PEOs: What Are They? How Do I Choose?

The current size of the PEO industry is between $136 and $156 billion, as measured in gross revenues.

Are your back-office functions and HR responsibilities robbing you of the time you should be investing in company growth, employee engagement, client relations, and other entities? Connecting with a Professional Employer Organization (PEO) may be an excellent solution.

Understanding PEOs

PEOs typically serve as a professional employer of their clients’ employees, providing integrated, cost-effective solutions for various HR functions and employee benefits. Employee wages are reported under the PEO’s federal identification number, shifting the liability. In other words, your employees become the employees of your PEO, who then ‘leases’ the employees back to your business. The PEO pools the employees of many smaller companies together, reducing costs in various areas. With this shift comes the opportunity to outsource a few to all your HR functions, depending on your contract. These functions may include –

Administration of

  • Payroll processing – Paycheck/paystub preparation and delivery
  • Employment taxes – reporting and depositing
  • Unemployment claims

Assistance with Workers’ compensation

  • Workplace safety evaluation and designing a safety program
  • Claims management
  • Handle relations with injured employees
  • Implement a return-to-work program

Benefit plans and administration, potentially including

  • Health care coverage: medical, dental and vision
  • Health care Flexible Spending Account (FSA) plan
  • Life insurance
  • Personal accident insurance
  • Short-term and long-term disability insurance
  • Adoption and educational assistance

PEOs can also save you money. Since they operate on a larger scale of employees, your PEO can offer reduced costs on various employee benefits. Small companies pay an average of 18% more on health insurance than larger companies. They also experience more than 30% more costs complying with federal regulations. Contracting with a PEO will let you tap into the benefits of a large business. According to NAPEO, the voice of PEO’s

  • Businesses in a PEO arrangement grow 7-9 percent faster, have 10-14 percent lower turnover, and are 50 percent less likely to go out of business.
  • PEOs offer a broad array of HR services at a lower cost and provide access to retirement plans to small businesses that may not otherwise sponsor them.
  • PEOs provide services to 175,000 small and mid-sized businesses, employing 3.7 million people.
  • There are 907 PEOs in the United States.
  • The total employment represented by the PEO industry is roughly the same as the combined number of employees for Walmart (the United States only), Amazon, IBM, FedEx, Starbucks, AT&T, Wells Fargo, Apple, and Google.
  • The PEO industry’s 175,000 clients represent 15 percent of all employers, with 10 to 99 employees.
  • Administrative costs are around $450 lower per employee for businesses that use a PEO.

How Do I Choose?

Before signing a contract with a PEO, assess your business needs and challenges. Evaluate your payroll, HR, and risk management. Identifying where you are at, what you need, and the challenges you face will help you choose the PEO that best fits your company. Of course, all PEOs are not created equal. When choosing a PEO, it’s critical to ask the right questions and ensure you accurately understand the answer.

  • What services will the PEO provide? What employee benefit plans and development are included?
  • What will I pay for? (Get the details)
  • What types of technology will the PEO provide, and what do you need to have in place?
  • How financially stable and secure is the PEO? (How are they funded?)
  • How committed will they be to your business? How many hours of HR support will they provide per/week? Would they come on-site for an emergency?
  • Will they provide a dedicated contact, or will your employees have to communicate with several different people?
  • Will they be able to make impartial recommendations, knowing that they could be legally liable for their advice?
  • How do previous and current clients review the PEO? (Do they have reliable testimonials?)

Choosing the best PEO for your company can be difficult. That’s where Bluebox Creative Solutions fills the gap. Our team of consultants has expertise in staffing and human resources that are critical to companies large and small. We have dedicated professionals with decades of experience, and we understand the challenges you the Employer face on a day to day basis. Bluebox Creative Solutions has partnerships with Employer of Record, PEOs, and HR companies that have solutions to help your company grow and lower your costs. Contact us today.