“The evidence on employment growth suggests that PEOs are making it possible for their clients to grow more quickly than their peers – both other small businesses as well as all companies throughout the economy. This can be attributed to a variety of PEO-related factors discussed in this study. Employees in PEO arrangements have access to a broader array of HR-related benefits and services. Yet PEO clients spend less on HR administration than similarly-sized peers, freeing up money that can be reinvested in the business…”
“In the 2013 report, ?Professional Employer Organizations: Fueling Small Business Growth,? a comprehensive analysis of existing economic data showed that small businesses in PEO arrangements have higher growth rates than other small businesses, and small business executives who use PEOs are better able to focus their attention on the core business. In further exploring the impact of PEOs and their potential to help small businesses better meet the challenges of today’s demanding economic conditions, this follow-up study examines employee turnover and business survival rates for businesses using PEOs and compares them to national data available from the U.S. Bureau of Labor Statistics (BLS)…”
“Our previous research on a variety of measures has found that this arrangement yields significant benefits to PEO clients, as they grow more quickly than comparable other businesses, doing so with lower rates of employee turnover and higher rates of year-to-year business survival. Anecdotally, evidence points to a growing PEO industry driven by a rebounding small business sector, an increase in the use of outsourcing by small businesses, and the rise of complicated employment regulations such as the Affordable Care Act (ACA)…”
“This report on the state of the PEO industry in 2016 is the fourth in NAPEO’s series of white papers designed to help the general public and small business owners better understand the economic impact and value of the PEO industry. It explores three main topics: the market for PEO services, the value that PEOs create for their clients, and trends currently shaping the PEO industry. It uses a variety of sources, including external data (from governmental and ongovernmental sources), econometric analysis, and interviews with industry experts by the authors. It also draws on key articles, laws/regulations, surveys, and reports…”
Starting a company is not easy. It is a daunting process that requires an incredible investment of time, effort and capital. It is during this time that startup founders must leverage their relationships and sources of guidance to improve their chances of survival. A common surprise that startup founders fail to anticipate is just how much goes into HR. Whether it’s the increased levels of liability or the ever-growing number of employer regulations, accurately handling HR is a mammoth task that is almost always overlooked.
However, all is not lost. By visiting the Simploy learning center, you are on the right track. Within our learning center we have a plethora of articles aimed at guiding business owners so they feel comfortable making educated decisions.
Within this piece will we discuss several of the key benefits that a PEO will provide to a newly formed company. This will include the key benefits that PEOs provide to each and every client, as well as the unique benefits that a PEO can provide to a startup.
Time & Opportunity Cost
Establishing a relationship with a PEO immediately frees up valuable time on your calendar. By outsourcing incredibly time-intensive activities to the experts, you can focus on performing the other tasks required of a business owner. The value of this should not be overlooked. If you pay yourself $60,000 p.a., every hour you spend performing a HR-related task, costs you almost $29!
When partnered with a PEO, you can expect the following to be entirely managed by the PEO:
As a startup founder, you know that time management is key to productivity and efficiency. With a small team of employees, you do not have the manpower to reap the benefits of specialization and instead are forced to each operate within varied roles. As mentioned earlier, a PEO will rid you of countless hours of non-revenue generating tasks, allowing your team to focus while you outsource the headaches.
Cost Savings/Economies of Scale
By partnering with a PEO and utilizing co-employment, a business owner can benefit from economies of scale that would have previously been unattainable. These economies of scale see cost savings in the areas of Workers’ Compensation & Benefits (401(k), Group Medical, Life, Discount Purchasing, Dental, Vision, etc.
For a startup, the economies of scale offered through co-employment are incredibly beneficial. Almost all companies begin as small entities which lack the purchasing power of established businesses. The economies of scale that a PEO will bring to you would otherwise be completely unattainable.
Hiring & Retention
As a PEO client, your ability to attract and retain talent will drastically increase due to three key reasons:
The quality of HR assistance provided to your employees improves. Simploy’s staff are true experts within their field and make a point to get to know your employees on a deep level. This results in your employees feeling valued which reduces their likelihood of leaving.
