What Are the Advantages of a PEO for Small Business?
Today small businesses are stretched thin; managers are called upon to wear numerous hats and perform multiple functions. From planning and production to IT and sales, SMBs are forced to do more, and with fewer resources. Add the human resources component to the picture, with all its complexities and nuances, and it can really become unwieldy. It’s just another task that makes operating a small business that much more challenging and complicated.
For these very reasons, more and more small businesses are turning to Professional Employer Organizations, or PEOs, to relieve them of the often costly, time-consuming and labor-intensive functions associated with the human resources component. What is a PEO? In short, it’s an organization that establishes a co-employment relationship with the small business in order to assume many of the human resources activities normally assumed by the client. This includes screening new hires, managing payroll and benefits, to arranging for 401(k) savings plans and other retirement programs. PEOs may also assume employee acquisition and retention functions.
PEOs can be a smart solution for small businesses. The principal advantage of PEO for small business is that it frees up small businesses to concentrate on their core business — whether it’s manufacturing and selling a product, or marketing a service to customers. Once a small business is relieved of the often cumbersome, costly and time-consuming burdens of managing and monitoring HR functions, those vital resources can be allocated to overseeing core business tasks.
Small businesses are often surprised to learn how much money they can save by opting for the PEO-client relationship. Aside from the obvious savings of eliminating the allocation of time and personnel to human resources functions, the PEO can save a client considerable money by avoiding costly errors such as hiring the wrong candidate for a position with the business. Hiring, screening and training a candidate who doesn’t work out can cost a company thousands of dollars. The PEO assumes the task of screening the employee, providing valuable information to the business owner to make a decision on the new hire. In addition, the PEO will help your business to steer you clear of HR-related compliance issues; failure to comply with many employment regulations can result in costly fines.
Here are the main ways in which entering into a relationship with a PEO can help your small business right away, and as your business grows:
- Benefits Plans and Programs: The PEO can research and recommend comprehensive, cost-effective employee benefits programs — without the client being burdened by the regulatory morass that often accompanies offering employee benefits programs. Since the PEO is the plan sponsor, related administrative tasks are within their purview. This includes everything from negotiating with carriers and enrolling employees, to providing legal notices and handling COBRA administration. In addition, the PEO will act as a liaison with the client’s employees, providing Web content and enrollment tools that help them to better understand and appreciate their benefits programs. The PEO can also serve as a contact point, answering employees’ questions regarding their benefits package.
- Controlling Payroll Costs: A PEO can keep your payroll processing and associated accounting costs down by handling the administrative process, while automating payroll efforts such as monitoring withholdings, issuing W-2s and keeping track of garnishments. It’s important to select a PEO that provides payroll services with straightforward, understandable fees, rather than a PEO or payroll company that works a la carte — charging separate fees for specific payroll services like creating periodic payroll reports.
- Offering Retirement Plans: The PEO can also be helpful by researching and providing access to a retirement savings program, including 401(k) plans. This can go a long way toward attracting and retaining quality employees. It’s important for small businesses to determine whether your PEO sponsors a 401(k) plan that allows employees to defer compensation for retirement — while taking advantage of matching contributions. The PEO manages the 401(k) administrative responsibilities and regulatory requirements; this includes compliance testing, distribution processing and any mandatory notices. In addition, the PEO can provide educational materials and information online that can ensure optimal retirement outcomes for your employees.
- Human Resources Compliance: An experienced PEO for small businesses can help by keeping track of employment laws, which can be very complex, and ever-changing. Failure to keep current with these employment laws and regulations can result in heavy fines. PEOs make a point of constantly monitoring these laws and ensuring your compliance. They are experts in the field and make sure your business is meeting all requirements. Whether you have an in-house HR manager or department or not, working with a PEO can give you a significant advantage. PEO professionals will work closely with you and apprise you of regulatory changes that might affect your small business, and help you to make the right adjustments.
- Workers’ Compensation: Managing workers’ comp insurance premiums and claims can be expensive and time-consuming for any small business. A PEO can provide workers’ compensation coverage to your employees through its own workers’ compensation insurance program. It can also manage compliance, audits, paperwork and certification issues associated with these programs. A competent PEO will also provide access to a dedicated team of specialists who make it their business to know your business, and they’ll work closely with your own HR services team. They’ll help you mitigate risk and be available to provide answers to employees’ questions whenever they need it.
- Legal Issues and Lawsuits: The word sends chills down the spine of any small-business owner: lawsuit! Litigation against your company can devastate your small business. As such, it’s crucial to keep your employer liabilities in check. A PEO shares liability associated with certain employment-related claims, including wrongful termination.
As a PEO client, you can avail yourself of the experience of legal experts to prevent a potentially expensive legal settlement. It’s not a substitute for advice from an attorney, but it can be invaluable in mitigating any potential lawsuits that might be lodged against your small business. A PEO serves as an added layer of defense to help you to weather potential legal issues.
Recruiting Employees: This is where a PEO can really come to the aid of a small business. Recruiting is expensive, time-consuming, and fast-moving. Small businesses need rapid turnaround to find qualified candidates and fill vacancies. Most small businesses don’t have the personnel or resources to manage an efficient recruiting effort. Running ads, interviewing, conducting background checks and associated tasks can be a huge challenge for any small businesses. You don’t want to err by hiring the wrong candidate; it can cost you thousands in lost time and useless training. A PEO will expedite all of these jobs, leaving you the time to focus on your core business.
When it comes to turning to a qualified PEO, the bottom line for your small business is, well, the bottom line. When you work with a PEO and partner with them to alleviate a panoply of burdens, you’ll be amazed at how it will provide you with a fresh perspective on your business. Let the PEO concentrate on your HR issues — everything from advertising and screening to benefits, legal issues and Workers’ Compensation. With the time and money saved, you can concentrate on making your business more responsive to your customers, more productive in the short term, and down the road. Call us today for a risk-free consultation regarding the many ways your small business can benefit from a PEO. It’s a smart move, indeed.