A Professional Employer Organization (PEO) enables a business to outsource the management of human resources, employee benefits, payroll and workers’ compensation. The concept behind PEO’s is co-employment, where two employers, your company and the “PEO” co-employ the individuals who work for your organization.

Why would I do this?

PEO’s represent many companies; because of this they can usually negotiate better deals on health insurance and other benefits. Most importantly, they free you from a lot of grunt work so you can concentrate on growing your business rather than dealing with paperwork.

Why isn’t everyone doing it?
With a PEO even you are not legally an employee of your company. You will need to terminate all your employees and have them rehired by the PEO. Your paychecks will carry the name of the PEO and your employees will probably need to name the PEO as their employer on income tax returns or when applying for loans. This can cause confusion and considerable concern among your employees.

While you decide how much your employees will be paid, you will lose some flexibility regarding health insurance and other benefits. Thoroughly research the PEO’s offerings to make sure they are competitive with what you have currently. Otherwise you may have a bunch of de-motivated employees.

There are also definite drawbacks to not having an HR manager in-house. An in-house HR person handles perks that you can’t necessarily count on an outsourcing service to carry out–like looking into group offerings, building employee incentive programs, even taking care of recognition for employees’ birthdays. And employees may want someone in-house–an impartial co-worker they can trust and see daily–to turn to if they have a work-related problem or dispute with another co-worker.

If you’re uncertain about outsourcing everything but know you don’t have the staff or experience to keep it in-house, try outsourcing only certain parts, such as payroll and benefits. You can also purchase HR software right off the shelf to support any in-house efforts.

Whatever you decide, make sure to keep your employees in the loop. They will appreciate knowing that you are seeking the most affordable solution for the business while doing your best to meet their needs.

Source: “To-PEO-or-Not-to-PEO” by Susan Gauff

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