Small to mid-sized businesses are getting crushed every year by rising healthcare costs. While some bear the responsibility of the increase on behalf of the employees, some pass the increase on to their workers directly.

Companies use many factors to decide how much of the employee premium portion they can afford to take on for their people. Unfortunately, the typical family premium has increased by 47% in the past decade for employer-based health insurance plans. This outpaces inflation and wage growth.

Many businesses look to PEO companies to help them attain better, affordable benefits. This is also a way to be competitive in attracting the best talent for their job openings. That is one benefit of working with a PEO company, among many others.

If you are concerned about the rise in healthcare costs for your business and your employees, keep reading this article to see how PEO companies work and why it may be the right partnership for you.

What Is a PEO?

PEO companies are professional employer organizations that possess a joint employment relationship with employers. They lease the employees from the employer. Leasing employees allows the PEO company to manage and share the employer’s employee-related responsibilities and liabilities.

PEO companies take care of things like:

  • Administrative tasks
  • Payroll
  • Benefits administration
  • HR compliance

A professional employer organization is not a staffing agency. Staffing agencies help with the hiring process while a PEO company focuses solely on the workforce HR tasks.

Statistics show that small businesses that partner with PEO companies grow faster, at a rate of 7% to 9%. Another fascinating study suggests that PEO companies can decrease employee turnover by 10% to 14%. Likewise, companies that work with a PEO are half as likely to go out of business.

How Co-Employment Works

PEO companies will co-employ your people. This is for administrative reasons like payroll and filing payroll taxes.

As the employer, you have full control over the employees you hire, and you decide what benefits to offer, its plan design, and other critical HR decisions. You decide who to hire and how much to pay them. You also decide who to terminate.

Employers still take ownership of business operations and the company’s overall strategy. That’s not the role of the PEO company.

PEO Companies Save Money

Especially if you are a small business, there can be some disadvantages to having only a few employees work for you. That’s an important role of PEO companies. PEOs lease or employ workers from many individual businesses, creating a larger pool of people among all the companies.

When you have a large base of employees, it gives PEO companies the power to get less expensive, high-quality benefits. Often, this results in lowering employment costs, which will boost the bottom line for the employer.

What Is the Cost of a PEO?

How much a PEO company will cost is based on many factors, including:

  • The number of services you need
  • The size of your company
  • The PEO’s pricing structure

PEO companies usually have two pricing structures, which can be a “fixed” monthly fee that is per employee or a percentage of payroll, including workers’ compensation, taxes, and EPLI (employer practice liability insurance).

Regardless of the pricing structure, there can be additional fees like:

  • Set-up charges
  • Administrative fees
  • Other costs

Be cautious of “hidden” fees in the cost structure. Make sure you learn about them upfront before partnering with a PEO.

Advantages of Working with PEO Companies

A PEO company can give small and mid-sized businesses a competitive advantage in recruiting. Attracting top talent isn’t easy to do if you can’t offer competitive compensation and excellent benefits. According to SHRM, otherwise known as the Society for Human Resource Management, many businesses are adding to their benefits to compete in the job market.

When you harness the power that comes with working with a PEO company, you can offer more robust benefits, which enables small and mid-sized businesses an opportunity to compete with large companies for top talent. Besides health and dental insurance that many employers already offer, you can add benefits like:

  • Life insurance
  • Disability insurance
  • Retirement plans
  • Dependent care
  • Mental health support
  • Worksite benefits
  • Commuter benefits

Usually, you find that the benefits employers offer when they work with a PEO company are less expensive for the employees, versus that of a small to mid-size business that does not work with a professional employer organization.

The benefits from the best PEO relationship can compete with some of the best Fortune 500 companies out there. It also gives employees a better experience with working for the employer because PEOs are HR experts, knowledgeable, and able to answer all HR-related questions. PEO companies can process claims for benefits faster.

Payroll Compliance

Constantly changing in complexity, it can be challenging to adhere to federal and state employment laws. A simple “oops” related to payroll compliance can cost you big. Unfortunately, the IRS reports that they estimate as much as 40% of small and mid-sized companies incur a penalty because of payroll every year.

As we have made a shift to a “work from home” model, this number is likely to increase with so many employees on payroll now living globally. PEO companies and their relationship with you offer peace of mind with compliance and liability. Your payroll department is no longer required to be an expert in the laws of every state and every country when you work alongside a PEO.

PEO Companies Save Time

HR and payroll compliance are time-consuming duties. A recent study suggests that HR and payroll employees can spend 36 hours per week, typically, on compliance-type work alone. This can include policy and regulatory changes.

With the time your HR team will save on administrative tasks like paperwork and compliance, it frees up time to be more strategic. Your employees have more time and can focus on things that will grow the business versus just maintaining it.

Bradford Jacobs Removes Limitations

At Bradford Jacobs, our vision is a world of opportunities with no limitations. We help businesses expand by creating a long-lasting, positive influence on the worldwide economy. It begins with changing the way organizations do business.

If you want to know more about PEO companies and think that this type of relationship can help your business grow, we are happy to discuss your options. Contact us by phone or email today to get started.