What Are PEOs, and is Working with One Right for You?

Last Updated:
October 3, 2022
Kay Nicole

What Are PEOs, and is Working with One Right for You

If you're running a business with employees, then there are a lot of things that need to be done on the administration side to manage them. Things like timesheet management, benefit allocation, payroll, and other HR functions can all become big overheads for your business, which can keep your team from focusing on what they do best. This is where a PEO, or professional employer organization, can help.

Here we take a look at what PEOs are, what they offer, and why choosing to work with one might be the right option for your own business:

What is a PEO?

PEOs are third-party companies that offer outsourcing for HR, payroll, and other employee-related business functions. Every PEO is different, so their exact ways of working and portfolio of offerings will vary depending on who you work with, with some also offering things like recruitment and tax services.

Generally, a business will engage a PEO to take on the tasks they want them to do on their behalf and will then work with them on an ongoing basis. This is just like any other kind of outsourcing, though the business will usually form a close relationship with their point of contact at the PEO due to the variety of important tasks the PEO will be responsible for.

What Kind of Services Does a PEO Offer?

A PEO, like these PEO companies in California, can take care of a lot of things that a business doesn't want to do in house. These can include:

  • Managing payroll
  • Managing benefits, healthcare plans, and employee perks
  • Monitoring timesheets and timesheet reporting
  • Managing employee expense claims
  • Recruitment services
  • Tracking expenditure on employee-related costs
  • Data and analytics reporting
  • Employee-related tax services
  • Strategic advice relating to staffing

While they can do all of these things for you, the PEO will not have any direct authority over decision making or strategy in your business, so while they can, for example, offer guidance on what you should offer as a salary for a new role, the ultimate choice still remains with the business.

What Are the Advantages of Using a PEO Rather Than Hiring an HR Department?

For many businesses, especially SMEs, having their own HR staff can be overkill. The need for HR-related tasks is certainly there, but it can be sporadic, and not enough to justify a dedicated role. It is also worth considering that a sole HR person would not normally be a specialist in everything a PEO can do. Thus, you may need multiple people.

Because a PEO works with many different businesses, they can have a well-staffed team. They can fill all the necessary roles and provide those services to you whenever you need them.

There are of course other benefits to having necessary roles filled by a third party rather than by increasing your in-house staff. These can apply even to larger companies. These include:

  • No need to provide office space or equipment
  • Fewer people to cover on your business insurance
  • You don't have to provide benefits
  • No break in service if people take time off
  • No concerns about staff turnover

Keeping your employee base to only the people you need to deliver what your business does and help your business grow, means you can focus on reaching your goals. Let the necessary admin be done by a separate expert team that is managed externally.

A further advantage is that the services you get from a PEO will be completely scalable. Therefore, if you undergo sudden growth, they will be able to support that seamlessly.

As you can see, there are many reasons why using a PEO rather than an in-house HR department is right for a lot of businesses in all different sectors. If you are starting to see the need for specialized HR in your company, then it could be well worth investigating PEOs as an option.

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