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PEO benefits: 7 advantages of using a PEO for your business


Business owners and managers know that every dollar, and frankly every cent, counts when it comes to running a business. As your business grows, your HR demands can pile up.

What if you had specialized HR experts readily available to help you fine-tune and economize some of the most challenging aspects of your business? How about having a trusted set of advisors to guide your company on employment issues? And how would providing your employees with access to big-business benefits improve your recruiting and retention efforts?

All of these factors have the potential to transform your business, but are they really possible? They are when you outsource your heaviest HR burdens to a professional employer organization (PEO).

What exactly is a PEO?

In a nutshell, a PEO is an organization that enters into a co-employment relationship with your company, assuming many of your employer-related HR responsibilities, such as payroll and benefits. This frees up time you can devote to running your business.

Where are the savings with a PEO?

PEOs do more than just save time and headaches by handling many employer responsibilities. They can also save you money by helping you avoid costly pitfalls – like hiring the wrong candidate for a key role – and helping to steer you clear of HR-related compliance issues that could result in hefty fines.

Here are seven key areas where outsourcing your HR challenges to a PEO can help you save money:

1. Benefits

A primary goal of the PEO relationship is to provide your employees with access to cost-effective, comprehensive benefits without the administrative and regulatory burdens that can be so overwhelming and costly.

As a co-employer, the PEO is able to offer a wide variety of benefits to your employees through PEO-sponsored benefit plans, such as medical, dental and vision coverage, a healthcare flexible spending account, and life and disability benefits.

As the plan sponsor, the PEO will handle the related administrative tasks, such as negotiating with carriers, enrolling employees, providing legal notices and handling COBRA administration.

The PEO will also help your employees better understand and appreciate their benefits by providing online benefit plan content and enrollment tools, as well as a contact center that can answer benefit plan questions.

2. Payroll

Working with a PEO can decrease your payroll-processing and related accounting costs. PEOs also conveniently automate the payroll process and handle your withholdings, W-2s and garnishments.

Look for a PEO that provides payroll services with a simple, straightforward fee, rather than a PEO or payroll service that charges separate fees for each of its various payroll services, such as providing quarterly and annual payroll reports.

3. Retirement plans

A PEO can provide access to a retirement savings program that includes 401(k) plans – a benefit offering that may help your employee retention.

For small businesses, it’s worth finding out if your PEO sponsors a 401(k) plan that would allow your employees to defer compensation for retirement while taking advantage of employer matching or other contributions.

As plan sponsor, the PEO will manage the 401(k) administrative responsibilities and regulatory requirements, including compliance testing, distribution processing and required notices. The PEO will also provide educational materials and an online experience that can help your employees achieve better retirement outcomes.

4. HR compliance

Employment law is complex and ever-changing. Not keeping up with the countless HR laws, regulations, and rules that apply to your business can cost you big time. There are numerous state and federal agencies with the power to fine you if you don’t comply.

Are you up to speed on the following laws and regulations? If not, a PEO can provide guidance from seasoned HR professionals and help you avoid compliance mishaps.

  • Do you know the locations where your business operates that have paid sick time policies in effect? Though they may only vary slightly from one state or city to another, you’re still responsible for adhering to any sick leave policies that may apply – everywhere you do business.

That means, even if you just have one employee working remotely from a home office in a particular state or city, your company is responsible for being compliant. This can make compliance quite tedious, especially when you have employees in multiple states.

  • Are you aware of current regulations for hiring practices? Recent “ban the box” laws prevent employers from asking about criminal backgrounds on an initial job application.
  • Do you know if your company is compliant with wage equity laws? This new wave of regulations prohibits requesting salary history on job applications.

Regardless of whether you have an in-house HR person (or staff), teaming up with a PEO can give your business a significant advantage. You’ll have access to trusted advisors who work hand-in-hand with you to keep you aware of regulatory updates and guide your business in making the appropriate adjustments.

5. Workers’ compensation

Insurance premiums and claims management – both of these components make workers’ comp costly and time-consuming. As a co-employer, a PEO can provide workers’ compensation coverage to your employees through its own workers’ compensation insurance program, as well as handle the compliance, audits, paperwork and certifications associated with running these programs.

A good PEO should offer your business access to a dedicated team of workers’ compensation specialists who are familiar with your business and work collaboratively with your core HR services team. They can help you mitigate risk while providing impacted employees the answers they need in a timely manner.

6. Lawsuits

Think you can minimize legal expenses and PR fallout from lawsuits? A single lawsuit can devastate your business, so keeping your employer liabilities in check is critical. A PEO shares liability associated with certain employment-related claims, including wrongful termination.

For example, a top-tier PEO likely has equal employment opportunity specialists who are well-versed in the intricacies of discrimination laws. With a PEO as a resource, you can tap into the experience of multiple experts to mitigate a potentially costly settlement.

Their HR knowledge can help make sure release agreements are in compliance with state laws. It’s important to note, however, that such advice is not a substitute for legal counsel. Instead, it serves as an added layer of defense – that second set of eyes to warn about potential trouble.

7. Recruiting

These days, recruiting moves at light speed. Positions open up quickly and you almost always need an equally fast turnaround to find a qualified and capable candidate. The problem is, you probably don’t have the time and bandwidth to focus on the essentials of solid recruiting.

When you consider the time and money spent placing job ads, interviewing candidates, conducting background checks and more, hiring the wrong person can turn into a costly error. A thorough PEO should offer additional services, such as recruitment assistance, and be able to provide you with access to experienced recruiters who can size up your company’s employment needs.

A good recruiter is usually adept at reading people for particular jobs. They know how to analyze tone of voice during phone interviews, can assess a candidate’s attitude and evaluate emotional intelligence to determine a candidate’s capacity to perform well in a real-world job setting.

Savings plus peace of mind and perspective

Certain PEOs have applied with the IRS to be designated as certified professional employer organizations (CPEOs). The CPEO designation is reserved exclusively for PEOs that meet the IRS’s strict requirements for such designation, including the requirement to provide the IRS with audited financial statements.*

CPEOs are solely responsible for payment of federal employment taxes on wages they pay to worksite employees. This relieves the potential burden from your business, as a client of the CPEO.

Additionally, the laws governing the CPEO relationship allow client companies to maintain specified tax credits for which they would otherwise be eligible. It also puts an end to wage-base restarts for new clients – even during the year.

Working with a PEO or CPEO can help relieve your company of many of the employment-related responsibilities and risks that come with running a business and hiring employees. Additionally, by joining a PEO, your employees will have access to a comprehensive benefits package and online benefit information and enrollment tools, helping you to attract and retain top talent.

What’s more, when HR services and benefits are accessed through a single source, you’ll gain a better understanding of your overall investment in human capital. And your employees will have a single point of contact for information and questions.

Want to learn more about how a PEO can benefit your business? Download our free e-book, HR Outsourcing: A step-by-step guide to professional employer organizations (PEOs).

*The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations go to