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What is a PEO?

If you’re a small or mid-sized business owner, you likely find it challenging to handle payroll, benefits, HR compliance, workers’ comp, and related administrative tasks without a large team. An excellent solution many companies turn to is partnering with a Professional Employer Organization, commonly referred to as a PEO. But what exactly is a PEO, and how can working with one benefit your business?

In this guide, we’ll explain:

  • What a PEO is
  • The types of services PEOs offer
  • How the PEO business model works
  • Top reasons to use a PEO

Let’s start with the basics.

What is a PEO?

A PEO, or Professional Employer Organization, is a company that provides HR outsourcing services for small and mid-size businesses. Essentially, a PEO acts as a co-employer to manage payroll, benefits, compliance, workers’ comp, recruiting, risk management, and other HR functions on your behalf.

When you partner with a PEO, the PEO becomes the employer of record for tax and liability purposes and assumes many employer responsibilities. However, you maintain control over your business operations and employees day-to-day. Your employees become co-employed by both your business and the PEO. The PEO consolidates your HR tasks to improve efficiency, reduce risks, and let you concentrate on your core business priorities.

PEO Services and Benefits

Some of the most common services and benefits PEOs provide for their small business clients are:

Payroll Administration
PEOs handle paying employees, withholding taxes, filing returns, preparing year-end tax documents, setting up direct deposit, and managing all payroll tasks. You get access to more robust payroll tools.

Health Benefits
PEOs give you buying power to offer group health, dental, vision, disability, life insurance, and other essential plans to attract and retain top talent.

HR Management
PEOs become your HR department, providing employee handbooks, hiring support, terminations, compliance training, workplace investigations, and day-to-day advice on situations that come up.

Retirement Plans
Options like 401(k) plans, pensions, profit sharing and other retirement benefits normally out of reach for small businesses become affordable through the scale of a PEO.

Compliance Expertise
PEOs constantly monitor changing employment laws and ensure you stay compliant with regulations around safety, discrimination, leave time, employment eligibility, wages, and more.

Workers Compensation
PEOs obtain policies with preferred rates and handle managing claims, return to work programs, reporting injuries, and implementing safety initiatives.

Recruiting Help
Many PEOs can help you write job descriptions, post openings, review applicants, schedule interviews, and onboard new hires.

Risk Management
PEOs implement best practices around employment screening, workplace safety, terminations, and other areas to reduce HR-related risks.

By providing these services, PEOs make it possible for small companies to offer big-business benefits and stay compliant without large HR departments.

How PEOs Work

PEOs create efficiencies by pooling clients together to gain economies of scale advantages. Here is more detail on how PEOs work:

 

Businesses pay a fee to the PEO to handle payroll, benefits, compliance, workers’ comp, HR and more. Fees are typically a percentage of payroll costs.

The PEO provides access to HR systems, technology, policies, insurance plans, and other resources not feasible for small companies to access on their own.

Employees of the small business become co-employees of the PEO.

The PEO takes over managing all employment regulatory requirements, while the small business handles operations and day-to-day work assignments.

Clients get dedicated HR representatives at the PEO to provide ongoing, personalized support and advice.

PEOs use their larger scale to negotiate better rates on payroll processing, workers’ comp coverage, health insurance, and more.

 

Partnering with a PEO gives small companies the knowledge and buying power of a major corporation, while maintaining control over business operations and employees. It offers small businesses the best of both worlds.

Why Partner with a PEO?

There are many excellent reasons small and mid-size businesses choose to partner with a PEO, including:

 

Access to Better Benefits – Health insurance, retirement plans, life insurance and other vital benefits become affordable options for attracting and retaining great employees.

Reduced HR Workload – The PEO becomes your dedicated HR department, freeing business owners and managers to focus on operations, customers, and strategic growth.

Improved Productivity – With the PEO managing tasks like payroll, compliance, workers’ comp, owners and employees can devote more time to productive work rather than administrative burdens.

Lower Compliance Risks – PEOs constantly monitor changing state and federal regulations across employment law, safety standards, wage rules, mandated benefits, and more to ensure clients avoid penalties or lawsuits.

Controlled Costs – PEOs help control payroll costs through superior technology, workers’ comp expenses through group discounts, and benefit costs through group purchasing power.

HR Expertise – PEOs employ teams of highly trained HR professionals who provide invaluable insight and become an extension of a management team.

Business Growth – Studies show small businesses partnering with PEOs experience 7-9% faster growth and are 50% less likely to go out of business.

 

Considering these significant benefits, it’s clear why partnering with a PEO makes smart business sense for many organizations.

PEOs Empower Small Businesses

For most small and mid-size business owners, deciding to partner with a PEO can greatly benefit their organization. With an experienced PEO as your co-employer, you open the door to Fortune 500-level benefits, reduced risks, expert HR guidance, and more.

Don’t let administrative burdens hold your business back. By leveraging a PEO, you can stay focused on delivering great products and services to your customers. A PEO partnership often provides small companies the boost they need to get to the next level.

PEOs Empower Small Businesses

Does the PEO model seem like a good fit for your business’ needs? 

Reach out to J. Gregory PEO to learn more about how partnering with our PEO could help your small or mid-size business. 

Call or request a quote online today to get started!

Important Things You Should Know

QUESTIONS & ANSWERS

A PEO becomes your co-employer, taking on many employer responsibilities. Payroll services handle just payroll tasks. HR consulting firms provide advice but don’t take over HR functions.

No, you maintain control over your operations and employees. The PEO simply handles administrative HR tasks for you.

Most PEOs recommend transitioning to the benefit plans they offer to maximize cost savings. However, some PEOs may allow you to retain existing plans.

There is minimal risk. However, you do share employment liabilities. Make sure you understand the PEO agreement terms fully.

PEOs work with companies in every industry including construction, restaurants, healthcare, retail, technology, manufacturing and more.

After selecting a PEO, the implementation process typically takes 4-8 weeks depending on your payroll cycle and number of employees.

In most cases, employees notice very little day-to-day change. The PEO simply handles many administrative tasks behind the scenes.

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