PEO: What Is It and How Does It Help My Business?

what is peo professional employment organizations

According to research, professional employment organizations (PEOs) help organizations save 27.2% of their costs.

In today's business environment, saving over 25% on costs is a significant competitive advantage that can propel you to the top. Besides cost savings, working with PEOs can enable you to enter new markets faster, and retain workers by offering better compensation.

Here is a guide to help you understand what a PEO is and how such a provider can help your business bloom.

Understanding PEOs

A professional employment organization (also known as a co-employer in some markets) is a company that operates as an employer for a workforce on behalf of a client. In collaboration with a co-employer, an organization can outsource human resource (HR) related duties such as payroll, guidance, coaching, and training to a third-party.

How Do PEOs Work?

To figure out, "What is a PEO?" You need to look at how this arrangement operates.

When you want to work with PEOs, you'll sign an agreement known as a client service agreement (CSA). Under this agreement, the co-employer agrees to function as the administrative employer for particular administrative services while you become the worksite employer.

Essentially, the co-employer will be in-charge of payroll, essential taxes, and benefits while you manage the day-to-day control over the employees. As long as the CSA will be in force, you will be in charge of recruiting. Some duties, such as developing the employee handbook, can be split between you and the co-employer you work with.

Do PEOs Lease Employees?

Since you will be navigating employee matters with a co-employer, it's easy to confuse them with an employee leasing provider.

PEOs will offer compliance and administrative services to you and your workforce under a CSA. In stark contrast, an employee leasing provider will take full charge of the hiring and managing the workers.

Similarly, PEOs can be classified in the same breath as human resource outsourcing (HRO) firms. An HRO will only come on board to shape your HR strategy and/or supplement your existing HR function. In such an arrangement, you will ultimately still be the employer of record for your workers.

Even an administrative services outsourcing (ASO) from can't be compared to PEOs. That's because the former will take on all the functions of a co-employer except they won't be the employer of record.

How Can Working With PEOs Add Value to Your Business?

Working with a credible co-employer has the critical benefit of enhancing your operations. But what specific benefits can your firm get by bringing on a co-employer?

1. More Free Time for Your Business

When you bring a co-employer to the party, they take on duties that would otherwise consume more of your time. Consequently, you will have more free time to devote to your business' core area that only you can handle.

The more time you can channel to your organization's mission-critical areas, the more focused you get, increasing your productivity.

2. Cost Savings

PEOs purely exist for a singular purpose, which is to deliver excellent employee management for its clients. As such, these first have built up excellent competency in employee health insurance and compensation.

When you hire a co-employer, you tap into their enormous buying power. It ultimately becomes cheaper for you to offer greater benefits and pay without incurring higher costs.

Aside from that, PEOs also have streamlined onboarding, compliance, and payroll systems that make recruiting more cost-effective.

3. Entering New Markets Faster

Having a co-employer beside you when entering a new market helps reduce the red tape you'll navigate as you set up. You can deploy new workers in days to take speedy advantage of opportunities.

With the deep-bench of recruitment, payroll, and compliance skills PEOs offer, you'll be in a great position to meet local regulations. Things like tax laws and employment regulation won't mean months in setting up in the new market.

4. Effectively Test Market Limits

A co-employer can help you figure out if the market you're in is viable before you invest in it more. Instead of developing a subsidiary or new branch from scratch, you can hire a co-employer.

Reputable PEOs have in-house experts that run feasibility tests before singing a CSA, which can help you figure out the market's potential.

How Much Can a PEO Cost You?

The primary benefit that PEOs offer their clients is cost-effectiveness. In that sense, you need to work out just how much more efficient your firm can get when working with a co-employer.

How much PEOs charge will depend on several factors. These include how big the client's organization is, the number of employees who will be on the payroll, and the type of job descriptions these employees will hold.

A co-employer can choose to charge you per employee or as a percentage of your total payroll.

If your CSA works with a flat fee per worker, you can expect to pay between $40 and $160 per employee every month. While a flat fee pricing model is easy to manage, it can potentially cost you more later, depending on the number of employees and their jobs.

For CSAs that work with a percentage of the total payroll, the cost comes to between 3% and 12% of how much you spend on your payroll overall. That translates to a fluctuating figure that varies with your payroll expenditure each month.

However, for organizations that rely on many part-time hourly workers, it will ultimately lead to cost savings.

Before signing on with a co-employer, it's wise to figure out how much you will pay using both pricing models. In addition, plotting your workforce needs accurately over a period will help identify operational variations that impact costs for you to know what pricing model can be optimal.

Unlock Significant Advantages by Partnering With a PEO

Working with a PEO can help whip your HR, payroll, capital expenditure into top shape. Take the time to learn who the top co-employers are and how they operate to find the best fit.

The ability to outsource employee-related issues is an excellent advantage for businesses looking to grow. Our website offers tips, ideas, and valuable insights to entrepreneurs to run their firms better. Check out more of our content to learn how to shape your management skills for success. Visit the HR section of the Bootstrap Business Blog to learn more about PEO. If you are looking to partner a PEO for Germany, Globalpeo is the right fit for your needs.

Official Bootstrap Business Blog Newest Posts From Mike Schiemer Partners And News Outlets