Professional Employer Organization (PEO) Services: A Useful Insight

What is a PEO service?

PEO stands for Professional Employer Organization. It is an organization that leases employees to the employer by entering into a joint-employment status. It is like a fully functional human resource outsourcing and is also called Co-employment. The PEO shares and manages various employee-related liabilities and responsibilities. As a result, employers are free from the hassle of tackling human resource tasks like workers’ compensation, payroll administration, employee benefits, compensation, and taxes. They also manage and look after employee health benefits, employee wellness programs, injury claims, etc. PEO’s help organizations reduce costs. They can outsource all their human resources-related responsibilities to experts who are highly qualified professionals. If they were to manage these tasks in-house, the organizations would have to pay hefty salaries to the Human resources team.

What does a PEO Service Agency do?

A firm that provides PEO services typically acts as the employer for their clients’ employees. The client reports its wages under the PEO’s identification number, so the employee’s liability shifts to the PEO. 

Depending on the size of the company and the number of employees, the management can decide to outsource a few or all of the HR tasks. The extent of PEO outsourcing also depends on the type of firm chosen for the PEO services. No two PEO firms are the same. So, it is essential to research the service providers and choose the PEO service provider that best suits your organization’s requirements.

Why choose PEO Outsourcing?

There are various benefits to PEO outsourcing, especially to smaller firms that do not have the resources to have an entire in-house HR team. However, as a result, there may be a lot of time and expense incurred on specialized HR functions such as HRIS, payroll management, and many of the day-to-day transactional HR tasks.

Employing a PEO firm can relieve the HR department from tasks like: –

  • Tax filing and Payroll Administration: PEO firms do the employee’s payroll and incorporate the local, state, and federal taxes to be calculated. Some PEO firms also merge the payroll with the time and attendance data. This reduces the duplication of data and errors caused due to it. It also makes payroll calculation hassle-free for both the employers and the employees. 
  • Compliance: PEO’s have experts on their payroll. These experts ensure labour laws, tax laws, payroll tax laws, hiring, and HR compliance. This helps the organizations save a lot of revenue as they can avoid fines and penalties.
  • Benefits Administration: A co-employment agreement is a win-win situation for all parties. It comes with cost-effective and high-quality perks like health insurance, dental insurance, retirement benefits, etc. The PEO firm handles the enrolment of employees in these programs and processes these claims for your organization. 
  • Human Resource Management: The HR team works hand in hand with your HR team and gives them the support they need. If the organization is a small one, their HR team takes over the day-to-day functioning of HR in your organization.
  • Risk and Safety: PEO’s offer safety audits and training programs to ensure safety and risk management to minimize working hazards and maximize the worker’s safety. This, in turn, minimizes your insurance claims. They also help with Occupational Safety and Health Administration inspections.

Different Types Of PEO’s: 

There is no one-size-fits-all when it comes to PEO’s. Different types of businesses have different needs. So, the PEO’s have their types that cater to the needs of different types of companies. 

The type of business, the size of your organization, the number of employees, and the kind of work you do, you will need to choose a PEO that fulfils your field’s specific requirements and organization. They can be classified according to the work that they do.

  • The Classic PEO: This type of PEO firm provides the best PEO services. The Classic PEO assumes the co-employer status with you and shares the responsibilities and liabilities as well. They can also get your employees better perks like health insurance, dental insurance, accident claims at lower rates. The firm takes care of all the HR functions, including payroll, timesheet, filing of taxes, etc. For example, the PEO files the taxes using their tax identification number in their name, not in the name of your firm. This is because your employees are part of a larger group of the PEO’s workforce. A Classic PEO looks after all your HR requirements and leaves you free to focus on other important business matters.
  • Human Resource Outsourcing Organization (HRO): An HRO firm will provide your organization with all the essential HR services required for your firm’s smooth functioning. You would otherwise need an entire HR department to get this type and extent of services. These would include tracking attendance, handling payroll, calculating and administering employee benefits, organizing open enrolment benefits, etc. All these tasks are time-consuming and tedious but also necessary tasks to ensure compliance. By using PEO outsourcing, you can benefit from having an expert HRO team working for you at a minimum cost to your organization. 
  • Administrative Service Organization (ASO): They are very similar to the Classic PEO in their range of functions provided to your company. They fulfill all the HR needs of your company except certain tax and insurance liabilities. They differ from the Classic PEO as they do not assume any liability related to employment on their behalf. All liabilities lie with the actual employer, not the ASO. Although the ASO will still prepare and file your taxes, it will do it in your organization’s name using your tax identification number. When you enter into a contract with an ASO, the employer retains all rights and liabilities. 

Using the services of a PEO agency helps the company by reducing the workload. It also reduces the costs of salaries and benefits. that the company would have to pay permanent employees. The availability of a qualified and certified team at competitive rates is the tiebreaker in terms of making the decision of using the services of a PEO service provider.

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