This information is a supplement to our webinar on Alternative Benefits. If you would like to know more about this webinar, please contact us here.
Sometimes companies have trouble meeting their human resources needs, especially while also trying to increase profits. To assist in this area, many companies hire professional employer organizations (PEOs). These organizations allow a business to focus on what they do best and leave “non-revenue producing activities” to a third party.
When hiring a PEO, the company and its employees become employees of the PEO, and the company delegates many of its HR responsibilities to the PEO.
What services does a PEO provide?
- Human Resources Associate
- Employee Benefits Administration
- Employee Risk Management
What are the advantages of a PEO?
- Employers do not need to spend time and resources on HR tasks. Instead, they can focus on their core business and growing their bottom line.
- PEOs can provide consistent administration for larger companies, and often improved technology resources.
- Employers do not have to handle as many legal intricacies regarding HR tasks.
- PEOs can negotiate better insurance coverage because of the volume of business that they cover.
- Employers do not have to hire as many HR professionals in-house.
- When the PEO assumes its client’s payroll into its own accounts, it also assumes the liability for clients’ employees because it is technically now the legal employer.
- PEO assumes the liability of adhering to the legal tax and workplace standards. The PEO will ensure that its clients are knowledgeable concerning relevant standards in accordance with local, state and federal laws.
What are the disadvantages of hiring a PEO?
- A company no longer has employees after hiring a PEO. The company essentially fires all of its employees, who are then rehired by the PEO.
- By hiring a PEO, the company loses control and flexibility concerning compensation packages allotted to its employees. Though a company can decide how much to pay each of its employees, it has limited say on the benefits plans offered.
- Companies lose a bit of control over their workers since they are officially employed by the PEO.
A PEO usually charges a flat percent of payroll as the overall administrative costs for the PEO. In addition, insurance premiums may be a separate expense. Some PEO’s and insurance carriers allow groups to carve out portions of their benefits such as 401k and health insurance.
Making the decision to move to a PEO should be done carefully. Decision-makers should work with a broker, like AUI, who can conduct a true cost-benefit analysis of overall product pricing. One should never anticipate a PEO is going to save money on health insurance; instead, they should look at overall savings from an HR perspective. In addition, there is a great deal of information gathering that must take place in order to correctly project cost. A group should not consider a PEO if they are not willing to pull together the key information to conduct a cost-benefit audit. In addition, there are few brokers who offer PEO options to employers.
AUI is one of few brokers to offer PEO options to employers. If you are interested in learning more about these options and to see if it may be a fit for your organization, contact us today.