5 Common PEO Myths that Aren’t True

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By: Jan Kaupas for Benefits Pro, Photo by Hunters Race on Unsplash

With HR administration growing much more complex and associated costs increasing, more business owners and brokers are turning to professional employer organizations (PEOs).

A study from the National Association of Professional Employer Organizations (NAPEO) found that from 2008 to 2017 alone, the number of worksite employees (WSEs) employed by PEOs grew at a compounded annual rate of 8.3 percent. This percentage growth in the PEO industry is 14 times higher than that of employment in the United States economy as a whole.

As PEOs have grown in popularity, the number of myths associated with them has increased, too. However, the majority of these myths have been proven to be false, including these 5 most common examples:

Myth 1: Business owners lose control of their business when working with a PEO

Perhaps the most common myth that exists today about PEOs is that by working with one, business owners will lose control of their business and employees. Even NAPEO has mentioned this concern as a barrier to PEO use among small employers.

Related: 4 ways a PEO can improve employee benefits for small employers

However, business owners don’t lose any control when partnering with a PEO. In fact, business owners maintain full control of all day-to-day business decisions, including over personnel matters. This means that owners and leaders would continue to make all hiring, firing and other talent management decisions.

All the owner would need to do is inform their PEO of any employee-related decisions so that all HR and employment documentation is taken care of properly to ensure compliance.

Myth 2: Co-employment and employee leasing are the same

Besides losing decision making, perhaps the next most popular myth about PEOs involves the relationship between a client’s employees and the PEO.

Some believe a PEO relationship to be employee leasing. However, this is not the case. Instead, when a client decides to partner with a PEO, their workers become co-employed.

While there are many differences between co-employment and employee leasing, the biggest is that PEOs do not lease out employees or provide staff to their clients. Instead, the client keeps control over all hiring and other employee-related decisions.

It’s also important to know that in a co-employment relationship, employees have two employers – the client company and the PEO (the employer of record).

Some PEOs do offer recruiting services to their clients, helping them to attract and hire new team members. But the decisions to interview and ultimately hire a candidate stay solely with the owners, not the PEO.

Myth 3: ESAC accreditation and IRS certification do not matter

When exploring PEO solutions, two of the most important characteristics to look for are ESAC Accreditation and IRS Certification, or CPEO status.

In 1995, the Employer Services Assurance Corporation (ESAC) was formed to become the official accrediting agency of the professional employer organization industry. PEOs that are accredited by ESAC meet the gold standards for industry best practices and financial reliability.

Then in 2017, the Internal Revenue Service (IRS) began designating select PEOs as Certified Professional Employer Organizations (CPEO). This established another benchmark for PEOs to reach, and another assurance to companies who partner with PEOs that they are working with a best-in-class organization.

These distinctions let business owners know they are working with a best-in-class PEO while providing additional financial assurance and peace of mind.

Myth 4: PEOs don’t reduce HR costs

One reason why some business owners choose not to explore PEOs is the thought that they are too expensive and won’t help reduce HR costs.

However, NAPEO reports have revealed that working with a PEO can save employers 35% on HR administration costs, while also helping to reduce employee turnover by 10% to 14% (which helps to save costs associated with recruiting and hiring new team members).

Additionally, a PEO can help employers save on their healthcare offerings while gaining access to higher quality, modern employee benefit packages that help boost retention and recruiting.

Myth 5: My business is too big/small to benefit from a PEO

According to NAPEO, the average PEO client has 23 employees. And some owners believe that only companies around this size can gain from PEO services.

But most PEOs will work with businesses of all different sizes. While the exact number of employees will differ depending on the PEO, some will work with start-ups who have just 1 full-time employee to medium-sized companies with upwards of 1,000 workers.

In some cases, PEOs will even work with employers who have more than 1,000 employees.

Don’t believe every PEO myth

Over the years, many of the most popular PEO myths have been proven to be false. That’s why it’s important for business leaders to research PEOs and work with their brokers to find the one that is best-suited for the specific needs of their business.


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