What is a PEO and when should you use one?

June 24, 2020

What is a professional employer organisation? How can a PEO help your business expand?

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When a small to mid-sized business is projecting growth, it is an exciting time and there is much to plan for the prosperous days that lie ahead.

Scaling business operations is one of the most important parts of that planning, as businesses need to ensure they are set up handle that growth.

This almost always includes workforce expansion. A smaller sized business may find themselves in a position where they do not have the infrastructure to manage hiring and the requirements that come along with it, as well as payroll and benefits administration.

This is where a Professional Employment Organization, or PEO, can help. 

What does a PEO do exactly?  

A PEO acts as a “co-employer” with the company they are hired to assist. What does that mean? It means they share responsibilities of the employee with the company.

Those responsibilities most commonly include the hiring and onboarding processes, administering payroll, employee benefits, PTO or leave accrual, among other Human Resource related functions. Essentially, a PEO acts as a full-service HR function for the company.

What are the benefits of using a PEO?

One of the biggest advantages of using a PEO is accelerating the speed with which a company can go to market in new geographic locations.

It can take significant time in a new location to create an entity and recruit all the relevant expertise to ensure that an organization is hiring people compliantly.  It can also be a costly exercise, especially if the organization is intending on only having a small number of staff in the new location.

Services provided by a PEO

This is where utilizing a PEO makes absolute sense. The PEO will be ‘ready to go’ from day one with providing expertise in all the following employer obligations

  • Payroll Processing
  • Benefits Plans
  • Risk Management
  • Workers’ Compensation Insurance
  • Cost Savings

Payroll processing

Processing payroll is a timely and meticulous task. In addition, the company will need to ensure that they comply with local payroll tax laws, and calculate withholdings and garnishments correctly. The risk of error is significant if your company doesn’t have experience in this area.

Benefits plans

This is a big one! Because a PEO serves a number of companies, they have more buying power when it comes to employee benefits. That means that a small business owner can offer his or her employees the type of health and retirement benefits typically seen in a larger organization.

Risk management

Since labor and tax laws vary by location, a smaller company may not find themselves in a position to fulfill regulatory compliance requirements such as employment verification, onboarding requirements and tax filing, just to name a few. 

Violation of such requirements may carry penalties and fines, so there is risk and liability associated with doing business in areas where a company previously has not. Working with a PEO mitigates such risk.

Workers’ compensation insurance

As a co-employer, a PEO company will be able to provide workers’ compensation coverage to employees, as well as manage the claims process.  This does not mean, however, that they assume liability for the employee – that still sits with the company. 

Cost savings

PEOs usually charge a fee as a percentage of the payroll spend, making this approach significantly more cost effective than hiring your own HR services personnel.

Additional services offered by the PEO industry include attracting talent, training and development and performance management.

Are there limitations to using a PEO?

While a PEO is a viable solution for many businesses, there are potential limitations to outsourced employer services. You should carefully consider:

  1. Loss of control
  2. Security concerns
  3. Liability
  4. Service

Loss of control when outsourcing HR

Outsourcing a Human Resources function often comes with a perceived loss of control. As the company is not the one performing the day to day activities, they must follow the PEO’s processes and timelines.

This can be of concern to some businesses, especially with regard to the hiring and success of onboarding processes as these are often seen as two of the most critical in the overall employee experience.  

With Airswift, we don’t just operate in 60 countries around the world, we live there! We work to control as much of the process as possible, so you can always rest assured that your most valuable asset is well taken care of.

Security concerns

There may be a concern about keeping employees’ personal information secure with the transmission of sensitive data occurring on a regular basis.

Thoroughly researching a PEO’s systems and security protocol is an important component of selecting the right partner. At Airswift, the security of your data is of the utmost concern. Our systems and encryption software ensures that your data is in good hands.

Managing liability relating to co-employment

As mentioned above, with a co-employer relationship, liability is not assumed on behalf of the company. The company is still responsible for employee related costs such as workers’ compensation and lawsuits. 

In order to eliminate liability completely, a company would have to seek an Employer of Record solution. 

Is your PEO providing adequate service?

As PEOs serve many organizations, you may not receive the personalized service you want or expect. That depends wholly on the PEO’s service model. At Airswift, you will always receive service with the personal touch that you’d expect from a business partner.

As with any business decision, it is important to examine all angles of a solution to determine whether that solution suits your organization’s needs now, and in the future.

Are you ready to partner with a PEO?

Take the next step and contact our employment outsourcing specialists

Airswift can help you...

  1. Quickly enter new markets
  2. Streamline HR processes
  3. Improve productivity and efficiency
  4. Remain compliant and reduce risk
  5. Ensure your payroll is always accurate

This post was written by: Liz Fiumara, Content Development Manager at Airswift