When Treyburn Human Resources Group works with smaller clients, questions often arise about PEO’s (Professional Employer Organizations).
What Are PEO’s and How Do They Work?
PEO’s offer smaller organizations the ability to provide an array of benefits and services to their employees which the companies could not otherwise afford to provide on their own.
According to the Society for Human Resource Management, PEO’s are firms that provide a service under which an employer can outsource employee management tasks such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development.
“A PEO is a partnership that creates a co-employment relationship between a small to mid-sized business and a provider,” Lonny Ostrander, Vice President of Human Resources Services for Paychex told Business News Daily. “This relationship results in the business’ ability to gain access to benefits normally available only to Fortune 500 companies.” These arrangements allow smaller organizations to focus on their primary businesses and operational decisions.
Benefits of PEO
The benefits of using a PEO can include better employee benefits, reduced administrative tasks associated with unemployment, worker’s compensation, and FMLA, improved legal compliance and protection, cost savings, and the ability to attract and retain the right talent.
Disadvantages of PEO
There are, however, also disadvantages to engaging a PEO which need to be considered. There are high set-up and transition costs, ongoing communication challenges, potential repetitive switching of health insurance coverages to obtain the best deal, less personalized services, and in some cases, management senses a lack of control over employee issues.
Get the Cost-Benefit Analysis of PEO’s Value
Costs associated with using a PEO are significant. On an annual basis, the CFO and head of Human Resources need to conduct a cost-benefit analysis to assess the value of the PEO services provided, especially as their organizations grow.
At Treyburn, we have helped many clients with this cost-benefit analysis. The rule of thumb is when a company reaches the size of 50-75 employees, it is time to examine different options for providing human resources services. PEO’s charge for all of their services, and companies are often required to pay for more than what they use or desire. By tailoring human resources services to what is needed, organizations pay only for what their business requires.
Making this transition from a PEO may save organizations as much as 10-20% in costs annually.
The decision to engage or disengage a PEO is a business decision which should align with the company’s strategic business objectives. Depending on size and business objectives, a PEO may be the right solution for a variety of organizations including small manufacturers, craftsmen, and professional firms such as physician practices.