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Take a Load off Your HR - Whats PEO and Why Should I Use One?

QUESTION:  What's a PEO and Why Should I Use One?

ANSWER: Here's all you need to know.  A 'Professional Employer Organization' (PEO) is one of the best kept secrets of many successful small businesses.  Essentially, these bodies handle all of your HR needs, including payroll and administration, employee health and retirement benefits, workers' compensation insurance, state and federal unemployment issues and even workers' training.

All your left to do is hire, supervise and promote (or fire) your employees as needed.  Of course there is a cost for contracting out your HR department, but consider the list of positives.

  • PEO's manage thousands of employees and cannot therefore purchase insurance and benefit plans at a significant savings or allow you to offer higher-quality plans to attract and retain skilled employees.

  • Experienced professionals in HR, benefits, payroll, risk management and other aspects of employee administration are on the job.  Want to institute a 401(k) plan or flexible spending account?  The PEO will do it.  No need for you to figure it out yourself.

  • The PEO will provide HR manuals for your employees, and the policies and procedures will be maintained in compliance with ever-changing state and federal laws and regulations.

  • A PEO will help with employment-related regulatory compliance (ADA, payroll, OSHA, EEOC, etc.), a huge advantage that can be worth more to your business than the money saved on benefits costs.

Ordinarily, the savings on group health and benefit plans alone will more or less outweigh the cost of hiring a PEO to tackle these duties.  But don't forget that peace of mind that a PEO offers.  Take on of my fastest growing clients:  When this team opened a new office in a distant state, they had no clue how to administer payroll there.  When I came onboard, we hired a National PEO that as able to make the process of opening offices and hiring employees in other states painless and risk-free.

The most important bit of advice when it comes to hiring a PEO: Do your due diligence.  You want your PEO to be financially responsible and stable.  Make sure they have a deep presence in the industry and request references.

As to knowing when your business could use a PEO (I believe it's the moment your account department asks for a dedicated HR person (even a part-time one) to handle all of the paperwork.  The sooner they can offload that work to someone who really knows what they are doing and return to managing your balance sheet, the better.

Source: Entrepreneur Magazine

Witten by a Longtime CFO, Joe Worth, Vice President of Operations and Partner at B2B CFO.


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