What’s a PEO and How Can You Benefit From Using One?

Have you heard of the term PEO before? Chances are you know a business owner, employee or use services from a business who has a relationship with one. A statistic provided by NAPEO states that, “PEOs provide services to 175,000 small and mid-sized businesses, employing 3.7 million people.” That accounts for 15 percent of employers who fall into the PEO sweet spot of about 5 to 99 employees.

The PEO Model. Employees, Client, PEO

So, what is a PEO? The acronym PEO stands for Professional Employer Organization, which is an outsourced solution for payroll, human resources, benefits and compliance. One of the big benefits here is allowing the business owners and managers to focus more on growing their businesses knowing that the back office administrative tasks are being taken care of. How does the PEO model work? The model is possible through the co-employment relationship.

The co-employment relationship is formed between the PEO, the business owner and their employees.

  • Client – The employer maintains the day to day control of decisions and operations. Your business is still your business; nothing ever changes with that.
  • Employee – Employees gain access to high quality benefits often at a lower cost. This is and added benefit that is not always available to employees at small and mid-sized businesses.
  • PEO – The PEO becomes the employer of record for tax and benefit purposes. The role of the PEO is to keep the business compliant with laws and regulations.

After hearing about the co-employment relationship, the idea of using a PEO may seem strange. As a business owner, you like to know that you have control of your business and the decisions that are made around the business – hence why you started the business in the first place. Joining a PEO does not mean you lose control of your business; your business is still your business and your employees are still your employees. Think of a PEO as an extension of the back office for a business. A small business can increase productivity and profitability when outsourcing some of the workload to the PEO.

What a PEO Can Do for a Business

By engaging in business with a PEO, the business owner can benefit from a variety of services and cost savings. These create a richer suite of benefits that can be offered to possible new employees.

  • Fortune 500 level benefits – By aggregating the buying power of hundreds or thousands of worksite employees, PEOs can provide premium benefits to employers that they would otherwise not have access to. These benefits can help the business to stand out and attract long-term employees. Benefits may include:
    • Health/Dental/Medical Group Insurance
    • Corporate Wellness Programs
    • 401(k) Plans
    • Flexible Spending Accounts
    • Health Savings Accounts
  • Human resources administration taken off your plate – PEOs have the knowledge and expertise to take on the tasks of the human resources administration portion of the business. This includes assistance with employee handbooks, onboarding and offboarding employees, workers compensation claims, payroll and tax processing and much more.
  • Stay up to date on regulations – By partnering with a PEO, business owners are less likely to run into risk of being out of compliance with laws and regulations – which are constantly changing. Professional Employer Organizations stay up to date on changes and help ensure that business practices are following along as changes are made. 
  • Get your time back – Business owners and managers have more time to focus on the core of their business. With the administrative tasks taken off their plate, there is more time given back to the key people in the business, providing the opportunity for the business to grow more quickly.

What a PEO Does Not Do

  • Take over daily operations – The PEO can provide human resource assistance for the business owner but will not take over the day to day operations for running the business.
  • Fit every business – PEOs work best with small to mid-size businesses –businesses who have 5 – 99 employees. A business that is larger than this (100+ employees) may find it more economical to bring payroll, human resources and benefit administration in house.
    • Ask yourself… Does it make sense for me to hire an internal payroll manager to handle payroll processing for my business? Or, would it make more sense for me to outsource payroll processing for my business?
  • Provide technology – It is likely that the PEO will provide the business with a payroll platform, a place to submit timesheets, payroll, changes, etc. However, it is less common for a PEO to provide additional office technology – including Microsoft Office, any physical equipment or additional software and programs needed for the daily operations of the business. This task would remain in the business owners’ hands.
  • Hire or fire employees – The task of hiring and firing employees remains in the hands of the business owners and managers of the business. The PEO can assist with consultations around these situations, but ultimately will not be tasked with hiring or firing any employee for the business. They do however assist with the onboarding and offboarding process as business owners hire and fire people. 

Finding The Right Fit

Not all businesses are an ideal fit for the PEO model. Small business owners who are not ready to make the move to the PEO may lean toward the ASO option. The acronym ASO stands for Administrative Services Organization.

Like the PEO, the ASO model is an option for business owners to outsource some of the administrative tasks of their business. Tasks including payroll processing, benefits administration and other HR tasks. The difference is that unlike the PEO, the ASO model does not incorporate a co-employment relationship.

Choose Focus OneSource as Your Next Strategic Business Move

Focus OneSource is Iowa’s only locally based PEO. As Iowans, we know that Iowans like to do business with Iowans. Like other PEOs, Focus OneSource will give you access to a rich suite of benefits that are otherwise unavailable to small business owners. Our flexibility and personal interest set us above other PEO options for small business owners in Iowa.

There is never one right solution for any problem and we get that! Unlike other PEOs, we offer the traditional PEO package or can break out our services into a la carte options. Adding choice to our service offering allows our clients to pick and choose the services that will be the best solution for their business goals.

FocusOne Source's Services and Solutions

Alaina Riley – Marketing & Wellness at Focus OneSource