Could a PEO Work for Your Company?
Managing health benefits, workers’ compensation, payroll and HR compliance is not every company’s strong suit. For some manufacturers and distributors, partnering with a professional employer organization (PEO) has proved to be a beneficial way to manage HR responsibilities like these.
Contracting with a PEO typically means outsourcing the entire HR function, from pre-employment screening to payroll and benefits. The PEO hires the company’s employees and becomes a co-employer. The company continues to manage the employees, but the PEO is the employer of record for tax purposes. The PEO pays employees and manages their benefits, including workers’ compensation. In return, the company pays the PEO a fee, often based on a percentage of payroll.
Employees benefit because the PEO can often provide access to health insurance and a retirement plan benefits that smaller companies frequently can’t afford or don’t want to manage. And employers benefit by being able to focus on their core business, leaving HR to those who know it best. Plus, they can more easily scale staff up or down to accommodate workload.
PEOs have been around for about 30 years, and there are more than 700 of them currently operating around the country. According to the National Association of PEOs, a PEOs average client has about 25 employees, and the average gross pay of a PEO worksite employee is about $34,000. While most PEOs work with smaller companies, they are becoming more popular with larger businesses as well.
Because your company is entrusting such an important function to a PEO, it’s imperative to make sure you’re working with a reputable organization. Be sure to ask for references and contact them, and make sure you understand the PEO contract, including the cancellation clause, before signing on the dotted line.
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