The lure of getting all of your employment needs met, under one umbrella and for a flat fee, may sound attractive—but it may not be the best solution for your company. In today’s world, business owners face the challenge of maintaining compliance with complicated federal and state laws (especially in California) and managing their human resources and payroll programs. Is a professional employer organization (PEO) the right option?
A PEO provides outsourcing of payroll, workers’ compensation, human resources, and employee benefits administration. If elected, a PEO becomes the employer of record and then leases employees back under contract to the original employer. This practice is known as co-employment, employee leasing, or staff leasing. The client company continues to direct the employees’ day-to-day activities but pays the employee wages to the PEO, who in turn pays the employees. PEOs charge a service fee for taking over the human resources and payroll functions of the client company. Bob Reynolds, cofounder of Innovative Business Solutions, says, “PEOs grew in popularity when employers who had a bad workers’ comp experience were being hit with double-digit rate increases year after year. A PEO offered a refuge where they could essentially start over and be rated with the rest of the PEO’s employees, thus reducing short-term costs.” Considerations Following are several key areas to consider before switching to a PEO.
In 2011, Barbara Wilson, a benefits consultant and broker of record for Creative Insurance Solutions, said, “There’s a certain restrictiveness to bundled solutions, namely that client companies don’t have the flexibility to pick the services they really need. All PEOs require clients to use their payroll administration services, accept coverage of their workers’ comp insurance and select from their benefits offerings, it’s an all-or-nothing proposition.” Although years have passed, her statement still applies today.
A PEO may be helpful in certain circumstances, such as for companies with excessive workers compensation claims or with very little administrative support. Otherwise, it’s important to evaluate the cost, loss of control, limited choice of benefit plans and required use of the PEO database, systems and processes. To make your decision, you can list each expense related to managing services (costs of payroll, benefits and so on). Ask the PEO to give you a breakdown of its fee so you can compare it with your current costs. To successfully manage your company’s human resources and payroll functions, there are various options. Companies can either hire their own internal staff or can outsource all or just parts of it to a human resources outsourcing (HRO) company, such as HR Matrix. Use caution before you decide to put all your eggs in one basket with a PEO. Comments are closed.
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