Here’s What You Need to Know About the Pros and Cons of PEOs

1If you’re like many small business owners, administrative tasks aren’t your strong suit. Managing payroll, tax payments, regulatory compliance, recruitment, training, and company policies is a full-time job in itself, and one that can eat away at the time you have to spend building your business and honing your skills. Not to mention, it’s not easy for small employers to offer competitive benefits packages, or navigate the maze of health care reform by themselves.

For many small employers, a professional employer organization, or PEO, is the answer. For over 30 years, companies have turned to PEOs to manage every aspect of human resources, from recruitment through to termination. PEOs work as a sort of surrogate employer, allowing you access to group health insurance rates for your employees, as well as retirement plans, life insurance, and trained HR professionals. There are currently about 700 PEOs working in the United States, helping employers to manage between two and three million workers. There are many benefits to contracting with a PEO, and a couple drawbacks.

Pro: Gain Protection and Peace of Mind With Help From a PEO

With each passing year, employers face an increasing number of convoluted and complex new laws and regulations. Whether you’re a baker or a barber, chances are good you don’t have the legal and accounting expertise necessary to keep up with all the changes, particularly those associated with health care reform. Employee benefits, payroll, paying taxes to the IRS, and handling workers’ compensation are all some tasks that many small- and medium-size businesses don’t feel qualified to handle.

National PEO, a PEO company in Arizona, can take over management of payroll and human resources, giving you the peace of mind that comes with knowing you’re fulfilling your legal obligations to your employees and the government. With professionals covering the administrative side, you’ll be free to focus on running your business, developing new products, and pleasing your customers. In addition to peace of mind regarding compliance issues, you’ll also get legal protection and assistance in case a former employee sues your company for wrongful termination, discrimination, or some other allegation.

Pro: PEOs Help You Offer Your Employees Better Benefits

It can be hard for small companies to attract the best employees, because it’s often hard for them to offer the competitive benefits packages great employees are seeking. A PEO can help you beef up your benefits package by giving you access to group rates on health insurance and life insurance plans, as well as supplemental insurance like vision and dental. Your PEO can even help you set up a 401(k) and other employee retirement programs. A PEO can help you offer a benefits package that rivals that of the biggest Fortune 500 companies.

Pro: Take the Headache out of Interstate Employee Management

2Many small business owners avoid hiring employees in other states because of the hassle of filling out all the extra paperwork required to hire across state lines. That can be a real stumbling block to expanding your business, and can make it impossible to offer employee benefits like telecommuting that allow you to take on quality employees who live far away. Some states may require an out-of-state business to file dozens of forms, even to do a minimal amount of business in the state.

A PEO can help you escape that bureaucratic nightmare by taking on the hassle themselves. Whether you want to expand your business or allow employees to telecommute from other states, a PEO can make it possible.

Con: Giving up Control

While the benefits of using a PEO are many, it isn’t without a couple drawbacks. Perhaps the biggest issue most employers have is relinquishing control of the administrative side of the business — obviously, if you’re going to outsource your HR, you’re going to have to relinquish those duties. Most employers, however, feel a reluctance to give up control simply because they’re so accustomed to having it. Once an employer sees how much more time and energy he or she will have to devote to doing what they love, the fear of giving up control will disappear.

One other minor issue that can crop up is that sometimes employees may feel the HR attention they receive from a PEO is less personal than that they might receive directly from their boss. That’s why it’s important to look for a PEO that’s dedicated to giving the same level of personal care to your employees that you, yourself, would give. Pay attention to what the company’s other clients have to say.

If you’re a small business owner, consider contracting with a PEO to ease the administrative burden of payroll, taxes, employee benefits, and regulatory compliance. With help from a PEO, you can gain peace of mind — and focus on growing your business.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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