What Is A PEO?

what is a peo

So you’re prepared to take on new employees and prop up your small business for exponential growth. One challenge, though, is that the more your business grows, the more you get bogged down with employee paperwork. Without a full-time HR team on board, HR challenges can be a real hindrance to your business’ growth. Fortunately, there are various options you can use to get HR challenges out of the way, and one of them is partnering with a PEO.


What is PEO?

PEO is an acronym for Professional Employer Organization. A PEO a co-employer in the sense that it takes on certain employer obligations as set forth in the service agreement.


How PEOs Help Small and Medium-Sized Businesses

PEOs can be incredibly helpful to small and medium-sized businesses. The following are the things that a PEO can help you with:


 1. Employer-related Administrative Functions

A PEO can help you manage a variety of human resource and employer-related administrative functions necessary for running your business. These functions include:

  • HR administration

Depending on the capabilities of your internal HR team, you can outsource some or all of your HR functions. Some of the HR functions that you can outsource to a PEO include new hire onboarding, employment verification, employee relations support, drug testing, employee training, termination assistance, leave of absence request management, and more. In other words, PEO can take HR management almost entirely off your plate. 

  • Payroll processing

One of the tasks that PEOs undertake is handling the nitty gritty of payroll administration, which includes payroll record maintenance and management, payroll management reports, and PTO accruals, among other payroll-related tasks.

  • Benefits administration

Professional Employer Organizations assist with various types of benefits administration, including claims, benefits onboarding, and other benefits-related paperwork. With the PEO model, many small businesses are aggregated together to harness the purchasing power that is usually reserved for much larger businesses. As such, a PEO can help you access vision, dental, and medical coverage for your employees easily and at affordable rates.

By and large, it saves you the high costs of working alone. 

  • Employee performance management

PEOs also help companies design and carry out employee performance appraisals on a regular basis. In addition, PEOs offer supervisor coaching, self-help tools, reward and recognition program design, and assistance with job descriptions.

  • Employee training and development

Another PEO advantage is employee training and leadership development services like online learning management system comprising of digital books and interactive courses. The training services may also include virtual or live training webinars.


 2. Compliance Assistance

PEOs employ specialists who are keen on staying abreast of constantly changing federal and state laws and reporting requirements. Outsourcing to a PEO, enables you to stay compliant and avoid the consequences of being non-compliant.

For instance, a PEO can help you with employer-related compliance needs for employee tax forms, reporting forms, and payroll taxes. In addition, PEOs offer compliance support for new hire reporting, workers’ compensation, 1099 and W-2 filings, Unemployment Insurance filings, and Employment Practices Liability Insurance.


 3. Transfer of Employer Liability 

Reports indicate that more than 33 percent of small businesses get fined annually for making payroll mistakes. The most common payroll mistakes business owners make include:


  • Forgetting to pay taxes year-round
  • Mismatching tax payments with employees’ pay schedules
  • Misclassifying employees as contractors
  • Failing to keep important documents like I-9 and W-4 on file
  • Failure to report new hires to a state department


With lots of paperwork to file and insurances to secure, it can be pretty easy to make costly payroll mistakes. The best way small business owners can prevent their businesses from getting fined is outsourcing to a PEO. For the most part, outsourcing to a PEO provides an added level of protection and risk mitigation for your business.

This co-employment relationship not only ensures that payroll mistakes are avoided, but it also allows for the transfer of exposure and liability for your business. As a co-employer, the PEO becomes liable for the list of responsibilities it handles. For instance, if you’ve outsourced your payroll to the PEO, the PEO becomes liable for any payroll mistakes that may arise.


4. You can focus on your business

With more to do and not enough hours in the day to get it done, running your own business can take pretty much all of your time. The best way to get valuable hours back in your day is to outsource some or all of your employment-related administrative tasks. If you get into a co-employment relationship with a PEO, you will be able to get multiple hours back that you can spend on other important aspects of your business.


How to Calculate Human Resource Costs

Measuring human resource costs is a key component of HR accounting. If you’re not utilizing the services of a Professional Employer Organization, it is important that you calculate how much doing HR in-house is costing you. Calculating human resource costs enables you to monitor departmental costs, predict future costs, measure overall success, and determine the return on investment.

Just like other accounting tasks, calculating human resource costs manually can be a difficult endeavor as there are multiple key metrics to measure. HR costs calculators are the perfect tools to save your time and energy in your HR costs calculations.  In addition to simplifying the calculation process, they also ensure that calculations are accurate.

Looking for a tool that will show you the most cost-effective way to take on new hires? Find out how much you can save using our HR Costs Calculator.

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