What Is a PEO and How Does an Employee Leasing Model Work?

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What Is a PEO and How Does an Employee Leasing Model Work?

June 24, 2022  |  Tamlyn Wood Categories: Blog

Are you a busy business owner juggling administrative tasks and running a successful business? Are you looking to scale, but you aren’t sure how to find the right talent or how to administer employee benefits properly?

Most companies assume that they have to take on the task of managing all aspects of their business in order to scale successfully, but that is far from the truth. This is where PEO companies come into play. These companies are beneficial tools that provide you with the services you need to stay compliant while you scale and focus on your bottom line.

To learn more about PEO companies, continue reading below! We will cover all you need to know about these companies and how you can find the best one for your business needs. 

What Is a PEO?

A PEO, also known as a professional employer organization, is a company that practices employee leasing models. This means that this company leases employees to another business which helps.

PEOs allow businesses like yours to outsource specific human resources administrative functions as well if needed. The PEO acts in as the administrative employer while you act in s the onsite worksite employer. 

Administrative services offered by a PEO:

  • Payroll
  • Training
  • Benefits
  • Assistance with staying compliant with important state and federal employment laws

When you work with a PEO company, they can take care of all of the administrative tasks, so you don’t have to. This allows you to focus more on running your business instead of dealing with smaller administrative tasks. 

How Do PEO Services Work?

It is important to note that each professional employer organization operates slightly differently from the next, but in general, they all provide full-service outsourcing. This means they can help with administrative workforce management functions such as benefits and compliance. 

Hiring the Best Talent

Your PEO has the ability to hire and terminate employees. As mentioned earlier, the PEO will take care of hiring the right talent and keeping them on their payroll. All you have to worry about is assigning tasks and providing your new employees with the things they need to complete their jobs. 

Administers Benefits

As mentioned earlier, PEOs take care of administering HR benefits and other types of benefits. This includes any health insurance and retirement benefits. 

Ensures Compliance

As a busy business owner, the last thing you need is for your operations to come to a screeching halt because you failed to stay within the state or federal compliance. When you partner with a PEO, there are other rules that apply to larger organizations that you, too, will have to comply with.

Even if you’re a smaller business, you must abide by those laws when working with a PEO. Your PEO will take care of all of that on your behalf. 

Workers’ Compensation 

In the event that your employee sustains an injury or an illness at the workplace, you will want to make sure you have coverage for that. Depending on the state your business operates in, you may or may not need to purchase workers’ compensation coverage.

In some states, it is mandatory; in others, it isn’t. When your employee gets hurt, you can rest assured that your PEO company will take care of the claims administration process. 

Benefits of Using a PEO

The most significant benefit of using a professional employer organization is the reduced administrative time. Since the PEO handles a large portion of your administrative tasks, you will have more time to focus on running your business. You can focus more on other core business functions geared towards generating revenue and growing your company.

Health Insurance Savings

Because working with a professional employer makes you a part of a larger group of employers, so you get more health insurance purchasing power. For example, with PEO insurance, you can see savings of about 20% to 30% on your monthly health insurance premium costs. 

Lower Risk

As mentioned earlier, working with a PEO helps reduce your liability because they are well versed in state and federal employment and tax laws and regulations. These laws and regulations tend to change over time which can be hard to keep up with, especially since you’re busy with other aspects of your business. PEO companies are well versed in these laws, so they will always ensure you are up to date. 

Disadvantages of a PEO

Although there are many great benefits that come with working with a professional employer organization, there are a few disadvantages you should be aware of. For example, you have a limited choice of benefit carriers and plans. 

If you already have a preference for who you want to use for your health insurance and benefit offerings, you may not be able to use them. Although this may seem like a disadvantage, it could end up being a massive benefit. PEOs have access to a wide range of different providers that may be able to provide you with more benefits than your preferred benefit carrier. 

Lack of Employee Control

As you now know, PEOs have the ability to hire and fire talent as they see fit. In general, these companies hire more candidates than they fire, but if you aren’t comfortable with the fact that they have the authority to fire your employee, this option may not be best for you. 

Focus More on Your Bottom Line

Using a PEO company to help you manage your daily administrative tasks gives you more time to focus on running the business. This gives you free time to focus on marketing and retaining your customers instead of dealing with payroll or benefits administration.

Partnering with a PEO can provide your company with several different benefits, and you can customize what you need most. Contact us if you’re ready to find out if working with a PEO is a smart business move for your company! Our team is ready to answer any questions or concerns about the benefits of working with professional employer organizations.