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Tag: co-employment

What is a Professional Employer Organization (PEO)? — Understanding the Benefits of Co-Employment

Imagine an employee who receives their very first paycheck from their employer. Everything is to be expected, except one small discrepancy. To their confusion, the business listed on the check is not the name of their employer. What is the explanation? For the 15% of small businesses with 10 to 99 employees, the answer may be co-employment, according to the National Association of Professional Employer Organizations.

In co-employment, a Professional Employer Organization (PEO) becomes the professional employer of a business’s existing workforce, usually for small to medium-sized businesses of 10 to 5,000 employees. The business continues to fully control their organization and can outsource some or all of their HR burdens and liabilities, depending on their contract or client service agreement (CSA). These HR burdens can include payroll and tax filing, benefits administration, compliance, risk and safety management, human resources support and talent management.

READ: The Best Modern HR Strategies — Navigating Challenges and Embracing Opportunities

The following outlines what business leaders need to know about Professional Employer Organizations and when working with a PEO is appropriate. Several key considerations are the HR functions and outsourced employment responsibilities, questions to ask PEOs about capabilities and explaining PEOs to employees.

How to identify which functions can be outsourced

The first step for leaders in understanding PEOs is identifying where their business needs support. In many cases, small businesses choose to outsource the provision and administration of both employee benefits and payroll to a PEO. Because PEOs manage more than one business, they can give clients access to a wider range of benefit options, usually at better rates, than what businesses could access on their own.

This is because PEOs collectively represent a bigger group of employees than any one of those businesses on their own, granting PEOs the purchasing power to negotiate a lower rate. PEOs can provide a range of employee benefits including medical, dental and vision coverage, health care flexible spending accounts, retirement plans, life insurance and more. It is important to note, there is no agreement between the group of PEO clients, so employers are solely responsible for their own employees and do not take on the burden of the other businesses serviced by the same PEO. 

Leaders should also consider how PEOs could help save time and money through reducing administrative workload. Administrative HR duties like payroll processing can take up a significant amount of time for a business owner or an HR department. By outsourcing these duties, businesses can increase the productivity of their HR teams with the support of a PEO.

READ: AI in Employment — A Troubling Issue in the Hiring Process

How businesses can learn more about PEOs’ capabilities

Every PEO has a different approach to HR, making it imperative for leaders to choose a PEO that suits their needs best. Leaders need to understand the basics, like which services are included, what costs to expect, what technology or software the PEO uses and whether the PEO can provide professional development or employee benefits plans.

They also need to understand how their role will change regarding liability, taxes and regulations. PEOs mitigate a substantial amount of the risk and responsibility of being an employer. That includes the risks of handling payroll processing, HR administration and workers’ compensation. This reduced risk is one of the major benefits of working with PEOs, which usually have specialists on staff to monitor employer-related state and federal laws and regulations. PEOs should be able to clearly explain this transfer of risk and responsibilities.

Leaders often find it useful to compare several PEOs to one another and ask PEOs for references from businesses with a similar location, size and industry. If a PEO cannot share references, that might be a sign they lack experience or success in supporting small businesses. 

How to simplify PEOs for employees

Employees who have never worked with a Professional Employer Organization before may feel confused about the circumstances of their employment. Especially for businesses that transition to a PEO, there is a need to communicate carefully to avoid misunderstandings.

One of the most important factors to emphasize is that a Professional Employer Organization does not acquire or take over a business. Rather, the business remains in full control of its existing owners but outsources certain HR or employment duties, much in the same way some businesses outsource customer service support to a third party. It is also important to explain the benefits of PEOs for employees, including improved employee benefits, performance management support and greater access to training and development programs.

READ: 5 Tips for Overcoming Customer Service Obstacles as a Small Business

The bottom line

Any business that begins working with a Professional Employer Organization should also collaborate with their service team on communications efforts. A town hall with management and a PEO representative will allow employees the chance to ask questions and gain knowledge.

Contracting with a capable PEO can improve their productivity, increase their access to employee benefit plans and simplify their operations.

 

Niki JorgensenNiki Jorgensen is a director of service operations with Insperity, a leading provider of human resources offering the most comprehensive suite of scalable HR solutions available in the marketplace. For more information about Insperity, call 800-465-3800 or visit www.insperity.com.  

Why you should consider co-employment for your small business

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Venturing into entrepreneurship is not an easy feat. You get to be occupied most of the time with making sure everything is going on well till you are able to find suitable hands to pass over some duties to.

Getting your business registered to begin operations is one thing, but making sure it is a going concern is the real deal. Investing a lot of money into it at the initial stage is a necessity.

So you will want to cut off any unnecessary spending that could harm your business. You will also be thinking of how to reduce costs and share some of your responsibilities. This is where co-employment comes in.

What co-employment is all about 

Co-employment is a relationship between two or more employers where all the employers have legal rights to the same employee. Having a working relationship with another co-employer as a small business owner can help alleviate the workload.

To further nurture this working relationship you can even think of fun activities, such as team building scavenger hunts or simply going out for a coffee.   

When talking about co-employment, you can’t do without mentioning Professional Employer Organizations (PEOs). PEOs enter into co-employment relationships with small businesses to help reduce their liability.  

Reduction of liability 

Since a co-employer usually takes over the client’s employment and administrative tasks, a PEO which is the co-employer will share in this liability as well.

What is in it for them is that they get to enjoy the benefits of the HR infrastructure usually found in larger businesses or organizations.

Co-employment is largely practiced in countries like Canada, India, and Singapore. Canada PEO services are readily available to small business owners in Canada.

Depending on your location and budget, you can co-employ with any Canada PEO of your choice if you are set up there.

Let us see other reasons why you should practice co-employment as a small business owner. 

Reduction in benefit costs 

 As a small business owner, partnering with a PEO service will help you save cash on major expenses like healthcare since they will provide more and better options than you will have available to you.

If you have a large employee base, a PEO may not work for you, in such cases, you can use digital tools such as an Applicant Tracking System that helps with the hiring process.

However, for a small business, PEOs can help you cut off about $2,500 out of every $6,400 which is the average cost of an employer’s healthcare plan contribution per employee.

So if you employ say 20 members of staff, your PEO will be able to shave about $50,000 off your contribution.  

Taxes and payroll are taken care of 

Starting a small business requires a lot of effort to make sure the business thrives. While trying to achieve this, you definitely don’t want to be known for breaking tax laws as it can potentially damage your company’s early reputation.

Unless you are an accountant, chances are that you may not know anything about the tax laws. You have a choice to hire a professional accountant to help you fix this, develop software outsourcing, or you can co-employ with the right PEO that can help you take care of employees’ taxes.

The PEOs will handle not just your yearly salary, but also provide payroll services and deduct the correct taxes from each employee’s wages each pay period.  

Workers’ compensation and unemployment are managed 

Once you get your small business registered, you have to pay unemployment and compensation costs. You will also be required to have workers’ compensation insurance.

The amount involved depends on the state you are resident in. Your company will get fined if you do not pay the exact amount you are billed let alone not paying at all.

A PEO will know exactly how much you are to pay and even help you verify that you are paying the exact amount.

In cases of business travel, you also need to make sure that everything is covered and your workers obtained the necessary documents, such as passports or even an international driving permit.  

Final Word 

If you are a small business owner, you would have known that you get to spend a lot in the initial stages, at least till your business starts giving back to you.

Another problem you will be faced with will be how to manage your time because you will have too many things to handle at the same time.

Working with a PEO will take away most of the burden of running a company and keep you within the state and federal laws.

If you have been having it very tough after starting up your small business, consider co-employment today.