I’m sure many of us have heard of the term PEO but aren’t quite sure of exactly what that entails. A PEO stands for Professional Employer Organization. Partnering with a PEO means that businesses will have to maintain a co-employment model. Under this model, businesses keep internal management of employees; however, the employees officially appear on the PEO’s books for compliance and tax purposes. We know it sounds a little complicated, but it’s not. There are several reasons why a business might choose to engage with a PEO.
The purpose of a PEO is to assist small businesses in many areas of human resources. It can provide an affordable and consolidated solution rather than having to outsource to multiple service providers. Areas that PEO’s can assist with are employee benefits, payroll processing, HR administration, Worker’s compensation coverage, 401K administration, COBRA, recruiting, training, and compliance.
Most businesses need to run payroll. It can be a cumbersome and time-consuming task. At one time, companies had entire departments to manage payroll. But now it’s much more cost effective to outsource payroll and minimize payroll costs. PEO’s can handle payments to part-time and full-time employees, hourly employees, and usually contractors, along with vacation and sick accruals. Some PEO’s handle 1099 reporting for vendors paid through the PEO.
Many businesses choose to partner with PEO’s to get affordable access to benefits. The PEO model allows employees of small businesses to be grouped all together which results in getting rates typically reserved for a larger business. A company with only five employees would find its’ group rates much higher if they tried to get coverage on their own. If they partner with a PEO, they will gain access to affordable medical, dental and vision coverage for their team. Some of the other areas PEO’s can also assist with obtaining are life insurance, retirement plans, short- and long-term disability insurance, and health care flexible spending.
HR Administration and Compliance
Many businesses choose not to handle payroll internally because they need help with compliance. This includes processing payroll taxes, employee tax forms, new hire reporting, W2 forms, workers compensation, unemployment insurance, and other reporting forms. PEO’s will also help in new employee onboarding, new hire reporting, employee handbooks, employment authentication, drug testing, and possibly termination support.
There are just a few areas where a PEO can be beneficial to your company. A common question we often receive is when do we need a PEO vs. a regular payroll solution. Payroll solutions such as Gusto and Onpay are excellent payroll providers. However, there are times that a business requires a higher level of engagement and assistance with getting affordable benefits. Companies that have employees in multiple states might benefit from a PEO as they aid with payroll state setups. If that’s the case, we recommend getting more information from a PEO provider, such as Justworks. Acuity offers payroll services as part of our bookkeeping offering – feel free to reach out to us if you have any questions about payroll for your business.