What Are the Pros and Cons of PEOs?

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What Are the Pros and Cons of PEOs?

23/03/2022  |  georgev Categories: Blog

Should you use a PEO for your business? Right now, there are 487 private employment organizations in the United States alone, serving millions of employees.

When it comes time to decide if using a PEO is right for your business, it’s wise to consider both the pros and cons of such a service.

Below we explain some of the top pros and cons of using PEOs to help you with your decision.

What is a PEO?

A PEO, or a professional employer organisation, is a type of HR outsourcing that is known as co-employment.

Businesses work together with a PEO so that each is responsible for different tasks. The PEO will take care of administrative tasks like payroll and benefits, leaving the business to focus on more important decisions.

Some PEOs also offer strategic services but no PEO organization operates entirely alike. Each one will have its mix of offerings, benefits, and drawbacks, which we will touch on in the following sections.

Pros

PEOs are a quickly growing industry. PEO employment growth is 16 times higher than the rest of the US economy since 2013.

One reason for this is the numerous benefits that a PEO brings to a business. Below are just a few of the top benefits you can expect to experience when using a PEO.

Affordable Benefits

PEOs are known for giving employees the best benefits possible without costing the business significant cost increases.

A PEO will work with insurance companies and benefits providers to negotiate benefits and insurance policies for the group.

Since PEOs often work with upwards of thousands of employees, they can leverage their massive buying power to obtain better deals from service providers.

Employees at the small- to mid-sized companies partnered with the PEO will have access to a greater range of benefits, from health care to retirement plans.

Shared Liability

Businesses that enter into a partnership with a PEO are entering a co-employment relationship. The PEO will split the legal responsibilities of the employee.

Should a lawsuit occur or a problem arise with an employee, both the PEO and the company would have to take steps to mitigate the situation.

Frees up Resources

Using a PEO will save you both time and reduce your bottom line. You’ll be able to use these newfound resources to focus on growing and developing your company.

Costs saved from a PEO could allow you to hire employees or give better training to new employees. You can focus on giving more value to existing team members while focusing your efforts on larger goals.

Better Recruiting Position

With all of your additional benefits, you will have positioned your business as a more competitive option for candidates.

Those looking for a closer work environment with fewer employees won’t have to sacrifice the benefits that they may have only been able to get from working at a larger company – they will truly be able to get the best of both worlds.

Cons

PEOs are great opportunities to outsource some of their more mundane tasks and focus on building employee relationships and growing their business.

However, PEO services are not perfect. You should be aware of potential drawbacks or obstacles you may have to overcome when using a PEO service.

Custom Plans

PEOs are known for providing employees with greater benefits that come at a lower bottom line for companies. Unfortunately, in some cases, this may come at the cost of allowing employees to have individualized plans.

PEOs work with insurance companies and benefits providers to find group solutions. While the overall cost may be lower, some people may not receive the individual choices that they’d like.

The best solution to combat this is to work with a PEO company that has ample resources and connections and can leverage its expertise to create a dynamic set of benefits that works for as many employees as possible.

Relinquished Control

Company leaders will certainly enjoy that the PEO shares risks and takes some off the burden of the company. However this comes at a cost – the employees are co-employed by the PEO.

This means that you will be relinquishing some of your control as a business owner. 55% of entrepreneurs say their largest motivation for starting a business was so that they could be their boss, so many top executives may have to adjust to the fact that they will no longer be making 100% of the decisions.

Less Access to Information

PEO services take responsibility for tasks like payroll services and employee benefits. When they do this, they gain access to important company data and use it to make decisions.

Once the PEO services have access to the data used for benefits and payroll, the company will have little insight into this information.

In some situations, all communications and transactions will have to go through the PEO, even if it’s a small request that would be easily taken care of if it stayed within the organization.

It’s important to understand that you’ll have to accept some elements of a “hands-off” approach when using a PEO service. The small communications that you could handle before will now be under the purview of the PEO.

Compliance Not Guaranteed

PEOs are responsible for handling your taxes and payroll filing. But if they fail to do this properly, it’s you who is vulnerable to fines or penalties for noncompliance.

When looking for a PEO, make sure to select an organization that does guarantee tax compliance with payroll processing. A compliance guarantee means that the provider will take care of your taxes as the reporting agent on your behalf, as well as be responsible for any fees or fines that occur from their errors.

Using PEOs for Business Growth

PEOs are a great option to consider for your business whether you’re looking to streamline operations or expand your company.

Start your search for PEO services with Bradford Jacobs. Our team of consultants would be happy to discuss how we can meet your business’s needs. Do not hesitate to contact us, and we will be in touch shortly!