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A Professional Employer Organization, or PEO, is a one-stop service provider that allows business owners to concentrate on running their businesses without getting bogged down in administrative headaches. It also allows them to provide employees with benefits that would normally only be available at much larger companies.

Unlike other HR outsourcing companies that provide only one or two quality services, a professional employer organization (PEO) offers a far more comprehensive approach to helping you manage your business's human resources responsibilities. A PEO allows you to transfer the majority of your business's cumbersome and time-consuming HR tasks to a dedicated team of HR specialists who are available to provide immediate guidance and recommendations for your specific needs.

It's important to understand that PEO's are not temp firms, staffing agencies or payroll administration companies. Instead, most PEOs offer a comprehensive suite of HR services to their clients-everything from recruiting services to benefits administration. Sometimes these services are offered as a bundle; sometimes they're offered a la carte.

A reputable PEO offers a variety of professional HR and business services. Typically, when you join a PEO, it's an opportunity for you to outsource the bulk of your responsibilities, including:

  • Employment Administration
  • Government Compliance Management
  • Employee Benefits
  • Workers' Compensation
  • Payroll and Payroll Tax Administration
  • Recruiting and Hiring
  • Policies and Best Practices
  • Performance Management
  • Training and Development

As a PEO client, you don't have to devote your valuable time tracking payroll or negotiating rates with benefit providers. Nor do you have to hire additional staff to manage it for you.

The separation of HR responsibilities and liabilities that occurs when you work with a PEO is called co-employment. In this type of business relationship, your employees work for both your company and the PEO. While you maintain direct control of the day-to-day work activities of your employees, the PEO assumes the administrative functions of HR and absorbs or shares many employer-related liabilities. The PEO can also provide advice and guidance on all issues related to HR, such as creating employee and workplace policies and procedures as well as staying current on government compliance requirements.

One common misconception is that companies that hire a PEO no longer have control over HR and employee-related decisions. But the truth of the matter is that PEO client companies aren't required to consult with the PEO before making a decision about an employee. So instead of losing control, employers often find that working with a PEO gives them more time to concentrate on the nuts and bolts of their company. Think of it this way: Just like your employees, the PEO works for you, not the other way around.

Beyond relinquishing day-to-day HR tasks, working with a PEO offers a variety of other advantages.

  • Quality Employees - Most small businesses don't offer benefits due to the cost. Without benefits, you don't always get the most qualified employee. With a PEO, small businesses can offer their employees reasonably priced benefits, such as 401(k) plans and medical coverage, and can, in turn, attract skilled workers and reduce turnover.
  • Regulatory Compliance - When it comes to HR, the government has a slew of rules and regulations by which you must abide. Many PEO's will guide you, step-by-step, through the often cumbersome process of ensuring your business complies with the myriad of both federal and state-specific employment laws.
  • Reduced Liability - One employee lawsuit could jeopardize the very existence of your business. But as a PEO client, you might be eligible for Employment Practices Liability insurance as part of the services provided by the PEO. In addition, the right PEO can assist you in establishing and implementing appropriate employment policies and, as necessary, responding to employee claims of harassment or discrimination.
  • Buying Power - When you enter into a relationship with a PEO, not only do you get to hand off the administrative responsibilities of HR, your company gets the leverage and buying power of the much larger PEO. This means you can obtain the same benefits and low premiums as many large companies.

If HR duties are keeping you from being more competitive, a PEO that takes these responsibilities off your plate may be the best solution.