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.
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:
PEO responsibilities:
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
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.
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.
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.
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.