A professional employer organization (PEO) is an outsourcing company that provides HR services for businesses through a co-employment agreement. Partnering with a PEO can be exactly what your small to mid-sized company needs as you position yourself for growth and successful talent management.

Or not.

While a PEO is an excellent solution for an increasing number of employers, it’s not a panacea. Before you make the decision whether or not to join forces with a PEO, be sure to consider the pros and cons, and make the right selection from the nearly 500 options available nationwide.

What’s To Like

PEOs offer many employment-related services, from payroll processing and tax management through benefits, workers’ compensation insurance, compliance assistance, and more. The benefits of a PEO partnership can include:

• Saving money: As reported by the National Association of Professional Employer Organizations (NAPEO), the annual ROI associated with cost savings is one of the top factors that business owners assess when deciding whether to use a PEO. NAPEO found the estimated ROI for PEO clients based on cost savings to be 27.2% per year. This is based on savings in five areas: HR personnel costs, health benefits, workers’ compensation, unemployment insurance, and other PEO services, such as payroll and retirement plans.
• Being protected against risk: The IRS charges small businesses billions of dollars each year in payroll fines. The best PEOs are insured for any errors they may make as they handle your payroll accounting. And when it comes to HR compliance, PEO insurance should protect you against any issues that lead to fines or lawsuits.
• Bolstering your recruiting process: The benefits offered by a PEO make your company more attractive and competitive. In addition, a qualified PEO can handle much of the recruiting legwork, including such tasks as initial resume reviews, pre-screening and interview scheduling, making your overall process substantially more efficient.

What’s Not to Like

Before jumping into a PEO partnership, be aware that PEOs do not:

• Manage your HR needs exclusively. You are one of many PEO clients. So, make sure you’ll get the personal, in-depth attention you need when you need to turn to your PEO for guidance.
• Take on all the risk your company may encounter. Since it’s a co-employment situation, depending on the specific situation or issue, remember: you and your PEO may be in this together.
• Relieve you of standard corporate responsibilities. Your PEO is an additional line of management that assists with your HR and administrative functions. This doesn’t completely replace your responsibilities.

It’s also worth noting that your PEO will own your loss run and payroll data. So if you decide at some point to get insurance and benefits on your own, you would have to start from scratch. This would likely mean higher rates.

Ready to Improve Your HR Functions? Key HR Can Help!

If you’re still up in the air about the best direction to take your company’s HR strategy and functions, reach out the to Key HR team today. We’re aligned with a full range of preferred provider companies, including PEOs and more, and we can help develop the best short and long-term solutions for your unique business needs. We look forward to meeting you!