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Updated Oct 23, 2023

PEOs and Risk Management

Risk management is a critical component of running a business. Partnering with a PEO can help ensure you have all potential risks covered.

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Max Freedman, Business Operations Insider and Senior Analyst
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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No businesses, not even the very smallest ones, operate without risk. Good businesses, though, operate with safeguards in place to minimize the potential negative impacts of any risks. This process is known as risk management. Even if you have an in-house HR team, you could benefit from partnering with a PEO to handle your risk management.  

What is risk management?

Risk management is the development of plans to anticipate and mitigate all kinds of potential adverse events. These events could be as commonplace as an employee tripping over an exposed electrical cord and injuring themselves. They could also be as complex as your business facing a class-action lawsuit for repeated wrongs against a large number of consumers.

Editor’s note: Looking for the right PEO service for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

Risk management cover all aspects of an organization, not just employee safety. For instance, you may need to manage IT-related or financial risks. Once you’ve identified the risks, the process entails finding ways to reduce their chances of happening and coming up with strategies for what to do if one of these issues does occur.

Key TakeawayKey takeaway
Risk management is all work a company does to predict adverse events and minimize their consequences.

What is the importance of risk management?

Risk management prepares your company to handle virtually any challenge that might come your way. It both prepares your business to identify risks when they arise and establishes plans for addressing these risks. As a result, you’ll likely make better decisions when you’re under the stress that risks introduce.

Even if you can’t think of many risks to your business, risk management can be a conduit to growth. Since the process requires implementing plans to address all kinds of unpredictable matters, it prepares your business to handle all events that could hinder your growth. With such preparation, your team can more easily solve problems and get back to growing the business.

Risk management has leadership ramifications too. In times of crisis, employees often turn to supervisors and business owners for guidance, but without risk management structures in place, you all may be at a loss. How can you address a problem that you never considered could arise? With proper risk management, you’ll rarely have to ask this question – your plans will be in place before the problem manifests.

[Looking to outsource risk management? Read our Rippling PEO review or review of Insperity PEO Services.]

What types of risks do PEOs manage?

As you can probably tell by now, risk management is as necessary as it is ambiguous. The sheer volume of unanswered questions that accompany risk management could even deter you from managing your risks in the first place. The good news is that you don’t need to do it alone – a professional employer organization (PEO) can help.

The best PEOs are experts in almost every imaginable small business risk. They use their expertise to manage risks such as the following:

Workplace safety

PEO risk management is perhaps most strongly associated with workplace safety. That’s because PEOs can perform these services, among others:

  • Obtain workers’ compensation insurance on your behalf. In almost every state, workers’ compensation isn’t just a good idea – it’s a legal requirement. That doesn’t always make obtaining it easy, though, so PEOs streamline this crucial business task. In fact, workers’ comp is among the benefits PEOs are best known for bringing to the table.
  • Oversee workers’ comp claim investigation, management and representation. Even the best workers’ compensation insurance can’t actually prevent workplace accidents. That said, PEOs can help you minimize the financial loss associated with workers’ comp when accidents do occur. Your PEO should investigate all employee claims and represent you in related conversations with the employee.
  • Implement safety programs. Where workers’ compensation can’t quite prevent accidents, safety programs step in. Risk management often involves your PEO working alongside you or your HR team to devise firm workplace safety policies and ensure your workplace is safe. It may even include an audit of your facilities to ensure OSHA compliance. With both these pieces in place, your employees’ risk of workplace injuries is far lower.
  • Distribute safety documents. PEOs know exactly which documents you should display in your workplace to comply with OSHA. They can also provide workplace safety manuals to both you and your employees to help you all identify and resolve workplace safety issues.

Drug testing

As HR companies, PEOs often have a drug testing infrastructure. Although employee drug testing is increasingly a legally murky area, PEOs thoroughly understand what types of testing are and aren’t legal, given their deep knowledge of business risks. Legally compliant testing can reduce the chances of employees working under the influence and making costly mistakes.

Hiring and firing

Hiring an employee who turns out to be a poor fit can cost you hundreds of thousands of dollars. PEOs can help you manage this risk. Your PEO can advise you on what to include in your job listings to weed out bad hires. It can also guide your firing processes to minimize your unemployment tax obligations and the chances of wrongful termination lawsuits.

Worksite security

Some PEOs can walk you through security system implementation to reduce the chances that your employees will steal from you or use company property for personal needs. This aspect of risk management may involve monitoring areas of concern or installing access control technology. It may also involve cybersecurity measures, though this risk management feature is less common with PEOs.

[Considering Other HR Outsourcing Options? Read Related: PEO VS an ASO, or PEO VS an Insurance Broker, or PEO VS an EOR]

What are the benefits of using a PEO to help with risk management?

PEO risk management can offer a wide range of benefits for your company.

  • Cost savings: Although you’ll pay your PEO for its work, its risk management services can prevent occurrences that cost you large sums of money to remedy. The upfront cost of hiring a PEO may be less than what you’d spend out of pocket to address a catastrophe.
  • Better workers’ compensation prices: PEOs work with their clients on a co-employment agreement, meaning that all employees of a PEO’s client businesses are legally the PEO’s employees. As a result, insurers view PEOs as large companies, which gives them greater buying power. This often results in lower workers’ compensation insurance premiums, which your PEO can offer to your company in turn.
  • Fewer administrative duties: The workers’ comp claim process is notoriously tedious. If you hire a PEO, you’ll never have to deal with this process again; your PEO will handle it from start to finish.
  • Additional services: Risk management is one small piece of the PEO pie. Traditionally, PEOs also handle your payroll processing and payroll tax payments, not to mention your health insurance and other employee benefits. You can delegate any additional HR tasks to your PEO in your co-employment agreement.
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Max Freedman, Business Operations Insider and Senior Analyst
Max Freedman has spent nearly a decade providing entrepreneurs and business operators with actionable advice they can use to launch and grow their businesses. Max has direct experience helping run a small business, performs hands-on reviews and has real-world experience with the categories he covers, such as accounting software and digital payroll solutions, as well as leading small business lenders and employee retirement providers. Max has written hundreds of articles for Business News Daily on a range of valuable topics, including small business funding, time and attendance, marketing and human resources.
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