities: 

• Maintains control of all business decisions and operations
• Manages the day-to-day daily management of its employees
• Oversees performance management and reviews
• Manages recruitment and retention activities

PEO responsibilities: 

• Reports, collects, and deposits employment taxes with local, state, and federal authorities
• Payroll administration
• Employee benefits administration
• Workers’ Comp insurance administration
• Provides access to a team of HR experts for guidance on managing compliance risk and HR-related issues
• Unemployment claims administration
• Recruiting and retention support
• Other strategic HR functions

This co-employment arrangement allows small to mid-size businesses to compete with larger businesses, opening the doors to many attractive benefits. For example, PEOs can pool employees together to negotiate better benefits packages with access to top-rated health insurance plans, which smaller employers may not be able to get on their own – valuable for attracting and retaining top talent.

▶️▶️Read More: Can PEO Services Help My Small Business 

How a PEO Helps with Managing Compliance Risks

Businesses face a number of risks related to employees and the workplace. While not all laws apply to all businesses, employers should be familiar with the laws that do. According to a study on compliance, only one in four businesses are confident about their knowledge of current employment laws and regulations at the federal (23%), state (26%), and city/county (29%) levels. 

Identifying all types of potential risks and developing a plan to mitigate those risks helps businesses avoid situations that can cost time and money. Here’s how a PEO can help.

IRS Certification Reduces Liability. Who is responsible when something goes wrong? What happens when a tax deadline is missed? Who pays the penalties for a compliance error? A simple mistake can be devastating. In a co-employment relationship, the risks are also shared between the PEO and the employer.

Because the employer reports wages under the PEO's Federal Employer Identification Number (FEIN), PEOs are trusted with sensitive information, such as employee data, Social Security numbers, and financial information. That’s why it’s important that the PEO is certified by the IRS. If something goes wrong, the liability shifts to the certified PEO (CPEO), not the employer.

Only PEOs that meet the IRS’s strict certification requirements receive the CPEO designation.  A PEO must prove it is financially sound. It must also provide the IRS with audited financial statements, documentation of positive working capital, complete a thorough background check, and agree to a series of follow-up audits. Once certified, the PEO receives the CPEO designation and has the authority to collect and pay federal employment taxes.  

In a PEO arrangement, both the PEO and the business share liability. Certification provides another level of added protection. In the CPEO arrangement, if something goes wrong, the CPEO is responsible, not the business. 

Access to Expert Guidance. Employment laws are complex and ever-changing. Failure to follow countless labor laws, regulations, and rules that apply can end up costing your small business penalties of up to $10,000 per violation.PEOs provide access to a team of HR experts who are knowledgeable and up-to-date on new and changing labor laws that may impact your business. A PEO can help with guidance on how to reduce exposure to costly compliance issues such as misclassifying an employee, failing to follow the Family and Medical Leave Act, or forgetting to replace the required EEOC labor poster with the recently updated “Know Your Rights” version. 

Manages Compliance in Multiple States. While laws vary from state to state, employers are responsible for complying with the laws and regulations that apply in all of the states where employees working, not just where the business is based. PEOs are familiar with local labor laws and regulations and can ensure proper policies are in place. Some of the most common include: Overtime rules, paid leave, minimum wage and pay equity laws, benefits administration, hiring practices, employment agreements and employee handbooks.

▶️▶️Read More: PEO Insurance and Health Benefits for Small Businesses

Prevents Potential Lawsuits. A single lawsuit can be devastating to a small business. A PEO keeps liabilities in check that are associated with employment-related claims, such as wrongful termination for example. By partnering with a PEO, employers have access to the expertise of a team of experts to provide guidance on how to resolve a potentially costly situation.

Why Partner with A PEO

Workplace safety and risk management are too important – and typically too complex and time-consuming – for small businesses to take on alone. Just as having a business partner brings a new perspective on making the right decisions for your business, partnering with a certified PEO, like Propel HR, can give your business a significant advantage as well as added confidence and peace of mind. About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for more than 25 years. Propel partners with small to midsized businesses to manage payroll, employee benefits, compliance and risks, and other HR functions in a way that maximizes efficiency and reduces costs. Visit our new website at www.propelhr.com.