The aforementioned economies of scale allow you to offer competitive benefits packages. In the modern economy, benefits are highly important to those on the job market and offering a benefit package that exceeds your rival’s will attract quality talent to your company.
PEOs, like Simploy, pride themselves on their ability to accurately deliver payroll to their clients. Attempting to conduct payroll internally will increase opportunities for mistakes which can see your staff incredibly unhappy.
For startups, partnering with a PEO early in your business’s lifecycle will have long term benefits. By sourcing quality talent and harnessing their abilities during the early growth stages of your company, you can see rapid growth that would have otherwise been impossible.
To summarize: the aforementioned benefits provide startups with an immediate competitive advantage versus their peers. A PEO, like Simploy, will ensure you are more productive than the competition, have better staff than the competition, and lower costs than the competition.
Those crucial competitive advantages have combined to create the following statistical fact: Companies that partner with a PEO are 50% less likely to go out of business. It’s as simple as that.
In the modern world, there are more abbreviations than we know what do with! BBB, ACA, ERISA, FICA, FUTA, and all the rest, get incredibly confusing at times. Unfortunately, all those abbreviations can make it tough to discern the differences between two incredibly beneficial human resources outsourcing (HRO) strategies: PEO & ASO.
Within this article, we will provide a thorough definition of both PEO and ASO, describe the major differences, and finally discuss how you can determine which is right for your company.
What is a PEO?
A PEO is a professional employer organization. PEOs provide outsourcing solutions to their clients. These outsourcing solutions typically concern Human Resources Management, Payroll, Compliance, Workers’ Compensation, Safety & Benefits. PEOs provide reductions in liability as well as reductions in net labor costs and the time spent dealing with non-revenue generating HR. This culminates in the client achieving maximum productivity and increased profitability. The secret ingredient that allows for PEO arrangements to yield such fantastic results is Co-employment.
Co-employment is a legal construct that involves the sharing of employer responsibilities between a PEO and client. Through co-employment, workers are technically employed by two separate entities, you the business owner, and a PEO. Under a PEO arrangement, the client company remains the common law employer, but the PEO becomes the employer of tax record. Thus, with some exceptions, wages are reported under the PEO’s Federal Employer Identification Number (FEIN). The co-employees may be eligible for certain benefits offered by the PEO.
Administrative service organizations (ASOs) provide a similar service to that of a PEO, with a key difference. That being, under an ASO arrangement co-employment does not exist. The employees of the client company remain legally employed by the client company, not only as the employer of record, but also for tax purposes.
Outside of this, PEOs and ASOs typically offer many of the same services. An ASO may manage payroll, provide compliance guidance, govern workers’ compensation claims, etc. Ultimately, this will yield many of the same benefits (time savings, accurate payroll management, etc.)
ASO arrangements can be incredibly beneficial to business owners and the model is very attractive, especially to those businesses which already feature a dedicated HR professional(s). In these situations the ASO can operate in addition to incumbent HR staff and provide targeted assistance towards a specific need.
The absence of coemployment under the ASO model prevents the PEO from becoming the employer of record for your workforce. Co-employment allows for the amalgamation of businesses into large buying groups which, in turn, deliver economies-of-scale derived cost savings in the realms of Workers’ Compensation & Benefits. Without co-employment, the potential ROI from an ASO will almost always be less than that of a PEO.
Under an ASO framework, employer liability falls solely on the business owner/common-law employer.Alternatively, under the PEO model, some forms of liability are shared between both parties. This is a very attractive feature of the PEO model that results in a fiduciary relationship between the PEO and employer.
A la carte
The ASO model allows for the construction of customized service offerings on a case-by-case basis. Whilst this often results in a more convoluted billing process and reductions in clarity, the freedom to pick and choose which services your business harnesses exists. Alternatively, under a PEO model, for the sake of simplicity a single, all-inclusive, service package is offered. This can create a situation in which you pay for services that you do not utilize. However, an innovative business owner will recognize the value in these services.
PEO vs ASO: Which is right for you?
Ultimately, this choice is a simple one. As a business owner, you must consider how much of the PEO model you intend to utilize and evaluate their value. Should you intend to harness the PEO’s expertise across most of the following: HR, Payroll, WC & Benefits, a PEO is probably the right choice for you. Alternatively, should you only see yourself wanting to capitalize on their expertise for select services, then, an ASO might be worth exploring.
