Small businesses get a number of benefits from partnering with a PEO.
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Small business owners often wear a lot of different hats. From dealing with clients and paying bills to doing long-range planning and hiring employees, running a business requires expertise in a wide range of areas. Many times, however, entrepreneurs are more skilled in some areas than others.
One area where small business owners often lack experience is human resources. To help make sure they are paying their staff on time, following government regulations and managing employee benefits, small businesses often partner with a professional employer organization (PEO).
Jeff Rosset, director of marketing and strategic partnerships for MidwestHR, said PEOs and businesses partner in a co-employment agreement, in which they share the duties and liabilities of the human resources and administrative tasks.
"The PEO assumes responsibility for payroll, tax administration, risk management, legal compliance and, in most situations, workers compensation," Rosset told Business News Daily. "The business maintains control of its day-to-day operations, establishing pay rates, determining policies, [handling] the hiring and terminating of employees, and just about everything else related to running the business."
Partnering with a PEO offers businesses — especially those who don't have a background in human resources — many benefits. Kerry Carruthers, senior director of marketing and communications for the National Association of Professional Employer Organizations (NAPEO), said PEOs give small business owners the freedom to focus on growing their business.
"By providing payroll, benefits and HR services, as well as assisting with compliance issues under state and federal laws, PEOs allow small businesses to improve productivity and profitability, to focus on their core mission, and to grow," Carruthers said. "A recent study by economic research firm McBassi & Co. showed that small businesses using a PEO grew almost 10 percent faster than small businesses not using a PEO."
Jane McCoggins, chief operating officer of the Employer Services Assurance Corp., which provides an accreditation and financial assurance program for the PEO industry, said another benefit is that PEOs help their clients comply with increasingly complex employment laws and regulations by providing proven policies and procedures, as well as access to centralized professional expertise at a fraction of the cost otherwise required.
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Additionally, PEOs can assist business owners through any workers compensation claims or litigation, she said. "The proactive HR services provided by PEOs help prevent or otherwise reduce the time and costs associated with employment-related claims, fines and litigation," McCoggins said.
PEOs also have access to a much more superior benefit package than small businesses could typically provide on their own. McCoggins said this can be a huge plus, not only to the business as a whole, but also to all of the employees who work there.
"Employees of PEO clients gain access to employee benefits such as 401(k) plans; health, dental, life and other insurance; dependent care; and other benefits typically provided by large companies, making the PEO clients more competitive in recruiting and retaining qualified employees," she said.
Rosset agreed that PEOs are a valuable tool for helping small businesses attract top talent.
"By using the PEO's already-established benefit offerings, the company has the ability to offer a much more robust 'Fortune 500' benefit package to employees," Rosset said.
PEOs can also help small businesses cut down some of their biggest costs, such as insurance, Rosset said.
"The PEO can usually help the business manage and control their insurance premiums, due to the PEO's buying power and other cost-saving strategies," he said.
PEOs also expand access to retirement benefits, Carruthers said, adding that while only 27 percent of small businesses provide employee retirement plans, about 95 percent of NAPEO's members offer them to their clients' employees.
In the end, PEOs save businesses a countless number of hours that they could be using to work on something else.
"The PEO provides the business with relief from dozens of time-consuming, non-profit-producing tasks," Rosset said.