PEO - Employee Leasing

By Dylan Mazeika

As a business owner, you know that human resources issues can come up at any time. And frankly, you don't have time for it. Companies like ADP, however, offer solutions for small and medium sized businesses that allow owners to get back to the job of running their companies.

First, it's important to understand the difference between an Administrative Services Organization (ASO) and a Professional Employer Organization (PEO) solution. Both services are close in nature; however, one is more comprehensive than the other.

ASO

An ASO gives the employer the ability to retain some of the HR functions in-house. ADP’s ASO solution ADP Resource provides a package of HR administrative services to help with key aspects of HR, but the business owner remains the employer of record. This allows the business owner to retain total control over the workforce, while ADP handles HR functions.

PEO

A PEO is a relationship in which a business owner selects a provider to become the dedicated HR management and benefits administration partner, and deliver a broad range of HR services through a “co-employment” model. ADP's TotalSource PEO services offer a co-employment relationship in which you retain the day-to-day control over how you manage your employees, while ADP manages HR administration responsibilities.

Many of the available services include:

• Managing payroll, taxes and year-end documents
• Providing employees a healthcare program
• Providing all IT infrastructure as it relates to the HR function
• Providing the availability of online and classroom training for employees

It's beneficial to have a strategic HR business partner dedicated to helping you make the best decisions for your business.

Working with ADP

When selecting ADP as your PEO partner, you'll have the ability to refocus on managing and growing your business. They will handle payroll and taxes, HR management and other aspects of workforce management like education and training. You can also get training in both online and classroom environments, employee assistance programs and more.

Other service highlights include:

1. ADP TotalSource Health and Welfare Plan which provides business owners and their employees with access to top-notch benefits, along with full benefits administration.


2. Risk avoidance. They have specialists who keep up with legislative changes and requirements so you don’t have to.


3. Accountability. As a co-employer, ADP shares certain responsibilities and other risks of being an employer.

With ADP handling the IT-related aspects of HR, you are free to add employees, benefits and features with minimal investments and impacts to your own infrastructure.

Pricing

In making decisions to outsource the Human Resource function it usually comes down to a matter of dollars and cents and what is best for your company. If you have a small company with less than 15 employees, it could be cost prohibitive to hire a qualified HR Manager. The person would need to know labor laws, can handle payroll and taxes, has the ability to train and educate new employees and can guide you to finding a good, cost-effective health plan for your company.

This is a lot of responsibility for one person to shoulder. In addition, this employee could be serving in another capacity that could bring revenue into the company. Each $40,000 a year employee will wind up costing you $50,000 by year’s end.

For a PEO, administrative fees can range from to 2% to 6% of gross wages and the rate may vary based on the number of services you use and your industry. PEO's also have to factor in their workers' compensation costs that can range from 1% to 15% of gross wages for each employee based on their individual workers' compensation classification.

Typically, administrative fees charged by PEO's range from $1,500 to $2,500 per employee per year on average. So if you carry this equation out and use an average of $2,000 per employee, the business owner with 15 employees would pay $30,000 per year for all the expertise that is offered plus the convenience and time saving. This is much more cost efficient than hiring a dedicated HR manager.

The strength of ADP lies in its ability to use its size and scope to be able to offer a small or medium size business a total HR function without having to employ in-house staff. Everything can be managed including payroll and taxes, top tier benefits, IT help and infrastructure.