PEO (professional employer organization) is much more than a staffing or placement agency. As a matter of fact, PEO serves as a full-fledged HR department, relieving its client of all employment administration work. PEO shares human resources management responsibilities with its clients. PEO, is defined as a business entity that provides human resources outsourcing services to client companies enjoying the status of a co-employment relationship.
Small- and medium-sized businesses outsource to PEOs almost all critical work including the payroll, employment related taxes, risk management, recruitment, providing health benefits, and securing workers’ compensation coverage. The industry’s gross revenue is continuously on the rise and PEOs are attracting large number of diverse frontline clients.
PEOs are a comparatively young industry not more than two decades old but they have made immense strides within a short span of time. The estimated growth rate for PEOs, combined with their high client retention rates, bear ample testimony that PEO is an industry on the upward ascent. Most PEOs boast of an enviable client list including accounting firms, high-tech companies, leading manufacturers and several government agencies.
During the last two decades of the previous century, there was a spate of new labor laws. Owners of small or mid-sized business spent much of their valuable time on employment-related paperwork. PEOs appeared in right time to assume much of this burdensome responsibility and help companies comply with all these regulations.
PEO expertise is also contributing to improved work environment and industrial safety. The average gross pay of a PEO worksite employee is about $31,000 annually. Without the PEO relationship most workers would not have the protection guaranteed under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Age Discrimination in Employment Act (ADA) and the federal Family and Medical Leave Act (FMLA).
PEOs have been responsible in making thousands of companies provide benefits such as health care plans, tax-free savings accounts and other perks to working Americans. Forty percent of businesses that use PEOs invariably upgrade their worker benefit packages as a result. An estimated 95 percent of workers in a PEO arrangement have access to a pension plan.
PEOs arrange workers’ compensation coverage with major insurance companies and manage the claims. It is understood that eight out of 10 PEOs provide services such as customized employee handbooks, recruitment, pre-employment screening, wage and compensation planning, and assistance with job descriptions.
PEOs do everything possible to develop long-term relationships with clients. They help clients to reduce costs and provide them extra hours for more productive activities.
PEO services can positively impact the client’s bottom line. The client gains peace of mind that the business is complying with all federal and state employment-related laws, that the payroll is processed efficiently and that all employees are getting benefits. Employers choose to appoint PEO because they will handle all employee-related work and leave them free to spend more of their time to keep their businesses more profitable.
Both the cost-saving and risk-saving factors of HR outsourcing are driving more and more clients to join the PEO bandwagon. Despite the present somewhat damp economic climate, public reporting payroll processors increased more than 5% from the previous year and PEOs grew at an average of 10%. Increasing regulations and enactment of more laws will further drive clients to use comprehensive HR services on an outsourced basis.
