What is a Professional Employment Organization (PEO) Company? Do I Need One?

Although professional employer organizations (PEOs) have been smart outsourcing HR options for decades, we still hear questions like, "How does a PEO work?" or "When would a business need a PEO?"

Here are our answers.

What are PEO Services?

PEO stands for Professional Employment Organization. A PEO services provider is a firm that provides comprehensive HR solutions and outsourced employment services to small and medium-sized businesses.

Professional employer organizations help businesses alleviate the burdens of HR services that come with administration, workers' compensation, payroll administration, employee benefits, and more. 

By working with a PEO, businesses may leverage the experience of HR professionals to efficiently manage transactional HR responsibilities, freeing up important time to focus on critical business operations while also lowering overhead, liability, and expense expenses. 

Here at Stratus HR, we understand navigating the world of PEOs can be daunting, but with our expertise, you don't have to go it alone. Whether you're grappling with payroll complexities, seeking competitive benefits, or aiming for full compliance, we've got you covered. Book a free consultation with us and let us be the solution you've been searching for.

What Are The Differences Between PEO Companies, HR Outsourcing, and HR Consulting?

PEOs, outsourcing HR, and HR consulting are all different types of services that businesses can leverage to manage their HR needs.

Here are some key differences that distinguish these types of services:

Professional Employment Organizations (PEO)

Professional employer organizations provide a range of services like payroll, compliance and risk management, and benefits administration. 

Businesses that enter into a partnership with a professional employer organization lease employees to the employer, which allows the PEO service provider to become the employer of record to manage and share employee-related liabilities and responsibilities. 

The business maintains control over the day-to-day management of employees and operations, freeing up time to focus on other areas of the business, while the PEO handles administrative and transactional HR. 

Outsourcing HR

Different from PEO partnerships, outsourcing HR is a contractual arrangement between a third-party provider and a business. In this agreement, the third-party providers handle specific HR functions like payroll, benefits administration, or recruiting. 

However, in contrast to a professional employer organization, the business remains the employer of record for its employees, but the third-party provider is responsible for the specific HR services outlined in the contractual agreement. 

HR consulting 

In contrast to professional employer organizations and outsourcing, HR consulting involves working with an external HR consultant or HR consulting firm to gain insights, advice, and guidance on specific HR issues within the business, like client development, client management, and contracts.  

HR consulting is a great opportunity for small businesses, large, or in between, as the consultants are trained in basic business management skills like customer service or office management and are able to work independently. 

Unlike the other solutions, HR consultants typically provide expertise but, as external providers, aren’t responsible for any day-to-day HR functions or tasks. 

PEOs are full-service HR providers that can manage the majority of HR responsibilities while outsourcing providers handle specialized services, and HR consultants provide advice and expertise on specific HR concerns. 

Now that you have a better understanding of the different types of HR providers, it's worth exploring the core functions of a PEO. 

What are The Core Functions of PEO Companies?

As discussed above, PEOs are full-service HR providers that offer a range of services to those who partner with them. PEO services aim to reduce administrative burdens for small businesses to allow them to focus more time on their core operations.

Some core functions of PEO companies include the following: 

Human Resources Management 

PEOs are able to successfully handle HR policy development, employee relations, and conflict resolution while also providing businesses with guidance and support on HR-related matters. PEOs can manage the entire employee lifecycle using tools made to fit business needs. 

As a small business owner, you can attract top-tier talent, offer customized onboarding experiences, and regain time to focus on other areas like retention. 

Payroll Administration 

PEOs maintain accurate records to ensure small businesses stay compliant and their employees are paid on time. A PEO can absorb payroll liabilities and prepare and execute payments, including processing payroll, making tax and deduction calculations, and issuing paychecks to employees. 

They can also handle tax filing and other payroll-related compliance tasks. From enrollment to claim processing, everything related to benefits administration can be handled by a PEO. 

Employee Benefits management 

Employee benefits such as health insurance, retirement programs, and other bonuses are one approach to recruiting and retaining talented employees. PEOs can assist organizations in attracting and retaining industry talent by providing Fortune 500 healthcare benefits while remaining within their budget. 

PEOs can help firms with administrative tasks and even work with their broker to ensure a smooth process. 

Regulatory Compliance and Risk Management 

Businesses that partner with a PEO have access to the tools and support they need to manage workplace-related risks. Businesses can assure compliance with HR at the federal, state, and municipal levels. 

A PEO partner can assist in the development of programs designed to meet the needs of the business, such as anti-drug abuse and health and safety training, as well as risk-management services such as workers' compensation insurance and liability insurance.

Recruitment, Onboarding, and Training 

PEOs can help businesses with recruitment, onboarding, and training tasks. They can assist businesses in recruiting and onboarding new employees while providing support throughout the entire process. PEOs also offer training and development programs that help businesses focus on employee development to further grow and succeed in their roles. 

