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Saturday, October 16, 2021

What is a PEO (Professional Employer Organization)?

The decision to run your own organization is a difficult and overwhelming activity! Even when all factors have been considered, for several business owners, steering the wheels of a business can still be a daunting task. Employees’ welfare and administrative duties are also not left out. Balancing business affairs along with HR responsibilities then becomes an even weightier duty.

As a business owner, taking care of HR tasks like payroll processing by one’s self or even assigning such responsibilities to unseasoned hands should not be the only options available for consideration. These tasks can be managed by a PEO on your behalf. 

What is a PEO?

PEO denotes Professional Employer Organization. What this organization does is work with small-scale and medium-scale businesses by handling HR tasks that have been outsourced to them. Thus, instead of business owners struggling to get HR duties done, PEO partners with such businesses and handles them. This form of arrangement is done by means of co-employment. PEOs like WeHireGlobally are adequately structured to cater to this form of arrangement via International PEO.

What are the Typical PEO Services?

The struggle with HR tasks is real, not exempting small business owners. How does the PEO solution alleviate the issue? Below are some of the services that are offered by a PEO.

  • Payroll services: the detailed, thorough task of preparing and administering payroll is one major service offered by PEOs. Also, they ensure paystubs are generated as required. 
  • Employee benefits such as health insurance, pension plans, worker’s compensation, severance pay, paid leave, and others, as deemed fit by the employer upon agreement, are also handled by the PEO. 
  • With the complicated mix of federal rules and regulations as well as state laws, PEOs ensure proper compliance with their client’s company. This is because they are a legal entity with the needful resources to administer HR tasks on behalf of the client company. 
  • The complex calculation and withholding of taxes from each employee’s pay are also part of the services rendered by a PEO. This also includes the remission of such taxes to the appropriate authorities as necessary.

So, wait…What is Co-employment?

Co-employment works as an agreement between the PEO and you, the business owner. How? As mentioned earlier, a PEO will be handling certain responsibilities on behalf of the company. This does not mean the PEO will take over the business. What it implies is that the PEO and the company will enter into a partnership of shared responsibilities, allowing the business owner to oversee other affairs pertaining to the business. 

This contract is known as a ‘client-service agreement’ (CSA). In this contractual agreement, the business owner still remains the major employer and only delegates certain responsibilities as deemed fit to the PEO. Thus, the PEO becomes ‘co-employer’ while the company is recognized as the ‘client company’. This implies that both parties have mutual responsibilities towards the employees. This arrangement is different from that of an Employer of Record (EOR) in that an Employer of Record is solely responsible for all engagements that have to do with the employee. This means that the EOR totally bears HR duties as well as the risks that come with it. 

Co-employment with the PEO also covers tasks such as

  • The allocation of responsibilities to the employees as agreed upon with the client
  • The remittance of employees’ pays on behalf of the client
  • The issuance of form W-2 as required
  • Appropriate deduction and payment of employment taxes to the right quarters.

One major advantage of this arrangement is that it provides small businesses with better access to options and benefits that are being enjoyed by larger companies. This access to the pool of available options is a catalyst for business growth and expansion.

What small businesses should know about PEO companies: Pros and Cons

Your decision to opt for a PEO may be based on global expansion, an innovative workforce, and even growth. Your choice will definitely be based on your needs. However, while considering those needs, here are things you should know about PEO companies.

Pros of working with a PEO 

There are certain benefits attached to this arrangement because of the shared relationship with the PEO. Some of these are:

  • Less risk of violation

As a business owner, you are at less risk of violating rules and regulations, especially when it comes to employment, payroll, and taxes. This is because the PEO helps with compliance. A PEO such as WeHireGlobally is instituted in over 150 countries to help business owners combat the risk of non-compliance with multifarious regulations, amongst others. 

  • Proper Employee Management

With some of these duties delegated, provisions for employee welfare can be well catered for and overseen. These benefits will in turn encourage employees, ensuring an encouraging and excellent atmosphere to work. Thus, fostering employee performance, creativity, and innovation. 

  • Pressure Mitigation

The PEO solution will help the business owner to free up time and expend energy on other pressing tasks. There will be less daily pressure to carry our HR activities and it will also encourage company growth and productivity because the business owner is poised to make better decisions

  • Resource Management

It becomes less difficult to streamline resources in a particular direction with the services of a PEO. Human resources, the core of PEO duties, can be properly managed with the assent of the business owner. Running costs, time and other resources become conserved as a result of the PEO solution. 

  • Adaptability

The PEO solution allows for flexibility and adaptability as business owners can adjust terms as the need arises. This helps to cater to unforeseen circumstances such as a pandemic as the PEO can always make swift adjustments to adapt to whatever situation is on the ground or the needs of the client company. This can be catered for by the CSA – client-service agreement.

Cons of working with a PEO

As with any organization, opting for the PEO solution is not without its impediments, some of which are:

  • Restricted Choices

Since the PEO is the co-employer, there are restricted options as to service providers that may be made available for employees. A PEO may choose to use a certain health insurance provider for example, that an employee may not be comfortable with. The PEO may also decide to change service providers as the need arises and employees may not be comfortable with such arrangements due to increased costs and other factors. 

  • Compliance Risks

The PEO does not actually cover all employer duties as mentioned earlier. The co-employment agreement implies that there are two sides. This also implies that the client company is still liable for certain risks that may occur in payroll processing or even tax administration. If complications arise at any point, the client company will not be totally exonerated from the situation. 

  • Minimal Employee-Management Relationship

Depending on the tasks that have been taken on by the PEO, there is a minimal relationship between the employee and the management of the client company. If the employees have a negative attitude or see the PEO as a block between them and the management, it may be harmful to workplace relationships and hinder effective productivity.

This is because employees may have to go through the PEO, sometimes to even process small requests which would have ordinarily been taken care of directly by the client company in another situation. Thus, some may not be comfortable with the third-party arrangement and it may strain the employee-management relationship as there is minimal contact between both parties.

How much does a PEO cost?

It is important to note that the PEO solution is a cost-effective one. This is because it provides room for small businesses to grow and expand with the nature of services it offers. However, the cost of a PEO’s services varies according to the following factors:

  • The size of the company-whether small or medium scale 
  • The services to be consigned -depending on the client company’s decision 
  • The PEO’s pricing arrangement

There are basically two types of pricing arrangements that most PEOs utilize. These are:

  • A fixed charge for each employee per year. This fixed charge is subject to the PEO in question. However, fees can range from anywhere between $900 and $1500.
  • A percentage of the client company’s total payroll in a year. As for this option, the PEO gets to deduct a certain percentage of the client company’s total payroll in one year. This can range from 10%-30%.

However, a PEO may decide to curate its prices according to the budget of its client company based on their needs.

Stressing over HR tasks? You don’t have to.

You don’t actually have to keep worrying about getting those HR tasks sorted. With WeHireGlobally, this stress can be taken off you. International compliance, payroll administration, curating and dispensing attractive benefits and packages for your employees at the right time, and much more is what we are designed for. Break new bounds of growth with our efficient services and risk mitigation strategies specially designed to cater to your business needs.

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Daniyel Carlson
Daniyel Carlson is a Young Researcher in the field of Data Science & Analytics having research experience of more than 8 years. He has a Masters in Computer Engineering and currently serves as an Editorial Assistant in IGI Global, United States of America. Daniyel also holds honorary positions in the Associate Member of Institute of Research Engineers and Doctors, International Association of Computer Science and Information Technology, International Association of Engineers, Society of Digital Information and Wireless Communications.

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