A professional employer organization uses a co-employment model. Your company and the PEO share certain employer responsibilities, with the PEO processing payroll, withholding and paying payroll taxes, maintaining workers’compensation coverage, administering employee benefits and providing human resource guidance — if you choose to delegate all these functions.
Co-employment arrangements suit small and midsize companies — your company gets access to knowledge and expertise to create HR policies and practices and offer training and development resources to your employees, as well as Fortune 500-level benefits at lower premiums. Selecting a PEO may even impact your taxes — it uses its own employer identification number, and if its state unemployment tax rate is lower than yours, your tax burden can decrease. (The tax situation with PEOs can be complicated, however, so work closely with a qualified tax practitioner.)
PEOs typically either charge by a percentage of payroll, around 5% of your gross wages paid, or base their fee on the number of employees you have and the services you purchase — usually a flat fee of $150 to $200 per employee per month. Some PEOs charge a one-time setup fee.
Factors and questions you should consider when comparing PEO providers include:
- Pricing and available features — do they provide recruiting and outplacement services?
- What is the minimum number of employees the PEO requires?
- Can some of its services be customized?
- As your business grows, will the PEO service grow with you? What services can you add as you grow?
- Does the PEO offer an online payroll portal or a mobile app? Is there an IT support line you can call if you have technical problems after hours? Does the firm offer live chat in addition to email and phone support?
Look for PEOs that:
- Have a strong track record and fiscal stability.
- Confirm that the PEO’s financial statements are independently audited by a CPA
- Can meet the unique needs of your business and employees.
- Supply references from other clients in your industry.
- Provide comprehensive support and compliance expertise.
- Offer services and coverages where you do business.
- Are licensed in the appropriate states that you are doing business in
And consider these caveats:
- Does the senior staff have professional training or designations? Investigate the company’s administrative and management expertise and competence.
- Understand how employee benefits are funded. Is the PEO fully insured or partially self-funded? Is it authorized to do business in your state?
- How are employee benefits tailored? Determine whether they fit the needs of your employees.
- Review the service agreement. Are the respective parties’ responsibilities and liabilities clearly laid out? What guarantees are provided? What provisions permit you or the PEO to cancel the terms of the contract?
Make sure the company you’re considering meets all state requirements. In choosing a PEO, you’re looking for a firm to help manage facility security and workplace safety risks in a compliant and fair manner. If you plan and choose carefully, a PEO can prove to be a terrific partner for your business, freeing you to focus on your core tasks.