PEO stands for Professional Employer Organization, and PEO services are a smart way for businesses to relieve their administrative burden through co-employment with an external partner. Always wondered how PEO services work, and what you could gain from outsourcing some parts of your HR operations to a PEO company? Keep reading for the full lowdown.
Are PEO Services the Same as Employers of Record or Global Employment Organizations?
The difference between PEO services and Employer of Record (EOR) or Global Employment Organization (GEO) services is an important differentiation to understand before you go into business with any vendor.
The main difference is in liability, and who is considered the employer of your staff. A Professional Employer Organization offers a co-employment model, where both your business and the PEO assume legal liability for your employees. In contrast, an EoR or a GEO employs workers on your behalf. That means that on paper, the EoR/GEO is the employer, not you. They take on legal liability for remote employees in their region, while you manage their day to day work.
This is not the case when using a PEO. If you onboard a PEO arrangement, you will still have responsibility over data security and local employment compliance for example, while the PEO services are simply there to help you to manage key tasks such as payroll or recruitment.
Why Do Companies Use PEO Services?
Managing employee payroll and HR can be complicated, and often involves a lot of manual effort. First off, all staff need to be paid accurately and on time, with the details of the right taxes and contributions understood and managed. Next, employees expect the smartest choices of benefits provision, not only for essential items like health insurance, but also for professional development and training. It’s a lot to juggle.
This becomes even more complicated when you work across multiple regions, or even countries. In the US for example, each state has its own requirements for taxation, employee benefits, labor protections, and reporting. If a worker lives in one state and works in another, especially if they split time between home and the office, this can make understanding your requirements a real headache.
Especially in the current remote working climate, where 74% of professionals expect remote work to become standard practice, employers need a smart solution to juggle the complexity and ensure they remain compliant.
What Tasks Do PEO Services Take On?
PEO services are exactly that smart solution. These third-parties are experts in the details of local labor laws and compliance requirements, and can support you in managing your workforce with greater agility and ease. Common tasks that they perform include:
Payroll processing: The PEO service is likely to be responsible for managing the monthly payroll, including withholding the right taxes and employer contributions for each region, and making sure that all employees are paid accurately and on time, with their benefits calculated and included. This can take a huge manual workload off the shoulders of HR and Finance teams in-house, freeing them up for more strategic tasks.
Recruitment: It can be hard to find the right talent in a new location, especially without “boots on the ground.” A PEO service can work globally or across the US, and use local contacts to hire skilled talent in-region. They can also handle details such as advising on registering your business abroad or the checklist for hiring locally in a new location. In many cases, when opening an entity abroad doesn’t fit your needs, you might want to source freelance talent who can work compliantly in any location, risk-free.
Benefits: No idea where to start on getting your employees the right healthcare, 401k, dental or workplace compensation insurance? Outsource it! PEO services usually have relationships with local partners for a huge range of benefits, which means they can get you a good deal on a wide range of perks for your employees, and know who to avoid and which partners to couple up with. With local expertise, they will also be able to advise on cultural expectations. For example, did you know that in Belgium, workers are entitled to take a year’s career break, and return to the same job?
Professional development: Learning and development opportunities are a core part of a workplace package today, but small businesses often struggle to implement professional development. Working with PEO services allows you to outsource this task to your co-employer, who can provide training, offer courses, and invite high-profile speakers or educators into the office that boost employee morale and skills. According to LinkedIn research, 94% of employees would stay at a company longer if they felt the business was investing in their career development – so this is a powerful value-add.
Are PEO Services an Expensive Solution for Workforce Management?
You will usually pay your PEO provider a transparent monthly fee per employee, which will vary depending on which services you want them to provide. However, before you start adding this operational cost to the budget and wondering if it’s going to break the bank, you should also compare the added cost to the savings that you could accrue by working with PEO services.
This is because PEO services can often provide a much better deal than a business working with benefits providers, recruitment companies and training solutions directly. Let’s say you approach a health insurance provider to look for coverage for 5 employees, who are all working in a single region. As a small group, the health insurance provider has no incentive to give you a great deal.
However, a PEO service can look for a health insurance deal for your 5 employees, plus ten other customers at the same time. Suddenly, you have more than 50 employees looking for coverage, and the health insurance provider is incentivized to lower the rate and give the PEO service a discount, which they can hand over to you. Simple economies of scale means you’re getting better value for money than you could achieve alone.