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Choose a PEO for your HR needs.
A PEO, or Professional Employer Organization, is a company specializing in human resource management. A PEO will contractually assume responsibility for all human resource-related functions for your business and its employees including interviewing and hiring assistance, payroll management, employee benefit design and administration, and administration of federal and state workplace regulations. When you hire a PEO, your business and the PEO become co-employers with the PEO effectively becoming your off-site personnel department. This beneficial relationship is also know as "Employee Leasing" which can result in significant cost savings for your company by reducing various human resource related responsibilities.
It is estimated that PEOs currently employ 2-3 million Americans. PEOs exist in every state of the country with approximately 2,000 different PEO companies. The industry is growing 20-30 percent each year.
How does a PEO / Employee Leasing work?
A PEO is an organization that hires your employees. The PEO generates paychecks for your employees and administers the filing of all related payroll tax deposits and monthly, quarterly and annual returns. The PEO bills your company for payroll, tax liabilities and fees for health, worker’s compensation and unemployment insurance premiums in addition to the PEO’s administration fee. A PEO's large pool of employees from various companies creates the economies of scale which allow for a vast array of benefits and services at a significantly reduced cost.
Interestingly enough, the Internal Revenue Service views the PEO as the employer of record and is liable to pay the federal income and unemployment taxes, whether or not the client company pays the PEO. Most (but not all) states recognize the PEO as the responsible entity for payment of state unemployment taxes. PEOs also provide employees with coverage under all employment laws and regulations including federal, state and local discrimination laws. This includes Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act and Cobra.
Advantages & Disadvantages of a PEO.
There are several advantages to entering into a business relationship with a PEO. Some of them are:
According to the National Association of Professional Employer Organizations (NAPEO), NAPEO members report an average of 14 worksite employees per client company with an average gross pay of $19,659. The average annual cost of regulation, paperwork, workers compensation and tax compliance for firms with fewer than 500 employees is about $5,000 per employee, and $3,400 per employee for firms withmore than 500 employees. The average small business owner spends between 7 percent and 25 percent of his orher time handling employee related paperwork.
The disadvantages of a PEO include having an employer’s potential perceived loss of control of his or her employees. Although the employer continues to have the ultimate authority in maintaining employee efficiency and output, the PEO shares and retains the right to hire, reassign and fire the employees. This sharing of responsibility may make an employer feel that he or she has lost some control in the management of his/her workforce.
Another consideration would be the employee’s perception of the change seeing the PEO’s name on a paycheck. This may make the employee feel that he or she is now working for a different company. These types of concerns must be addressed when examining the PEO relationship.
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