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If you are looking for a way to simplify your human resources functions, you can partner with a professional employer organization (PEO). This buying guide will help you learn more about what a PEO is and which businesses it’s best suited for.
What is a PEO?
A professional employer organization is an HR service provider that can take care of your HR needs. For example, a PEO assists with employee onboarding, benefits administration, payroll processing, training and development, and workers’ compensation management. Because they are experts in all things HR, PEOs also help companies mitigate legal risks and maintain compliance with federal, state, and local laws.
As opposed to traditional HR outsourcing services, PEOs use a co-employment model. This means that they share ownership of your employees and are the legal employer of record (EOR) for your workers.
Who needs PEO services?
A PEO can help virtually any type of business with its human resources functions. PEOs serve organizations in a variety of industries, such as marketing, technology, e-commerce, media and entertainment, financial services, education, healthcare, life sciences, nonprofits, retail and manufacturing.
Here are a few types of businesses that may find a PEO especially valuable:
- Small- and mid-size businesses (SMBs): Companies with only a handful of employees can benefit greatly from a PEO because these smaller businesses don’t typically have the resources to adequately handle all of their HR functions on their own, and staffing an internal HR department can be costly. PEOs also give small businesses access to more comprehensive and affordable insurance options than they would otherwise be able to offer.
- Fast-growing organizations: Scaling your company can be an exciting time, but hiring many employees at once comes with its own set of challenges. As your organization grows, it can be tough for you to keep up with your expanding HR needs. This is where a PEO can come in and relieve some of that burden, ensuring you don’t miss any steps along the way.
- Businesses in highly regulated industries: One of the biggest advantages of partnering with a PEO is its ability to help with legal compliance and risk mitigation. Companies that work in highly regulated industries, like financial services and healthcare, find value in having a PEO to help ensure all HR functions are being maintained according to the applicable laws and regulations.
- Companies with dispersed workforces: If you have employees located across multiple states or jurisdictions, it can be tough to keep up with the ever-changing laws and regulations. A PEO helps you stay up to date with the various employment laws so you remain legally compliant.
- Large organizations and enterprises: Managing the HR functions of a large business can be a daunting task. Although PEOs typically cater to SMBs, they can also help larger organizations stay on top of necessary HR duties, like onboarding and managing employees en masse.
How much does a PEO cost?
The cost of a PEO can vary greatly, depending on how the PEO packages its services, how big your company is, and which services you need. For example, some PEOs bundle all of their HR services, whereas others offer tiered plans and add-ons. The bundles are good for companies that intend to grow into all of their PEO services, while the tiered plans are ideal for companies that need only a few services or want a more tailored solution.
PEOs typically charge a monthly fee per employee, ranging from $40 to $160. While many PEOs offer both annual and monthly pricing, you typically get a better rate by paying annually. Some PEOs lock you into annual or multiyear contracts, but most of the vendors I researched offer monthly contracts that allow you to cancel with a 30- or 60-day written notice.
When budgeting your overall monthly or annual cost, you need to consider additional fees, such as implementation or setup fees, payroll or benefits costs, and advanced customer support. Lastly, pay attention to minimums, as most PEOs require employers to have at least two or five employees.
What are the benefits of a PEO?
While the specific benefits you gain from partnering with a PEO will depend on which services you need, there are five key advantages a PEO can offer:
- It provides HR expertise and support. One of a PEO’s greatest advantages is its ability to offer HR expertise and support. A PEO supplies valuable knowledge and support with HR functions such as payroll processing, benefits administration, and legal and regulatory compliance, allowing you to focus on your core business functions instead.
- It can save you money. Although there is a cost for partnering with a PEO, it can save you money in the long run. Not only is a PEO less expensive than an internal HR department, but it can also help you avoid costly HR errors, like hiring the wrong candidate or violating employment laws. PEOs also provide better access to affordable employee benefits, like medical insurance and employee retirement plans.
- It can save you time. Handling all of your business’s HR needs can be time-consuming, especially when it comes to repetitive administrative tasks. A PEO can relieve your in-house employees from these responsibilities, freeing them up to work on more strategic initiatives.
- It can help with employee recruitment and retention. PEOs offer access to better benefits, professional development opportunities and experienced support, all of which aid in recruiting and retaining top-tier employees.
- It can help you maintain legal compliance. Because PEOs are experts in HR functions, they can help you mitigate potential risks by maintaining compliance with relevant employment laws. Need help classifying a worker, administering proper payroll taxes, complying with overtime laws, or terminating an employee? A PEO can help with all of those tasks. As laws and regulations evolve, your PEO also helps to ensure that you stay compliant.
What are the types of PEOs?
There are two types of professional employer organizations: a PEO and a CPEO (certified PEO). While both types offer essential HR functions, a certified PEO has met rigorous standards set forth by the Internal Revenue Service, including standards regarding finances, company background, and reporting requirements. A CPEO also provides your business with a bit more protection. Because the IRS holds CPEOs solely liable for federal employment tax payments on employee wages, it can’t go after the client (i.e., your business) to collect employment taxes.
What are the key features to look for in a PEO?
PEOs offer a variety of HR services. Here are some of the key features to look for in a PEO.
Administrative HR functions.
A PEO performs various administrative functions, relieving your internal staff of that burden. For example, a PEO can help you create employee handbooks, onboard new hires, acquire and retain important HR documents, create and enforce HR policies, and maintain HR compliance reporting. Many PEOs also offer employee self-service features so your employees can manage some of their HR functions on their own.
