Handling workforce requirements can be one of the more challenging parts of operating a business. Beyond determining hours and job roles, there are also taxes, pension plans, vacation days, and managing sick leave due to seasonal illnesses.

These challenges can distract employers from their primary goal: growing the business. This is a key reason many companies turn to Professional Employer Organization (PEO) services, which help streamline operations and ensure that no important aspects are overlooked.

This term refers to organizations that handle employee management tasks for businesses, covering everything from payroll and training to workers’ compensation and more. They operate through a “co-employment arrangement,” where employees are considered to be employed by both the company and the PEO.

In this setup, the company manages the employees’ job responsibilities and performance, while the PEO oversees personnel-related matters. The company retains control over all business decisions, while the PEO handles workforce issues.

The PEO industry is experiencing significant growth. According to the National Association of Professional Employer Organizations, PEOs generate between $136 billion and $156 billion in annual gross revenue, providing employment services for approximately 2.7 to 3.4 million workers across more than 150,000 small to midsize businesses. A wide range of companies, from small businesses with around a dozen employees to those with much larger workforce requirements, utilize PEO services.

Simplify Employee Management

By outsourcing human resources tasks to a PEO, employers can avoid the complexities of employee management. Once partnered with a PEO, a company simply transfers funds to cover employee payroll, taxes, and benefits, allowing the PEO to handle the details.

Ensure Correct Tax Payments

When you engage a PEO, it takes on the responsibility of ensuring that all payroll taxes are accurately paid on employee wages. Since tax law can be complex and may not be your area of expertise, partnering with an IRS-certified PEO with specialized knowledge in tax management can help you stay compliant and avoid issues with tax authorities in the future. Additionally, a PEO may identify tax-saving opportunities that you might not have been aware of on your own.

Improve Performance

The PEO can oversee employee performance management and create programs aimed at maximizing productivity. This includes designing and managing performance reviews, reward systems, and training and coaching initiatives. Furthermore, the PEO can collect and analyze employee feedback to enhance your management practices and assist you in developing perks and benefits that contribute to employee satisfaction.

Cover Workers Compensation

When you engage a PEO, your employees will be covered by the PEO’s workers’ compensation insurance policy. The PEO will manage any workers’ compensation claims, which could lead to potential savings on your insurance costs. Since the PEO is in charge of these claims, they are likely to implement measures to enhance safety at your workplace, thereby helping you reduce man-hour losses.

Enhance HR Decisions

Sometimes, having an external perspective can be invaluable in determining the best path forward. This can involve discovering strategies for attracting and retaining top talent, enhancing workplace culture, and aligning your workforce with your company’s objectives.

Do PEOs Deliver Results?

According to a report from the National Association of Professional Employer Organizations, small businesses that partner with PEOs experience higher growth rates because executives can concentrate on their core operations. The report indicated that companies utilizing PEO services are approximately 50% less likely to go out of business year-over-year. Furthermore, the turnover rate for PEO clients is 10% to 14% lower annually compared to similar businesses that do not use a PEO. Additionally, businesses using PEOs see administrative costs averaging around $450 lower per employee.

Before entering into an agreement with a PEO, ensure that the company is accredited and has a solid history of managing payroll, taxes, and various other business services. Verify the PEO’s qualifications to handle federal, state, and local labor laws, as well as workers’ compensation regulations and other workforce-related matters.

It’s essential to ensure that the PEO service can scale as your business expands and that the contract is flexible enough to accommodate any necessary adjustments. Additionally, look for a PEO that offers a range of payment plans tailored to meet the specific needs of your business.

For example, ADP offers customizable plans designed specifically for different business types. Their offerings range from payroll, HR management, benefits administration, and time tracking for small businesses with up to 50 employees to ADP Workforce Now, which provides comprehensive HR management and mobile access for businesses with 50 to 1,000 employees. Additionally, they have extensive plans suitable for large businesses with over 1,000 employees, including multinational companies that require solutions capable of managing operations on a global scale.

The PEO you choose should offer a dependable customer service team with multiple contact options. Manpower issues can emerge suddenly and may involve various uncertainties, so having access to reliable, professional support can be incredibly beneficial.

Collaborating with a PEO is a significant choice that can accelerate your business growth and alleviate some of the administrative challenges that often make entrepreneurship difficult.

Before committing, ensure the company offers service plans that align with your specific needs. If your business has only a handful of employees, there’s no reason to enroll in an expensive plan designed for large multinational corporations. Conversely, if you’ve experienced growth and anticipate continued expansion, choose a PEO that can scale with you and streamline your daily management processes.