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When you’re selecting business solutions for HR and payroll processes, you have several things to consider as a business owner. You should have a clear understanding of the benefits that come with various solutions so you can make the best choices for your company, depending on your long-term goals and the size of your business. It may be best to consider a Professional Employer Organization (PEO), or the professional employer organization option.

Here are some of the pros and cons of a PEO so you can get a better understanding of what to express with this arrangement.

What Is a PEO?

Professional Employer Organizations (PEOs) are third-party HR and payroll outsourcing companies that act as your business’s co-employer. You’ll still be in charge of your company’s daily operations, but your team members have you and the PEO as employers. Since you and the PEO share contractual obligations in terms of employer responsibilities, the PEO will serve as the administrator and you will be the employer who is responsible for the worksite. 

The PEO is responsible for HR services such as insurance, worker’s compensation, and payroll. PEO health insurance is also an option under this arrangement.

Why Choose a PEO?

There are several benefits to having a PEO, but this depends on the size of your company. Many small businesses utilize the PEO option to avoid the stress of having a small staff manage all Human Resource tasks.

As your business grows, you may want to make some changes to your company so that all your management is conducted in-house with HCM or human capital management technology. If you think you want to partner with a PEO, it’s best to consider the pros and cons to determine what your needs are.

Professional Handshake

Co-Employment Pros and Cons

One of the pros of co-employment is shared liability. When you have a PEO, you’re essentially leasing your team members and co-employing your workers. This means your workers are incorporated into the tax ID of the PEO.

Another benefit is that you and the PEO share liability and risk, and you work together to manage unemployment and worker’s compensation issues.

The drawback of co-employment is that you have to give up control of your liabilities. This may sound like a good thing since your PEO will share in risk responsibility and assist you with HR tasks like payroll. However, your team members are only co-employed by the PEO. This means you’ll have to relinquish some control when it comes to your business, and you’ll have to stay in touch with the PEO if any issues come up. This can be inefficient in some cases.

Employee Benefits Pros and Cons

One of the reasons small businesses decide to go with a PEO is lower benefit rates. Since PEOs manage several small businesses, they have a bigger employee pool and benefit options. This means you’ll have more choices than if you were searching for health insurance on your own. Your PEO can negotiate a lower cost for health insurance and lower insurance rates for unemployment.

One of the cons of a PEO when it comes to employee benefits is that you could end up with lower quality. You will receive lower benefits rates for your business, but you’ll likely be giving up your ability to tailor healthcare plans that meet the needs of your employees. Additionally, your PEO could switch health insurance providers at any time, which can frustrate your employees. Switching providers means the prices are likely to fluctuate.

Payroll and Taxes Pros and Cons

You can take advantage of outsourced payroll processing when you’re working with a PEO. This means you won’t have to worry about the manual administrative tasks that can inhibit the productivity of your HR department. Remember that some PEOs process payroll only. This means it will still be your responsibility to prepare employee hours and send them to your PEO to be processed.

It’s also important to note that compliance isn’t a guarantee. If your PEO doesn’t properly file or remit taxes for your business, this means your company could face penalties and fines.

Workforce management providers often provide payroll processing and tax compliance as a “package.” This means your provider should file, calculate, and pay taxes for your business on your behalf. Make sure your PEO offers a guarantee for tax compliance so they will be responsible for all fines and fees if there are any filing errors.

When you’re deciding which PEO is best for your small business, reviewing these pros and cons could make your choice easier.

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