What are The Pros and Cons of Using a PEO?
Companies are turning to Professional Employer Organizations (PEOs) to handle their HR needs due to increases in state and federal compliance laws. Before making this important decision for your business, it’s important to understand both the advantages and drawbacks of partnering with a PEO.
What is a PEO?
A PEO provides a co-employment relationship with your company, taking on many of your HR responsibilities while you maintain control of your core business operations. [Learn more about PEOs from SHRM’s comprehensive guide]. Through this arrangement, PEOs can provide comprehensive HR solutions, from payroll processing to benefits administration.
The Advantages of Using a PEO
Access to Better Benefits
One of the most biggest advantages of working with a PEO is access to Fortune 500 level benefits packages for employees. By pooling employees from multiple companies together, PEOs can negotiate better rates for:
- Health insurance
- Worker’s Compensation insurance
- Dental and vision coverage
- 401(k) plans
- Life insurance
- Additional voluntary benefits
Reduced Administrative Burden
PEOs take on time-consuming HR tasks, allowing you to focus on your business. They handle:
- Payroll processing and tax administration
- Benefits administration
- Workers’ compensation management
- HR compliance
- Employee handbook development
- HR policy implementation
Compliance Management
PEOs help ensure your business stays compliant with various regulations, including:
- Federal and state employment laws
- OSHA requirements
- ACA compliance
- Workers’ compensation regulations
- Unemployment insurance
Cost Savings
While there is a fee for PEO services, many businesses find significant cost savings due to:
- Reduced need for in-house HR staff
- Lower benefits costs through group purchasing power
- Decreased administrative overhead
- Potential workers’ compensation savings
Potential Drawbacks to Consider
Loss of Some HR Control
While you maintain control of your core business operations, you will share some HR decisions with your PEO. This includes:
- Benefits package selection
- Some HR policy implementation
- Certain administrative procedures
Cost Considerations
The fee structure of a PEO might not be advantageous for all businesses:
- Per-employee charges can add up for larger organizations
- Some services you may not need could be included in the package
- Contract terms might require long-term commitments
Employee Adjustment Period
Your employees may need time to adapt to:
- New benefits providers
- Different HR processes
- Updated payroll systems
- New points of contact for HR issues
Relationship Dependency
Your business becomes somewhat dependent on the PEO’s performance:
- Service quality affects your employees directly
- Changing providers can be complicated
- You need to trust their expertise and reliability
Making the Right Choice
When considering a PEO, carefully evaluate your business needs and situation. The National Association of Professional Employer Organizations (NAPEO) provides great resources for businesses considering the pros and cons of using a PEO.
For personalized guidance on whether a PEO is right for your organization, contact our team of PEO experts by visiting our website or emailing us at peo@clevelandbenefitpartners.com. Our team will help you determine if the benefits of a PEO are right for your company and which PEO will successfully meet your needs.
Conclusion
While PEOs offer significant advantages in terms of HR administration, benefits access, and compliance management, they’re not a one-size-fits-all solution. Consider your business size, growth plans, current HR challenges, and budget when making this important decision. The right choice can lead to significant benefits for both your business and your employees.
