PEO - Employee Leasing

The concept of a professional employment organization, or PEO, has been around for more than 20 years and is effective today. Professional employment organizations become the legal employer of a business' human resource workforce. This agreement reduces costs by maximizing productivity and controlling expenses.

A PEO assumes responsibility of administrative tasks for small to mid-sized businesses. Smaller businesses that do not have the manpower or other resources to perform these tasks on their own typically seek PEO services. The most sought-after contracted PEO services are for human resources duties.

Typical PEO service features

Here are many of the common PEO services you can leverage:

• Experienced staff in HR, benefits, payroll, and risk management
• Ownership of certain employment-related liabilities
• Delivery of professional assistance with compliance regulations such as OSHA, EEOC, OFAC, anti-money laundering, etc.
• Claim management
• The creation of professionally written employee handbooks, policies, procedures and practices for your business
• Consolidation of several companies' employment tax filings into one
• Access to 401(k) retirement savings opportunities to more employees

As a business owner, you may just require a few of these services or a bundle of them. Keep in mind the pricing that is typical of this industry when selecting the services of one of these companies.

Benefits of a professional employment organization

Employees benefit from this arrangement because the PEO groups employees from multiple locations, giving them an advantage in negotiating better health insurance rates. Reduction in workforce compensation, benefits, and related tax implications allows companies greater flexibility.

Companies choosing to outsource human resources receive expertise in human resource management and an established employee/employer relationship without the contractual assumption of employer responsibilities

PEO services contracts

Once you enter into a contract with a PEO, the company will then co-employ your employees. Both of you will share and allocate responsibilities and liabilities.

Examine the service contract thoroughly: it's important that each party's responsibilities and liabilities are clearly defined. Make sure all guarantees and provisions for termination are included. In addition, make sure the PEO's practices meet all federal, state and local requirements.

PEOs assume much of the responsibility and liability for the business of employment, such as risk management, human resources management, payroll disbursement, and government and tax compliance. You retain responsibility for the rest of your operations, production, and revenue generation. Both the company and you will share some of the responsibilities for employment regulation compliance.

Rates for PEO services

Prices vary based on the level of service requested from the contracted company. There is a standard initial setup fee that is charged before both entities begin doing business together. The setup fee typically ranges between $3,000 and $5,000, and is a one-time charge.

The actual cost of the services usually comes in the form of a percentage: smaller businesses typically are charged higher percentages, while larger companies may receive discounts based on volume.

Bundled service packages can typically cost between twelve and fifteen percent of the gross payroll. The per service rate is typically between 2% to 6% of each employee per pay period taken from the gross payroll. Worker's compensation is on a separate fee scale, ranging from 1% to 10% of each employee's pay.

Taking into consideration that having three services at 6% each will cost 18% plus a possible additional 10% for worker's compensation, it's more cost-effective for businesses to take advantage of service bundles that will cost them roughly 15%.

Selecting a PEO

Prior to outsourcing human resources, companies should conduct a needs assessment to determine their human resource needs. Once a needs assessment is completed, the company's management team will have a concise understanding of the various services needed when interviewing professional employment organizations.

Because professional employment organizations work by taking over a business' human resources, it's important to assure the organization that you hired complies with all state, federal, and local laws. The National Association of Professional Employment Organizations provides a national directory of associate members.

The goal of any human resource organization is to maintain compliance of payroll, benefits management, and legalities while lowering costs. Management must scrupulously assess a number of PEO business practices. A review of the professional employment organization's performance practices is essential, including its financial management.

Since they handle business payroll, taxes, and benefits, the PEO will have financial statements independently audited by a CPA and will have accreditation with the Employer Services Assurance Corp. (ESAC). Organizations that seek accreditation through ESAC must pass a vetting process prior to accreditation.

Get your staff together before hiring a PEO. It's important to know their depth and experience since they'll be dealing directly with employees. Ask for details about employee benefits, how it will be tailored, and funded, and how it compares to the current package.

Businesses must manage increasingly complex workforce issues, and a PEO provides an extremely flexible employment model of remarkable worth for any size business model. It offers companies freedom from the burden of health care, worker's compensation, unemployment insurance, payroll, tax compliance, and other human resource issues. Once you work with a PEO, you can use your newly-freed up resources to pursue more diverse revenue streams and profitability.