You are a 21st-century business owner. You excel in your field. You understand your employees are a key to the success and growth of your business. You also realize you are not an expert in employee relations, employment law, payroll calculations or health insurance negotiations. You resent the fact that dealing with those issues takes away from the precious time you have to focus on your core business and making money. You understand that because your numbers are small, your rates on benefits, workers’ comp insurance and other employee-related costs are higher than that of a big business. What’s an entrepreneur to do?
Enter the professional employer organization, or PEO. Across the country, thousands of companies have turned to PEOs to handle all things employee-related: payroll, workers compensation, health benefits, legal compliance and record keeping. Why? Because PEOs give business owners experts to negotiate health benefits and administer them as well, to deal with the state on unemployment claims and to wade through the myriad laws that are passed every year at federal and state levels. According to the Department of Labor, it would cost the average business one-third to two -thirds more to provide the administrative services a PEO can supply. Some of the savings come through reductions in the client company’s staff. In short, time saved in dealing with non-revenue-producing activities directly affects the bottom line.
In addition to the savings mentioned above, economies of scale come into play in the negotiation of workers’ compensation coverage, medical insurance, retirement plans and other benefits. Typically, it is next to impossible for a smaller company to offer reasonably priced benefits to employees. Because the PEO is viewed as the employer of record for many smaller client companies, it can generally offer the level of benefits of a large corporation, along with the reduced price that is given to the “big boys.” This, in turn, results in the ability to attract and retain a higher caliber of employee and achieve greater employee satisfaction.
How does a PEO work? PEOs become co-employers with their client companies, with each entity taking on specific responsibilities relating to the employees. The PEO becomes the “employer of record” by leasing back the client’s employees. For an administration fee, usually calculated based on gross wages, the PEO is responsible for payroll administration, including paying employment-related taxes, benefits negotiation and administration, workers’ compensation insurance and claims management, record keeping and regulatory compliance. The client company retains responsibility for work assignment and direction, pay rates, skills training and development, interviewing and selection, workplace safety and discipline/termination.
Many PEOs offer additional services as part of the administration fee or for a small additional cost. These additions may include applicant screening and interviewing, background checks, drug testing, management and compliance training, safety and risk management services, employee handbooks, skills testing and training, advice on employee issues and exit interviews. In short, a good PEO will function as an off-site human resources department.
What do you want in a PEO? Is a local Nevada-run company important to you, or would a national organization be best? Is cost or service level most important? Other things to look for include affiliation with national organizations such as Society for Human Resource Management, or the National Association of PEOs (NAPEO), proper licensing through the state of Nevada and financial stability. Also look for expertise in areas important to aiding the growth of your business.