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.
How much does a PEO cost?
For a thorough breakdown of PEO pricing, visit our article HERE.
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.
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.
Interested in learning more about the PEO concept? – visit our PEO 101 Hub for additional insights.
On the other hand, if you have seen enough and want to get in touch with a member of the Simploy team, submit a contact request and a Simploy associate will reach out to you shortly.