8 Professional Employer Organization Pros And Cons

Bookkeeping

professional employer organization pros and cons

While a PEO can be a valuable asset, they aren’t meant for every business. To help you make the right decision, we’ve compiled a comprehensive list of the advantages and disadvantages of entering into a relationship with a Professional Employer Organization . If so, then you know that time is money and every minute, and every dollar counts when it comes to your bottom line. Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you.

professional employer organization pros and cons

When you need help with your payroll, should you hire a payroll… Another potential con of a PEO is that it owns your loss run and payroll data, according to Jon Brodsky, CEO of YouNow and former CEO of Finder. By keeping on top of such details, PEOs also help DOOs be more productive, practitioners say. They provide “much greater flexibility to complete other tasks,” said Williams.

What Is The Difference Between Employee Leasing And A Peo?

It’s challenging to find a professional who knows all aspects of HR. That doesn’t even include responding to unexpected things like developing new policies during a pandemic. They might spend countless hours researching a resolution or seeking clarity without fully understanding the ramifications. For example, losing an unemployment claim negatively impacts your state unemployment tax rate for three years. When administrative tasks eclipse strategic HR goals, that’s when partnering with a PEO should be considered. Since PEOs have many clients, the expense is a fraction of what it costs to hire each individual expert.

In either case, the owners and chief executive officers, chief operating officers, chief financial officers, office managers or HR directors tend to play an important role in the decision. Ultimately, whether a business partners with a PEO depends on what’s right for each organization. A Professional Employer Organization can help small and mid-sized businesses save money by outsourcing HR tasks.

They may also be able to provide advice during the hiring process. Some small businesses choose this so they can hand-select HR specialists who will understand and act in the best interest of their businesses. Benefit Administration is another key facet of a PEO, either actual or virtual.

Small businesses with less than 75 employees tend to benefit most from PEOs. Larger companies rely on PEOs to supplement their internal HR staff. Contact us to learn more about how StaffScapes can alleviate the HR administration for your business. The rules and laws on payroll, benefits, tax and HR compliance can be overwhelming.

The Cons Of A Peo

Legal Solutions- It can help you to comply with payroll tax laws and other legal considerations. This can be an advantage for companies that are expanding and unfamiliar with a country’s employment laws. However, employers should take note that PEOs are considered only partially liable for tax-related legal errors. Using a PEO can help your company get better benefits, especially insurance, by pooling with other companies. It can also save you time on benefits administration, recruiting, and payroll. Justworks offers a comprehensive solution for managing all your employment-related responsibilities. Users of ADP can choose between HR outsourcing or co-employment for their outsourced service needs.

professional employer organization pros and cons

Employees may not feel the value or necessity of having an in-house HR department if it is viewed as a third party resource. The Payroll Administration service offers all manner of services related to the compensation of a company’s employees. It’s important that a company be familiar with all payroll and taxation laws in every market that they operate within. The Payroll Administration service provides expertise to the client company in their established markets.

What Is A Professional Employer Organization Peo & How Does It Work?

IRS also gives PEOs the authority over providing retirement benefits. This co-employment relationship can result in professional employer organization pros and cons a loss of control – not just of benefit plans, carriers, and risks – but possibly the company’s culture as well.

professional employer organization pros and cons

As a small or mid-sized business, joining a best-in-class PEO at the beginning of the year makes sense. But making this change takes some planning, so you need to start your transition process sooner rather than later.

Essential Hr Resources

However, it is important to recognize both the pros and cons of a PEO. Keep reading to see if partnering with a PEO is right for your company. Justworks is our pick for the best PEO for benefits because it allows small businesses to enjoy perks that are generally only available to larger businesses. It prioritizes affordability with transparent pricing, gives dedicated account support, and offers expanded customer service options. ADP also offers top-rated HR programs, with the company emerging as an industry leader in tech and customer support.

  • Lack of transparency- When there is a physical person present, it is much easier to see their actions and understand their processes.
  • If you’re one of them, a professional employer organization can add tremendous value.
  • Lastly, the Payroll Administration service provides computer systems for payroll processing related tasks in order to ensure accuracy of the processes.
  • More than three-quarters of employees say that benefits are an important part of their overall compensation.
  • Holly Magister, CPA and CFP, is the founder of ExitPromise and has answered more than 2,000 questions asked by business owners.

These may include creating employee payslips, managing taxes, and employee contracts. Basically, they can complete busy work with accuracy and efficiency.

Who Should Use A Peo?

The IRS currently offers a voluntary certification program for professional employer organizations, which ensures tax liabilities remain entirely with the PEO rather than your business. To reduce the risk of payroll mistakes, partner with a known leader in the payroll space.

  • Companies that partner with a PEO can leverage the PEO’s size when purchasing health insurance and other group benefits.
  • By partnering with a PEO, businesses receive access to a team of experienced HR professionals and a wide range of support that may otherwise be out of reach for small organizations.
  • Professional employer organizations provide businesses with comprehensive HR solutions.
  • It is also found that businesses who work cooperatively with a PEO see growth rates that are typically 7%-9% higher than the other business in their peer group.In fact, the benefits of using PEOs are numerous.
  • By becoming the “employer of record,” the PEO can directly manage payroll, issue W‑2s, and collect and pay employment taxes.
  • This is why proper outsourcing is one of the best ways for a small or midsize business to improve its overall ROI.
  • Compliance and skill-based training programs, also typically offered by PEOs, serve to further employee development as they grow with your business.

Some business owners would prefer to let someone else make hiring decisions. This is especially true for some small business owners who may not be familiar with job requirements, hiring best practices, or even legal aspects of what they can and can’t ask in interviews.

Staff is also likely to appreciate the self-service payroll system that gives them more autonomy over their earnings. If a computer is not available, the mobile app will help take care of all business needs. INFINITI HR allows businesses to personalize services with the option to pick and choose services for a custom bundle. It separates out major services like HR support and payroll so you can opt for one without being stuck with the other.

In the past, you may have been forced to provide your employees with less-than-stellar benefits. But partnering with a PEO can lower your costs and provide better options.

Best For Small Businesses : Insperity

ADP hires in over 26 countries around the world for a variety of amazing careers. We’re reimagining what it means to https://adprun.net/ work, and doing so in profound ways. At ADP, we say that we’re Always Designing for People, starting with our own.

Last modified: April 19, 2022