What is the Purpose of a PEO?

Posted by HR Division of Propel HR on 11/17/22 11:30 AM
HR Division of Propel HR
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Posted on: November 17, 2022

When you are in the middle of running a business, it’s tough to step back and see the big picture. Expert advice is needed to prepare for what's ahead and help with things like controlling costs and maximizing productivity. That’s where a Professional Employer Organization (PEO) can prove to be a valuable business partner.Choosing the Right PEOHow A PEO Works

PEO entered the market to help with some of the most time-consuming HR-related tasks related to running and growing a business, such as payroll, compliance, and benefits. In a PEO arrangement, the PEO becomes a partner through a co-employer arrangement. 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. The PEO takes care of specific HR-related responsibilities, such as payroll processing and benefits administration. 

A few facts about the PEO Industry:

  • PEOs provide services to 173,000 small and mid-sized businesses, employing 4 million people
  • Currently, there are 47 PEOs in the U.S.
  • The total employment represented by the PEO industry is roughly the same as the combined number of employees for Walmart (U.S. only), Amazon, Kroger, and Home Depot
  • The PEO industry’s 173,000 clients represent 15.3% of all employers with 10 to 99 employees

PEOs Protect Your Most Important Resource: Your Time. It's easy for employers to get behind when the majority of their time is consumed with chasing paperwork, keeping up with filing deadlines, and addressing internal issues instead of attending to their customers. In fact, studies show that the average time small business owners spend on HR-related administrative is about 16 hours a week, or two full days. By taking over these time-consuming tasks, PEOs help small businesses get back more time to focus on productivity and growth.

AdobeStock_515098500_01PEO Provides Professional Expertise and Guidance. How do you attract more customers? Find (and keep) skilled workers? Expand into new markets? How do you know you have everything you need to compete with larger businesses? As an advisor, a PEO can help businesses move from entrepreneur to an employer – fast. PEOs provide access to a team of HR experts who are knowledgeable and up-to-date on employment laws and changing regulations and can provide guidance on the right solutions to get ahead.

PEO's Bargaining Power Means Access to Better Benefits. A great employee benefits package is one way to keep great employees and also gives employers a competitive edge in attracting top talent. Studies have shown that businesses that have enhanced their benefits packages reported higher employee performance, a more engaged workforce, lower turnover rates, and fewer missed workdays.  

Because of costs, providing high-quality benefits is often out of reach for most small businesses. This is where PEO's can add big value. By grouping small businesses into one large pool, PEOs have more bargaining power to secure lower rates, partner with top-rated insurance providers, and assemble the type of top-rated health insurance plans that better fit the needs of their employees. 

In addition, another benefit to working with a PEO is access to a Master Health Plan, a type of comprehensive group health insurance plan that’s specifically created to help employers – large and small -- improve the quality of healthcare to eligible employees. These high-quality, comprehensive health plans offer more benefits at lower prices and are an attractive option to businesses looking to control costs.

The majority of small employers that take advantage of a Master Health Plan have experienced: 

  • Significant Cost Savings and Less Rate Volatility. Stable rates and less risk for an unexpected rate increase allow small businesses to better budget and manage expenses. 
  • Access to Corporate-level Benefit Options. The larger pool allows PEOs to negotiate more competitive prices and sustainable benefits that would typically only be available to large corporations. 
  • Reduced HR-related Administration. Because a Master Health Plan simplifies the administration process, small businesses have more time to focus on their business.

➡️ ➡️ Read More:  4 Reasons to Hire a PEO for Risk Management

PEOs Help to Identify Cost-saving Strategies. In addition, PEOs help small businesses identify cost-saving strategies, such as managing administrative costs. A PEO can save small businesses time and money by helping to identify inefficiencies, streamline HR processes, and help make critical cost-cutting decisions. 

The proof speaks for itself. Studies show: 

AdobeStock_215972243_01PEOs Manages Compliance and Reduces Risks. Businesses of all sizes face a number of workplace risks. Who is responsible when something goes wrong? Who pays the penalties for a compliance violation or a missed deadline? By partnering with a PEO, the co-employment relationship means that the risks are shared between the PEO and the employer.

  • IRS Certification. 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.

    In 2014, new legislation required the IRS to develop a certification program for PEOs. Only PEOs that meet the IRS’s strict requirements receive the certified designation. This includes providing documentation of positive working capital, completing a thorough background check, and agreeing to a series of follow-up audits. Once certified, the PEO has the authority to collect and pay federal employment taxes.

    By raising the bar, the certification brings employers and PEOs closer together in a relationship based on trust. For businesses, it helps with making more informed decisions about the PEOs. For PEOs, it’s an opportunity to demonstrate exceptional business practices. In 2017, Propel HR was one of the first PEOs in the country to receive certification. We believe in transparency and are proud to be part of a distinguished group of respected and trustworthy industry leaders.

    Note: The IRS does not endorse any particular PEO. You can find more information about certification at www.irs.gov.

  • Compliance Guidance in Multiple States. PEOs help to identify all types of potential risks and develop a plan to mitigate those risks, helping businesses avoid situations that can cost time and money.

AdobeStock_496185802_01While laws vary from state to state, employers are responsible for complying with the laws and regulations in all states where employees work, not just where the business is based. PEOs are familiar with local labor laws and regulations and can ensure the right policies are in place in all locations. 
  • Prevents Exposure. PEOs provide access to a team of HR experts who are knowledgeable and up-to-date on new and changing labor laws. In addition, a PEO keeps liabilities in check associated with employment-related claims, such as wrongful termination, and can help with guidance on reducing exposure to costly compliance issues.

The Advantages of Partnering with a PEO

Most employers have in common the need for guidance from a trusted advisor. From access to better benefits, compliance protection, and reducing costs to a higher ROI, the advantages of adding a certified PEO, like Propel HR, to your team of advisors increase the odds for success and growth. 

Choosing the Right PEOAbout 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

Topics: Featured, PEO

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HR Division of Propel HR

The HR Division is made up of a team of professionals with a vast level of experience and HR expertise, assisting organizations of all sizes and within a wide variety of industries. They readily partner with clients to address strategic and compliance challenges surrounding the employment life-cycle and the ever-changing laws that regulate it. Inquire below about how they can help you!