Can PEO Services Help My Small Business?
Small businesses have fewer resources than larger competitors but still face many of the same HR and compliance issues.
It is hard to focus on your vision and building your bottom line when you are worried about handling payroll issues, offering great employee benefits, and the many new and changing employment laws. Based on data from the Bureau of Labor Statistics, 20% of small businesses fail in their first year, 30% fail in their second year and 50% of small businesses fail after five years.
Having a sense of urgency is important in keeping your small business on track and growing. While it is understandable that some small business owners are willing to wear multiple hats to keep costs down, the very survival of your business depends on your ability to have the right team in place.
That is where working with a PEO can be a smart move.
What is a PEO?
A professional employer organization (PEO) can integrate with your small business in a co-employment relationship.
Beyond HR outsourcing, which is a typical service of a PEO, co-employment is a contractual allocation of specific responsibilities between the employer (your company) and the PEO. Both companies have rights and share responsibilities for their employees. The employer (your company) maintains control over business decisions and operations. You are also responsible for the core job functions of your workers. Under the co-employment arrangement, the PEO becomes the co-employer of employees and shares employment liability while also taking care of specific HR-related responsibilities, such as payroll processing and benefits administration.
How can a PEO help my Small Businesses?
There are many ways a PEO can help your business survive and thrive.
A PEO helps by outsourcing HR services such as Payroll Processing, Time and Labor Management, and Human Capital Management (HCM) Technology. PEOs also provide support for Workers’ Compensation, 401(k) Benefits Administration, and Financial and Retirement Solutions.
Professional Employment Organizations provide, in a single trusted partnership, an HR department, performance management, payroll services, payroll software, tax filing, risk management, and more.
Grow Faster, Minimize Turnover, and Survive Longer
According to noted economists McBassi and Company, "businesses in PEO arrangements grow 7-9% faster, have employee turnover that is 10-14% lower, and have a significantly higher rate of business survival than businesses that don't use PEOs."
Additional research indicates that PEOs support small businesses with "higher revenue growth, increased profitability, and higher employee satisfaction."
More HR Services at a Lower Rate Per Employee
According to a recent study, PEOs provide access to more HR professionals at a cost that is almost $450 lower per employee compared to companies with an in-house HR department.
Industry-Leading HRIS Technology
Human Capital Management software has become standard in every well-run business. Payroll, timekeeping, human resources, and talent management can now be tracked from your laptop and even your phone.
Some PEOs offer enterprise-level software that has a user-friendly interface and a mobile app. More than likely the PEO can provide the software at a lower cost than going directly to the software company, and they will help onboard your employees and train your staff.
Many small businesses are fined annually for unintentional payroll mistakes. Government compliance can be complicated and tedious. PEOs are expert employment-related compliance organizations that can handle most of the monotonous work.
Can a PEO help with Health Insurance?
Yes! This may be a PEOs greatest benefit to small businesses.
Insurance companies charge all companies with less than 50 employees ‘’small group prices,’’ which is up to 30% higher than those companies with more than 50 employees.
PEOs are able to pool together all of the employees of their clients into one group. Collectively, the large scale of this employee pool allows PEOs better bargaining power for rates and benefits.
Your company can offer significantly better benefits packages, typically at a reduced cost to you, including top-rated health insurance and lower workers’ comp rates. In addition, because PEOs handle plan administration and time-consuming HR-related paperwork, you get back the time to focus on growing your business.
Some PEOs, like Propel HR, offer Master Health Plans that provide significant benefits, including:
Bulk rating and composite rates, not age-banded, are lower and less volatile than that of larger employee pools.
Small businesses can save time by outsourcing all of the health insurance admin duties to the PEO.
Start at Any Time
Your employees can start any time during the year.
Do I lose control of my business with a PEO?
Nope. The co-employment partnership complements and protects your business. It does not control it. Both your company and the PEO become co-employers of your employees.
The PEO shares the liability for your employees, who are paid under the PEO's Federal Employer Identification Number (FEIN). As the business owner, you maintain control of business operations, while the PEO takes care of HR-related tasks.
Are PEOs expensive?
Working with a PEO lowers HR-related expenses and saves your business money in many ways. According to a report conducted by the National Association of Professional Employer Organizations (NAPEO), PEOs provide access to more HR services at a cost that is lower per employee compared to companies that manage their HR services in-house.
Most small businesses are surprised to find that by using a PEO, they can also lower health plan costs and provide better benefits at the same time. By partnering with a PEO, employers are able to offer top-rated health insurance plans and enterprise-level benefit packages similar to those offered at large corporations. This is because of a PEO’s ability to group employees of small businesses into one pool in order to negotiate better health plans at lower rates.
What happens to my HR team?
Many small businesses do not have a full-time equivalent HR professional, or they have very few. A PEO does not have to replace an existing HR team. A PEO's HR services augment a small business HR team with additional expertise and availability.
What is better than a PEO?
Certified PEOs (CPEOs) have been thoroughly vetted by the IRS, so you can be assured that they are a reputable, compliant, and stable Professional Employer Organization. A few advantages include:
Sole Payroll Tax Liability
The IRS holds the CPEO liable for federal payroll taxes, not your company. A certification designation means that the IRS cannot look to the client for federal payroll taxes but only to the CPEO.
FICA & FUTA Wage Base Restart
If you begin a relationship with a CPEO in the middle of the year, you will not have a wage base restart. A CPEO is deemed a successor employer. Therefore, your company will have no wage base restart at the beginning of the relationship.
Federal Tax Credits
Your company, and not the CPEO, is entitled to any federal tax credits. Also, they are required to give you the information necessary to claim any applicable credits.
CPEOs are required to maintain a one million dollar bond to cover federal taxes if something goes wrong.
Do I really need a CPEO?
Whether you need a CPEO or note is up to your unique business needs. Ask yourself these questions:
Are you looking for a way to save money? Do you need to reduce liability? Would you like to offer better benefits to attract and retain great employees? Do you want to spend less time on areas where you have minimal expertise?
If you answered "yes" to any of those questions, then it's time to explore a partnership with a trusted CPEO.
How do I choose a PEO?
When choosing a CPEO, make sure to factor customer service into the equation. Having a dedicated account manager to call if something goes wrong is valuable. When an employee has a critical payroll issue or if there is a major HR hurdle, you want to know that your CPEO is available to support you and has the required skills.
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.