With that said, you are in luck: Simploy possesses both a PEO and ASO offering. Reach out to us HERE and a member of our executive team will consult with you to determine your best fit.
Co-Employment is simply the sharing of employer responsibilities between a PEO and its client.
Through co-employment, workers are technically employed by two separate entities, you the business owner, and a PEO.
Under a co-employment arrangement the PEO carries primary responsibility for traditional Human Resources functions. The exact mix of tasks handled by the PEO can vary, but a PEO typically manages payroll, compliance, benefit administration, workers’ compensation, unemployment claims & the pre-employment process (hiring, onboarding, etc.).
Co-employment also allows PEOs to significantly reduce a business owner’s liability by staying ahead of regulatory changes and by handling compliance issues, including workers’ compensation claims, unemployment claims, mediation, reporting and many other concerns. While PEOs utilize their unique skillset to manage those tasks, the business owner is still responsible for coordinating daily work, making hiring/firing decisions, setting pay rates, and completing the other tasks necessary to run a business.
Co-Employment & Common Misconceptions
Now that we have clearly outlined what co-employment is and what it means for your business, read on to hear exactly what co-employment is not. In the following, we will clear up a few common misconceptions concerning co-employment and answer some frequently asked questions. Similar to many other topics, information on the internet is not always reasoned and informative. So business owners may become misinformed through no fault of their own.
If I partner with a PEO, will I lose control over my company? Far from it. By outsourcing tasks that owners spend on non-revenue generating tasks, control of their business increases. With fewer distractions, owners can focus on what’s important to their business’ success and take greater control over those factors.
Can I fire a co-employee? Of course. An owner is absolutely able to dismiss an employee. However, dismissing an employee is a delicate situation that carries with it a series of risks. In order to protect owners and their businesses, we encourage them to reach out to their PEO representatives before dismissing a member of staff. That way their dedicated HR support team can provide guidance and coaching on how to minimize any negative fallout.
What are the risks of co-employment? Under some laws, both parties in a co-employment relationship can be held responsible for some regulations. The Fair Labor Standards Act is the most prominent of these. If a worker is not paid properly, the Department of Labor can hold both co-employers responsible.
Co-Employment is at the heart of the PEO model – the legal construct that allows Simploy to provide amazing results. We recognize that deciding to partner with a PEO is not a small decision. We developed this article because it is important that you understand co-employment.
Co-employment is a partnership, not unlike a pilot and co-pilot. Both work with each other to complete their mission. Furthermore, both have different responsibilities; while the pilot steers the co-pilot navigates. To take this example further, the business owner is the pilot, driving crucial day-to-day activities. And the PEO serves as the co-pilot, completing specialized tasks and supporting the overall mission. Both are invested in achieving a common goal and working toward that end. But ultimately, the pilot is in the driver’s seat, while the co-pilot provides assistance no matter where the pilot decides to go!
Unfortunately, at Simploy, we hear this question far too often despite the PEO industry combining for annual revenues over $140 billion.
Professional Employer Organizations (PEOs) are incredibly beneficial for small- to mid-sized businesses, however, the concept is relatively young and a lack of awareness exists. It is the long-term goal of the Simploy Learning Center, to educate business owners regarding the PEO concept, in order to assist with the growth of their businesses.
Professional Employer Organizations – Defined
The National Association of Professional Employer Organizations (NAPEO) defines a PEO as a provider of comprehensive HR solutions for small and mid-size businesses. At Simploy we expand this definition and take it one step further.
Internally, we define a PEO as an intimate and trusted partner, with extensive knowledge of our client’s business, allowing for the provision of comprehensive HR solutions and expert consultative support across HR, payroll, workers’ compensation & benefits.
Brief History of PEO
The roots of the PEO industry can be traced back to the formation of ’employee leasing’. Employee leasing allowed companies to lease back their own employees from an employee leasing company (ELC). Many of the HR functions crucial to a business’ success were then provided by the ELC. Initially employee leasing succeeded and allowed for increased efficiency. However, in time, the concept was exploited as a means to allow business owners to maximize their retirement contributions without offering the same to their employees. In response to this, new regulations were created to prevent misuse of the concept.