Overall, by partnering with a PEO, businesses can save time and money while improving compliance and offering their employees better benefits. PEOs make HR more manageable and cost-effective for businesses by providing access to economies of scale and certified HR knowledge. 

They can assist businesses in decreasing risk and increasing compliance by giving qualified advice on employment rules, laws, and regulations, as well as streamlining staff administration, allowing businesses to focus on core tasks.

Why Would a Business Need Professional Employer Organization (PEO) Services? 

In short, a PEO can help businesses save time and money while improving their ability to attract and retain top talent. This allows businesses to focus on their core operations while still providing competitive benefits and an enjoyable place to work for their employees.

Did you know?

Businesses that outsource HR to a certified professional employer organization:

• Grow 7-9% faster than comparable businesses;
• Have 10-14% lower employee turnover; and
• Are 50% more likely to stay in business.

Typically, when companies grow, they experience the need to have somebody take care of their human resources needs. However, finding an employee who specializes in every aspect of HR is difficult and costly. 

With Stratus HR, businesses gain the equivalent of a five-person HR department, with certified experts in each aspect of human resources (PEO payroll services, benefits administration, employment law, worker’s compensation, and risk management), as well as access to more robust and affordable benefits for your employees.

What Are The Advantages of Partnering with a PEO Company?

Businesses that choose to partner with a PEO can benefit from manageable and affordable HR solutions, certified HR experts ready to help 24/7, competitive benefits packages, and improved compliance, all while reducing risk and overhead costs.

PEOs make HR manageable and affordable

A PEO allows smaller companies to band together as part of a larger employer, creating efficiencies for administrative needs that every company needs, such as payroll, workers' compensation policy, and claims management, benefits deductions and reconciliations, and more. 

The PEO also has certified human resources experts available to clients 24/7 to provide consulting for any kind of HR matter, whether it be hiring or firing concerns, employee disputes, wage and hour issues, employee onboarding, discrimination claims, employee handbooks, and so on. 

With economies-of-scale working to their benefit, PEO clients are also able to tap into the buying power of a PEO to provide competitive benefits that would be difficult to afford and manage on their own.

PEOs reduce risk and improve compliance 

As previously mentioned, PEOs provide expert knowledge of employment laws and regulations across the federal, state, and local levels and can support businesses in navigating these complexities. 

By providing guidance and support, PEOs help ensure that businesses remain compliant with all applicable laws, standards, and regulations, reducing the risk of legal penalties and liabilities. 

PEOs streamline employee administration

PEOs streamline employee administration by taking on the administrative burdens of HR management like payroll processing, benefits administration, and filing taxes. By partnering with a PEO company, businesses can return their focus to their core business functions, which can lead to increased profitability and productivity. 

Whether you're a small business, medium, or large, you can especially benefit from a PEO partnership, as they may have limited resources or expertise in handling HR administration. 

What Makes a Successful PEO Partnership? 

A successful PEO collaboration includes clear communication, frequent performance assessments, and ongoing optimization to ensure that the highest quality PEO services and solutions are delivered to meet the needs of the business. 

This requires staying up-to-date on changes in employment laws, rules, and regulations, as well as responding to the client business's specific needs.

Clear communication

When in a partnership with a PEO, clear communication is crucial to ensuring that the business and the PEO are able to communicate efficiently and effectively and have a shared understanding of the partnership goals and expectations. 

Clear communication is also key when addressing issues and concerns that may arise during the partnership. It will also help with providing regular updates on the services provided by the PEO so that businesses can stay informed.  

Regular performance reviews

Regularly reviewing performance ensures that the PEO is meeting the expectations of the partnership and the business and delivering high-quality services. Reviews should be conducted on a regular basis and include information surrounding performance metrics and measurable goals that were outlined at the start of the partnership. 

The review should also analyze any issues or concerns that came up during the partnership and include a plan for addressing them. 

Constantly optimizing the partnership 

Constantly optimizing the relationship involves implementing changes to continuously improve the partnership. The optimization process requires both the PEO and the business to communicate feedback openly and willingly make adjustments based on the business’s needs. 

By assessing the partnership regularly and identifying areas for improvement, both the PEO and the business can work together to ensure a successful partnership. 

Overall, a successful PEO partnership involves clear communication, regular performance reviews, and continual optimization to ensure that both the PEO and the business are offering the highest quality services and solutions to fit the business's specific needs.

Is Outsourcing Right for Your Business? Find Out today!

PEOs are an excellent solution for your small business if you're looking for assistance with managing HR while also wanting to focus on your core business operations. They can provide businesses of all sizes with a range of services, from administering payroll to managing employee benefits, ensuring regulatory compliance, and managing risk. 

Do you think outsourcing HR to a PEO is the right fit for your business? When you partner with Stratus HR, you can expect reduced costs on technology, workers' compensation, overhead, liability, human resources, and more.  

Book a consultation with Stratus HR today and learn how we use our 20+ years of industry experience to put the human back in HR.