For small businesses that are having some challenges with human resources (HR) functions, a professional employer organization (PEO) may be a solution worth considering. PEOs act as outsourced HR teams. They can manage administrative tasks, like:
In some cases, a PEO can improve efficiency and make financial sense for small businesses. In others, you could save money handling these tasks in-house or by working with a more specialized partner, especially for group health insurance administration.
In this guide, learn more about what a PEO is, pros and cons of PEOs to consider, and signs it may be time to exit a PEO and how to do so.
What is a PEO, exactly? A PEO provides outsourced HR administrative support. Areas a PEO might manage include:
PEOs may work with diverse companies across the country, technically providing support to thousands or more employees. For a business that doesn’t want to hire a full-time, dedicated HR or administrative team, the business can outsource tasks related to the above categories to a PEO.
PEOs can draw on their vast resources and regulatory compliance expertise to ensure small businesses stay compliant with local, state and federal regulations. They can also free up small business owners to work on the tasks they want to focus on.
PEOs may provide benefits to some small business owners. Typically, a PEO makes the most sense for owners of multi-state businesses with fewer than 25 employees, who want to offer very rich benefits for their staff. Some benefits of PEOs include:
PEOs are simple to roll out, and they’re scalable. While they may provide some benefits, small business owners should also be aware of when a PEO might not be the best solution.
There are many different PEO providers available, and choosing the wrong one could result in significant expenses for a business, as well as potential problems. Some PEO disadvantages to consider include:
For small business owners who are looking for a true partner, PEOs may not offer the personalized service they need. Plus, PEOs can be more expensive than other options and can be difficult to leave on smooth terms. For these reasons, small business owners should carefully consider all options before signing up with a PEO.
When you’re comparing the multitude of PEO vendors out there trying to sell you services, follow these steps to improve the likelihood of a successful partnership.
You can also utilize professional networks like LinkedIn to ask your colleagues for recommendations for PEOs. Take your time with researching, since, as mentioned, PEO contracts can be difficult to exit and may result in extra costs when the fit’s not right.
There are many signs your business may be outgrowing its PEO. As companies, grow, they’ll typically pay more in PEO administration fees. While the scalability of a PEO can be a benefit, it can also result in exorbitant costs that outweigh the benefits.
There are other reasons you may want to exit a PEO. You may find that communication is lacking, or the PEO isn’t living up to the results they promised in the consideration phase.
When you determine it’s time to end a PEO partnership, the first step for how to exit a PEO is to review the contract terms, including exit terms. Notify the PEO, and work with a lawyer for help when needed.
To ensure your employees retain the benefits they’re used to, contact new health insurance benefits brokers for a seamless transition. You’ll want to ensure compliance continues to be met, so work with new partners who are compliance experts where you operate.
The team members at AZ Health Insurance Brokers are experts in helping small businesses exit PEOs. We assist small business owners with guidance, recommendations and strategies to create a solution that has similar functionality to a PEO, without the expensive costs.
If you’re interested in offering
small business health insurance,
life insurance and/or other types of benefits to employees, contact AZ Health Insurance Brokers for a free consultation.
Contact us online, call 602.617.4107 or email
quotes@azhealthinsurancebrokers.com for more information.
PEO stands for professional employer organization. A PEO serves as outsourced HR administration.
PEOs act as a business partner, providing HR duties for the small businesses they work with. The PEO and the small business enter a contract where the PEO shares employment responsibilities, such as payroll and benefits administration.
A PEO can free up business owners’ time by handling HR administrative tasks, such as workers’ compensation, payroll and training. For small business owners who don’t want to hire full-time HR staff, a PEO may be a solution worth considering.
PEOs can be expensive and may not provide the best return on investment. Additionally, PEOs may not offer personalized services or customization options that working with a health insurance broker could offer.
Whether or not a company should hire a PEO depends on several factors, including budget, employee team size, compliance needs, in-house capabilities and more. It’s best to ask for a free consultation from both PEOs you’re considering and other vendors, like health insurance brokers, to compare your options.
While companies with around 5 to 500 employees typically partner with PEOs, you can use a PEO with as few as two full-time employees. Because PEOs can be expensive, small businesses with fewer employees may benefit more from partnering with health insurance brokers that are less expensive but that help take care of benefits, like health insurance.
A PEO is a partner but not an employer of record. A co-employer is appointed as an employee within the business to support HR tasks.
Regarding staffing, a PEO may support staffing functions such as job interview coordination, but a staffing company typically is more involved. Staffing companies may take on tasks including recruiting, screening and interviewing to choose candidates.
PEOs may charge a percentage of payroll, but some PEOs may charge based on the number of employes you have. More in-depth services, such as talent management or the supply of data insights, may result in extra charges. You can compare multiple PEO estimates during a consultation before you decide on the one you select.
The Internal Revenue Service (IRS) coordinates a certified PEO program. The CPEO distinction means a PEO has met the applicable requirements set forth by the IRS, which include reporting, legal and financial requirements. CPEOs may offer an advantage, including tax benefits and financial protections, including being able to pay federal taxes on your behalf.
AZ Health Insurance Brokers has experienced insurance advisors here to assist you with all of your insurance needs and questions. We will gladly help you find the answers to your insurance questions and help you find the right insurance plan for your needs. Also, AZ Health Insurance Brokers will never give out or sell your information to other companies.
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