Whilst these regulations served a valid purpose, unfortunately, many of the regulations implemented proved to do more harm than good. As each newly formed regulation was imposed, the resources required to stay educated and compliant increased. This created an environment in which business owners were forced to devote vast amounts of time to the various non-growth generating functions of their business, just to stay ahead of the curve.
In response to this, the PEO was born, and, the desire to recapture time required to deal with HR-related tasks is still one of the main reasons business owners use PEO services.
How does a PEO work? It’s called “co-employment.”
PEOs consistently provide incredible benefits to their partner companies by applying the foundation of the PEO model: co-employment.
Co-employment is the sharing of employer responsibilities between the client and the PEO. Within a co-employment relationship, employers and employees become part of a large buying group yielding economies-of-scale and related cost saving for the client company. These savings, combined with the PEO expertise, make the PEO offering very valuable to business owners.
PEO service fees include a few components, some of which employers are already paying:
Federal Insurance Contribution Act: Retirement
Federal Insurance Contribution Act: Medicare
Federal Unemployment Tax
State Unemployment Tax
PEO Administrative Fee
Under the simplest PEO pricing, the bundled model, these components are combined to create a percentage-based service fee.
Will a PEO benefit my company?
All employers should ask this question. Simploy can provide analysis and other information to help employers assess the benefits of a PEO relationship. Employers can also look at other indicators – information about how PEOs have improved other client companies.
However, we are here to help you make that decision and offer two methods assist you:
1) Refer to the statistics
For the business owner with an empirical mind, we invite you to look at the statistics. Historically, research studies have shown that Simploy provides results for companies as follows:
Simploy clients are 50% less likely to go out of business
Simploy clients experience 32% less turnover than their competitors
Simploy clients grow 9% faster than their competition
A conservative estimate (based on information from Bersin & Associates) is that PEO clients enjoy a 21% saving on HR administration.
2) Reach out to a member of the Simploy team.
By following this LINK and completing the form, an internal member of our team will reach out, gather some information and objectively analyse your situation. We can provide you with a side-by-side, dollar-for-dollar comparison of what a PEO partnership would look like.
How big does a company need to be to use a PEO? The answer to this question varies. A PEO’s appetite for smaller clients varies among providers, and many of the larger PEOs will not align themselves with companies with less than 5 (or sometimes 10) employees.
What is the difference between temporary staffing services and a PEO?
A temporary staffing service recruits and hires its own employees (not co-employees). The service then assigns those employees to clients in order to supplement the workforce for special work situations, e.g. employee absences, temporary skill shortages or seasonal workloads. These workers traditionally account for a small percentage of the workforce.
PEOs do not supply labor to worksites. PEOs co-employ existing workers and provide services and benefits to both the employer and the employees.
When is the best time of the year to partner with a PEO?
‘The best time to plant a tree was 20 years ago. The second best time is now.’ – Chinese Proverb
While the Chinese proverb listed above does a great job of beginning to answer this question, it must be added that many PEO clients find it best to partner with a PEO:
At the beginning of a fiscal quarter
When the current WC policy is up for renewal
When changes to the workforce are anticipated (e.g. growth, additional locations, etc.)
Will my employees feel like they work for someone else? Not at all. Historically many of our co-employees are thrilled at the prospect of improved HR management. And nothing changes with regard to reporting structures, assignments, hiring/firing, wages, etc.
Where can I find a list of reputable PEOs? The National Association of Professional Employer Organizations (NAPEO) has created a list of reputable PEOs which can be found HERE.
How many businesses use a PEO? PEOs provide services to approximately 180,000 businesses, co-employing around 3 million workers.
Does a PEO arrangement impact a collective bargaining deal? No. PEOs work equally well with union and non-union affiliated companies.
Will I lose control of my business when using a PEO? Without question, the biggest misconception based upon the co-employment model is that there will be a loss of control. This is an unfortunate misunderstanding. In a PEO relationship, business owners always retain control of their companies.
At Simploy, as your trusted partner, we only ever look to support your business’ goals. While we might provide advice and guidance concerning HR issues, the ultimate decisions are yours.