Employee training and development.
Many professional employer organizations provide virtual and on-site employee training programs to help your staff stay up to date on critical topics such as sexual harassment, discrimination and disciplinary actions. Because PEOs typically include reporting services as well, this is a great way to help your organization stay compliant.
The best PEOs also offer courses geared toward employee professional development. In addition to being a great way to increase the skills of your workforce, professional development is key to retaining employees over the long term.
Employee benefits administration.
Because a PEO can partner with multiple organizations at once, it is afforded greater bargaining power for employee benefits. This means you can access comprehensive benefits at more affordable rates with a PEO. Keep in mind that the cost of employee benefits is a fee on top of the monthly or annual PEO rate you will pay.
PEOs typically offer essential benefits such as medical, dental, vision, life, long- and short-term disability, and workers’ compensation insurance. If you want additional benefits that help to attract employees, look for a PEO that also offers benefits like employee retirement plans, tax-advantaged savings accounts (e.g., HRAs, FSAs, HSAs), commuter discounts and employee assistance programs (EAPs).
Payroll processing and tax administration.
When partnering with a PEO, you are required to use the PEO’s payroll platform because your employees are technically on their “books.” Look for a PEO that has an intuitive payroll platform that can handle your single- or multi-state needs. While the complexity (or simplicity) of the payroll platform will vary by provider, most PEOs can help manage essential payroll functions, like tracking employee hours and time off, calculating wages and tax deductions, processing payroll, processing employee liens and garnishments, and filing federal and state taxes.
Risk mitigation and compliance assistance.
It can feel impossible to stay up to date with employment laws and regulations, especially if you employ workers across multiple states or jurisdictions. Fortunately, PEOs are HR experts, making them a great solution for employers that need help with risk mitigation and compliance. Look for a PEO that highlights its legal expertise and know-how in your industry and location. At the very least, a PEO should be able to provide advice and training on how to stay compliant.
What factors should you consider when choosing a PEO?
Although many PEOs offer similar services, each has its own pros and cons. There are several factors you should consider before choosing the best one for your business.
Pricing.
As with any business product or service, you should evaluate pricing. Does the PEO offer annual or monthly pricing? Is there just a monthly per-employee fee, or do they charge a monthly base rate as well? Are there any implementation fees? What about pricing for add-ons?
The key here is to evaluate PEO pricing in terms of which services you actually need. For example, some vendors offer all-in-one bundled pricing, whereas others offer preset plans with add-ons. Instead of just looking at the lowest possible rate, be sure to include all additional pricing for the add-on services you may need as well. This will help you determine which solution is within your price range.
HR features.
As mentioned above, PEOs can offer a wide range of HR services. Some you may need; others you may not. The services you have access to will depend on the specific vendor or tiered plan you choose, so be sure to first identify what HR features you need (or may need in the future) and narrow down which vendors offer those services.
Platform usability.
A PEO is a service, but it also comes with an HR platform for you and your employees to navigate HR functions. These platforms vary based on how intuitive they are to learn, how many employee self-service features they have, and the extent to which they can be customized. Understanding how tech-savvy your workforce is can help you determine how simple or advanced you need the PEO platform to be.
If mobile access is important to you, evaluate how comprehensive and intuitive the PEO’s mobile apps are as well.
Scalability.
When you’re choosing a PEO provider, don’t forget about scalability. The last thing you want is to partner with a PEO and then have to transition to another platform a year later because you outgrew its services. Look at the PEO’s overall features and support to ensure it can grow with you if and when your business scales. For example, some PEOs have a maximum number of employees they can support.
Implementation and support.
Additionally, PEOs offer varying levels of ongoing customer support. If customer support is important to you, test the PEO’s services by performing guided demos and reading reviews. Also check which type of support communication channels (e.g., phone, email, webchat) the PEO offers.
What are the top PEO vendors?
There are many great PEOs on the market. However, after extensive research and testing, I’ve identified the following companies as some of the best PEOs available:
- TriNet: If you are looking for a PEO that can tailor its plans to support your specific industry, TriNet is a great option. The company has flexible pricing options and several valuable online resources.
- Deel: Deel is more than a domestic PEO; it also offers EOR services for employers with globalized workforces, as well as localized contracts and benefits and stellar customer service.
- Justworks: Justworks’ cloud-hosted platform is simple to navigate, making it a great option for employers that need an intuitive PEO solution that their employees can learn in no time.
- Papaya Global: Papaya Global provides global PEO services in more than 160 countries, making it a great option for companies that need to maintain international compliance. It offers global and local benefits as well.
- Rippling: As a PEO with one of the most powerful tech platforms, Rippling allows users to automate many of their HR functions through tech customization. It offers both PEO and non-PEO solutions, so employers can easily scale across HR services as their business needs change.
- Insperity: Insperity offers all of the essential services an employer could need in a PEO. It has thousands of training resources and excellent customer support, making it a great option for managing HR risks.
- Paychex: Paychex is a versatile PEO that can cater to a range of industries and business types. The easy-to-navigate platform and employee self-service features make it a great pick for employers with dispersed or remote employees.
- ADP: ADP is the largest PEO on the market, giving it access to a wealth of top-notch employee benefits options. In addition, the ADP platform is easy to navigate, making it simple to manage benefits and other HR functions.