Each year in the US, there are over 600,000 new businesses founded. Interestingly, though, a large portion of these companies do not go on to become successful.
Issues that cause companies to go out of business often stem from improper employee management. For this reason, many entrepreneurs choose to leverage a professional employer organization (PEO).
PEO companies have access to professional PEO software that can streamline many of your obligations, but not everyone understands how this process works.
So, what is PEO? Let’s take a closer look at what you should keep in mind.
What Is PEO?
As previously mentioned, PEO stands for “professional employer organization.” These are businesses that contract with other companies in order to provide them with HR and payroll services.
PEOs typically work with small to medium-sized businesses that do not have the in-house resources to handle these tasks efficiently.
What Responsibilities Can They Help With?
There are a few different ways that PEOs can help business owners. The most common way is by taking on the liability of being an employer. This includes dealing with taxes, workers’ compensation, and other employment-related issues.
PEOs can also help with employee benefits. They often have relationships with insurance providers and can offer their clients group health insurance at a discounted rate.
In addition, PEOs can help with retirement plans and other benefits that employees may be interested in. Another way that PEOs can help is by handling payroll. This includes issuing paychecks, paying taxes, and keeping track of employee hours.
Payroll can be a time-consuming and complicated process, so this is a valuable service that PEOs can provide. Finally, PEOs can also help with recruitment and hiring. They often have access to job boards and other resources that businesses may not have.
How Does It Work?
The way that PEOs work can vary depending on the specific organization. However, there are a few key things that you should keep in mind. First, when you partner with a PEO, you will typically sign a co-employment agreement.
This document outlines the responsibilities of both the business and the PEO. It is important to read this document carefully to make sure that you understand the terms of the agreement. Once the co-employment agreement is in place, the PEO will become the “employer of record” for your employees.
This means that they will be responsible for payroll, taxes, and other employment-related issues. As the employer of record, the PEO will be able to access certain discounts and benefits that may not be available to your business.
For example, they may be able to get group health insurance at a lower rate. The PEO will typically charge a fee for their services. This fee is usually a percentage of your payroll costs.
What Should I Look for in a PEO Before I Hire One?
You should always make sure that the PEO is licensed and insured. This will protect your business in the event that something goes wrong. You should also check to see if the PEO has any complaints against them. Searching for their name on the Better Business Bureau website allows you to do so.
Finally, you should ask for references from the PEO. You should contact these references and ask them about their experience working with the PEO.
During this part of the process, it’s also worth looking into their online reviews to see what past clients have had to say. This is the only way you can gain an accurate insight into what you can expect from working with them.
You can check out this resource to learn more about global PEO services and how they can help international businesses.
What Red Flags Should I Be Aware Of?
One of the most common is if the PEO asks you to sign a contract without first doing a needs assessment. A needs assessment is an analysis of your business to determine what services you need. Another red flag is if the PEO tries to pressure you into signing a contract.
You should always take your time to read and understand the contract before you sign it.
You should also be wary of PEOs that guarantee results. For example, a PEO may say that they can save you X amount of money on your taxes. However, there is no way for them to guarantee this.
Finally, you should be careful of PEOs that require a long-term contract. You should only sign a contract if you are comfortable with the terms. Make sure that you can cancel the contract if you are not happy with the services.
What Type of Software Does a PEO Use?
There is a wide range of software that PEOs can use.
The specific software that a PEO uses will depend on the size of the organization and the services that they provide. Some of the most common software used by PEOs include payroll software, HR software, and time tracking software. Payroll software is used to process employee paychecks and handle tax withholdings.
HR software is used to manage employee records and benefits. Time tracking software is used to track employee hours and schedule shifts.
These are just a few examples of the type of software that PEOs use. Each PEO will have its own unique set of tools and software that they use to run its business.
You Shouldn’t Neglect the Utility of a PEO
Although the answer to “what is PEO” might seem complex at first, it’s much more straightforward than most people believe. Be sure that you keep the above info in mind, so you can make the decision that is best for your company.
Want to learn more about how you can run a better business? Check out the rest of our blog for articles like this one!
