Tired of spending too time on activities that don’t create revenue for your practice? If you feel like your valuable time and energy is being drained by aspects of your business that you have little interest in, let alone training, you’re not alone! It’s one of the reasons so many practices are looking for help in the form of professional employer organizations (PEOs). These firms take care of tasks such as recruiting and training new employees, payroll, and the administration required for benefits, safety and risk management, and worker’s compensation.
There is no shortage of PEO firms. Nearly 1000 PEOs provide services to between 156,000 and 180,000 small and mid-sized businesses in the United States alone. That’s not counting the PEOs that are springing up across Europe.
Before jumping on the PEO bandwagon though, let’s have a look at all the facts, taking into account both the benefits and the potential drawbacks.
What is a PEO?
Professional employer organizations exist to provide HR solutions for small and mid-size companies. The theory is that most business owners have not been trained in payroll, accounting, or human resources, and likely don’t possess knowledge of regulatory compliance and risk management. Rather than spending time on steep learning curves, hiring a PEO will allow you to focus on the skills that prompted you to launch your business in the first place.
PEOs don’t just offer their expertise. PEO firms actually become your employees’ “employer” in an outsourcing arrangement that is sometimes called “joint employment” or “co-employment.” When it comes to daily operations, you are still the boss, but the PEO pays your employees and is responsible for benefit plans, workers compensation coverage, and tax filing.
What a PEO isn’t!
A PEO is not a temporary staffing service or an employee leasing company. PEOs enter into a co-employment arrangement with a business client and supply HR services for existing employees. They will not supply labor to your company.
Who uses a PEO?
According to the National Association of Professional Employer Organizations (NAPEO), any business can find value in a PEO relationship. However, the average NAPEO client is a business with 19 worksite employees. The reason PEOs seem to make the most sense for small businesses is that they often don’t have dedicated human resources staff or the time to commit to the necessary administrative tasks associated with having employees.
Companies often hire a PEO when administration begins eating away at productivity. While this is individual to each company, experts say this usually occurs somewhere around the 10 to 15 employee mark.
NAPEO’s stats, taken from a study by two noted economists, point to big advantages for companies using a PEO. They claim that small businesses that use PEOs grow 7-9 percent faster, have 10-14 percent lower employee turnover, and are 50 percent less likely to go out of business.
Add to that, the benefit for employees. On their website, NAPEO contends that through a PEO, “the employees of small businesses gain access to big-business employee benefits such as: 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits they might not typically receive as employees of a small company.”
As a private practice owner, other benefits might include:
- More time. When you’re not focused on employee management tasks, you have more time, energy, and resources to actually improve and grow your practice.
- No costly mistakes. Let’s face it, a trained expert is less likely to make mistakes when it comes to payroll, benefits, and tax reporting. Not only will you prevent expensive errors, but you’ll spend less time pulling out your hair on frustrating tasks.
- Competitive and affordable benefit packages. As a small company, you might not be able to negotiate a competitive benefits package for your employees. PEOs will do the legwork and help you find the best, most affordable plan.
- Lawsuit Protection. Employee discrimination, workers’ compensation, unlawful termination, benefit/pension violations – the list of potential lawsuits is long. Partnering with a PEO will provide you with sound advice, tips on avoiding legal hassles, and possibly even an in-house legal advisor.
- Improved Retention/Recruitment. Enhanced employee benefits, professional human resource services, training, employee manuals, safety services, and improved communications are just some of the ways that PEOs have been known to help with retaining valuable employees and recruiting new talent.
Those in the pro-PEO camp would tell you that freeing up precious time and energy by hiring an expert allows you to focus on what you love about being in business for yourself. And that can only enhance the vitality of your practice, including your bottom line.
Sound too good to be true?
It just might be. That’s why it’s important to do your own research. There are potential drawbacks, in addition to the benefits PEOs claim to provide. Here is a list of things to think about before you make any hard and fast decisions:
- Are you ready to relinquish control over parts of your business? If your business feels like your “baby,” it might be hard to let go of certain aspects of control. Although you will be still be “the boss” when it comes to your actual business operations, someone else will be in charge of most of your employee-related activities. How does this feel when you try it on for size?
- Have you thought about what effect this will have on employees? Some employees might feel uncomfortable with a third party, off-site human resources contact. How will your employees respond to a more “impersonal” approach?
- Have you done your homework? Each PEO has a different pricing structure. Make sure you find out what you are paying for and ask for a full outline of all fees and services, in writing. You don’t want to get burned by hidden costs.
- Are you clear about liability? PEOs do assume some of your liability as the employer (for taxes, payroll, and benefits), but not all. It’s important to know the facts. Ask any PEO you are considering working with for details on liability, in writing.
If the claims are true, a PEO might be the answer to your prayers, freeing up time to focus on growing your practice and thereby creating more revenue. Plus, you’ll be granted a permanent reprieve from tasks you may not enjoy or be naturally good at. Who doesn’t want more time in a day? Who doesn’t wish for more energy to do the things that really matter?
But, finding the right fit for your practice and asking the proper questions is critically important. Take a close look at bundled services, watch out for hidden costs, get the low-down on liability, and ask for agreements in writing.
Best of luck on your PEO adventure!