PEO Definition and Detailed Walkthrough

In this article:

What is a PEO?

PEO stands for Professional Employer Organization and is a type of company that provides HR for small and medium-sized businesses. PEOs offer an array of HR services, including payroll, employee benefits, assistance with employment law and regulatory compliance, workers’ compensation, and more. In the United States, there are hundreds of PEO companies. These organizations provide services to more than 170,000 small and medium-sized businesses.

How Does a PEO Work?

When a company needs to outsource its administrative HR tasks like payroll, employee benefits, risk management, workers’ compensation, and HR expertise, they hire a PEO. The steps for partnering with a PEO vary by company.

For Landrum HR Solutions, the steps for partnering with us for PEO services include:

1. Initial contact with one of our PEO business consultants to get a basic understanding of your needs.
2. Conduct a discovery meeting to review your current business operations, growth strategies, and goals. Identify any gaps, challenges, or roadblocks that could be fixed by partnering with a PEO. This is a deeper dive that allows us to get to know your business and provide the right solution.
3. Your designated consultant will gather data and complete a cost analysis to identify if a PEO solution makes financial sense for your organization.
4. Experience an online demo of our HRIS to see how our software platform can improve operational efficiencies for your business.
5. Comprehensive proposal and cost analysis of partnering with a PEO, to include long-term benefits and HR strategies as well as an implementation timeline.
6. Underwriting approvals (financial approval, workers’ compensation approval, and benefits approval).
7. Review and sign the Client Service Agreement (CSA).
8. Implementation begins.

Throughout the entire process, our PEO business consultants answer any questions and concerns you may have. We ensure you’re fully involved and aware of what’s happening at every step of the journey.

What Services Does a PEO Provide?

Businesses can access a wide range of benefits of using a PEO along with outsourced HR services, including:

• Human Resources

A dedicated person or team that is available to answer HR questions and help ensure your company stays in compliance with state and local employment laws.

• Workers’ Compensation

Workers’ compensation insurance is provided to employers to cover expenses when employees experience work-related injuries or illnesses.

• Risk Management

A dedicated person or team to assist your business with claims management services, safety inspections, and safety training.

• Human Resources Information System (HRIS)

Software to manage and maintain employee information and HR-related policies/procedures.

• Payroll & Tax

Payroll administrative tasks such as timekeeping, direct deposit, and tax filings.

• Employee Benefits

Benefits for your employees include health, dental, vision, and life insurance; retirement savings plans; tuition reimbursement; and more.

It’s important to note that not every PEO offers all the services listed above. The range of services varies from one PEO to another. Additionally, some PEOs may allow you to choose individual services, while others offer only complete packages. When researching PEOs, be sure to review and ask about the services offered and how they are charged, to ensure they align with your business needs.

Read more: PEO vs Payroll comparison

Would My Business Benefit from Working With a PEO?

It could be argued that any organization can benefit from partnering with a PEO. If your business has administrative tasks that take up the bulk of your time, then you can gain from working with a PEO. There are other common scenarios in which a Professional Employer Organization can benefit your business.

Situations in which a PEO can help your business include:

• Handling administrative tasks such as payroll, onboarding paperwork, benefits enrollment and administration, workers’ compensation claims, etc.
• Maintaining compliance with employment regulations.
• Vendor consolidation – Providing a suite of software services for timekeeping, employee onboarding, training, and performance management, to name a few.
• Planning appropriate steps to take during business expansion.

The industry association for PEOs, NAPEO, states that organizations that partner with a PEO can grow 7 to 9% faster, experience 10 to 14% lower employee turnover, and are 50% less likely to go out of business than other organizations that aren’t using a PEO.

PEOs can also give you access to Fortune 500-level employee benefits, increase participation in retirement saving plans, and offer valuable HR assistance that helps you attract and retain talent.

What Are the Benefits of a PEO?

PEOs help organizations save money and make money. A Professional Employer Organization gives employees access to Fortune 500-level benefits packages such as 401(k) plans, health, dental, life, ancillary insurance products, employee assistance programs, and more to retain the workers you have.

Laws and workforce trends are constantly changing, so having an HR professional dedicated to keeping your organization up to date is crucial. A PEO provides this resource and allows owners to readjust their focus back to what they’re best at.

For more information regarding the benefits of a PEO, check out our blog on the value of using a PEO.

PEO Business Model

In a PEO business model, a company partners with the PEO as a co-employer to assist with HR administrative functions. In exchange for this service, they pay the PEO an administrative fee per employee, per month.

Most of the time, the total cost of fees is less than what they would pay internal employees to handle these tasks. If a business already has an internal HR employee, a PEO supports that person and helps them focus on more strategic organizational initiatives, such as engagement and culture.

If you are weighing your options, check out our guide on how to evaluate a PEO.

How Much Does a PEO Cost?

When partnering with a PEO, the cost is based on the number of full-time employees the business has. Depending on the package the business selects, using a PEO will cost about $750 to $1,500 per employee, per year.

For example, for a business with about 15 full-time employees, the investment will be between $11,250 and $22,500 per year, or $216 to $432 per week. Make sure to evaluate all costs involved, as some PEOs charge fees beyond the administrative fee. Be sure to check the cost of add-on services if you plan to use them.

If you’re not sure whether the investment in partnering with a PEO is worth the time and money, our experts can help you. We’ll walk you through the costs of a PEO partnership versus handling tasks on your own, and clearly explain your options so that you can make an informed decision.

Are There Any Disadvantages to Working With a PEO?

Let’s discuss the five most common disadvantages people think of when partnering with a PEO, and why they really aren’t disadvantages at all.

I’ll lose control of my business.

This myth stems from the fact that a PEO becomes a co-employer with the partner company. Some might think that there is potential for a company to have to give up its decision-making power and the ability to operate its company as it would like. However, don’t be concerned: a PEO is an employer only for certain aspects, such as payroll, benefits, and risk management. The employer-PEO partnership allows business owners to retain control and decision-making power over their businesses.

I’ll lose hiring decision power.

In the hiring process, the organization will still make all hiring decisions. But you will have assistance from the HR business partner to ensure the organization avoids potential risks and complies with relevant laws during the hiring process.

I’ll have to fire my HR manager and/or team.

Your business will not have to get rid of its HR manager and/or team. The PEO company will assist your HR team by taking on administrative tasks, freeing up time for the team to focus on the business’s goals. It gives them more time to work on strategic projects that support the business’s culture, engagement, and other business goals.

It negatively impacts my company culture, morale, and engagement.

With a PEO giving the company owner or the in-house HR team their time back, they have more time to focus on the company culture, employee engagement, and more. Right now, the company owner and/or HR team may be focusing too much on HR administrative tasks rather than on the company culture due to time constraints and/or limited resources. Employee benefits packages can also improve morale and show your employees that you care about their well-being.

My employees will have limited access to HR.

When partnering with a PEO, an HR Business Partner is assigned to the organization and is readily available for any questions the owner or employees have. If the organization already has an HR team, the PEO’s human resource business partner can provide extra guidance and help if the HR team is unavailable for any reason.

Is a PEO Right for Your Business?

Are you interested in partnering with a PEO? Businesses that do tend to grow faster and are statistically less likely to fail.

Landrum HR Solutions is an award-winning, certified Professional Employer Organization with over 50 years of experience helping small and medium-sized businesses succeed. Our customized PEO services are designed to help your business achieve its goals. Whether you’re looking to grow your business to the next level, get back valuable time, or even launch your business, Landrum HR Solutions is here to help.

Contact our team today to find out how we can help you gain time back to help your business succeed.