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What is a PEO & How Can It Help Your Business?

Learn everything you need to know about PEOs.
Human resource administration is a fundamental responsibility of any successful business, but it can create its fair share of headaches — especially for small business owners. If HR roadblocks or the pains of payroll processing are standing in the way of your business’ performance, it might be time to consider help from a Professional Employer Organization (PEO).

In this article, you’ll learn everything you need to know about PEOs: how they work, the benefits they provide businesses, and why hospitality and retail organizations might want to consider using them. Let’s get into it.

So, What Is a PEO?

For those unfamiliar, PEOs provide small- and mid-sized businesses with comprehensive HR solutions. PEOs handle employer responsibilities like:

  • Payroll processing and tax filing services
  • HR administration
  • Employee benefits services
  • Tax administration
  • Risk and compliance assistance

Effectively managing these core areas is a full-time job. Unfortunately, many small businesses don’t have the budget or the manpower for a dedicated, in-house HR administrative team. That’s why many business owners work with a PEO. By outsourcing some of these necessary but time-consuming HR tasks, you can focus on the day-to-day operations and activities that will help your business grow and thrive.

When you join a PEO, your company and your PEO create a business-to-business agreement called a co-employment relationship. This co-employment model establishes your workers as employees of both your business and the PEO, allowing you to distribute employer responsibilities between you and the PEO.

Typically, the PEO would become the employer of record, handling payroll administration, tax filing, HR support, benefits, and more. Meanwhile, your business would maintain control of day-to-day operations and management of your employees. Which specific HR responsibilities and employer liabilities get transferred to the PEO depends on the contract between your business and the PEO. This contract is known as a client services agreement (CSA).

Now that we have the definitions and terminology out of the way, let’s explore some of the advantages of using a PEO.

Why Do Businesses Use PEO services?

PEOs offer small- and mid-sized businesses the opportunity to achieve savings and drive growth through economies of scale. Here are a few specific perks of PEOs.

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Efficiency

HR administration can be tedious and time-consuming for even the most seasoned HR professionals. It can be an even bigger hindrance for smaller business owners who are already juggling the complexities of their day-to-day operations. 

The administrative burdens of HR can cause owners and operators to miss key revenue-generating opportunities that could help their businesses grow. If you or your HR team are constantly slammed with payroll, or you find that you’re becoming increasingly reactive in how you manage your business, it might be time to explore HR outsourcing.

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Risk Mitigation

In addition to being a time suck, HR administrative duties pose serious compliance risks if not done properly. Hourly labor and wage compliance is an ever-shifting beast, both complex and costly. And as more states adopt new labor laws and regulations, more business owners have concerns about risk and liability. 

Transferring some of your business’ payroll and HR administrative burden to a PEO can help limit the risk of non-compliance and stop fines or employee lawsuits before they happen. The following are just a few of the tasks PEOs can handle to minimize the risk to your company:

  • Payroll services and tax reporting/filing
  • I-9 verification and tracking assistance
  • Claims management
  • Securing EPLI coverage
  • Worker’s compensation risk management
  • Healthcare reform consulting

PEOs can also help business owners navigate volatile and risky times, acting as another source of valuable business guidance. A recent study by the National Association of Professional Employer Organizations (NAPEO) examined the impacts PEOs had on business outcomes for their clients throughout the first few months of the COVID-19 pandemic.

The study found that businesses with a PEO partner fared much better in securing critical Paycheck Protection Program (PPP) loans than those who didn’t have a partner. According to NAPEO, PEO clients were: 

  • 119 percent more likely to have received PPP loans 
  • 72 percent more likely to have received PPP loans in Round 1
  • 60 percent less likely to have permanently closed
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Employee Satisfaction

Employee turnover in the hospitality and retail industries is notoriously high, but PEOs can help small- and mid-sized businesses recruit and retain talent. PEOs typically offer competitive and comprehensive benefits packages, making your business more attractive to applicants and more satisfying for your existing team members. Depending on your CSA, here are a few benefits a PEO could provide your employees:

  • Group health insurance
  • Dental, vision, and life insurance
  • Long- and short-term disability
  • 401k plans

Best of all, the PEO handles the administration of these benefits — the communication, the tracking, the enrollments, the invoice payments, the reconciliation. So, your employees enjoy the security of comprehensive benefits, and you enjoy the relief of knowing those benefits are being managed and executed without the burden of doing it yourself.

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Cost Savings

We’ve established that PEOs save business owners time, stress, and headaches. They also save you money. A study by the National Association of Professional Employer Organizations (NAPEO) found that the average cost savings from using a PEO is $1,775 per year per employee, resulting in an annual ROI of 27.2 percent. 

And that’s just on cost savings alone. The study also showed that partnering with a PEO resulted in lower employee turnover, higher employee and revenue growth, and enhanced employee benefit offerings.

Is a PEO Right for Your Business?

A co-employmen t agreement with a PEO certainly offers many advantages, but that’s not to say that managing HR in-house doesn’t have its own benefits as well. An in-house HR team lets you maintain control over your workplace policies and can create more personal connections with your employees. 

But managing HR in-house also requires headcount that’s simply too costly for many small businesses. Plus, in high-turnover spaces like hospitality and retail, attracting and retaining top talent needs to be a priority — and that talent wants benefits.

When you partner with a PEO provider like Fourth, you partner with a team of service industry experts. Our HR and payroll services are designed specifically for service industries, providing a scalable solution for hospitality and retail operators. Fourth offers a combination of integrated technology and expert services, from applicant tracking and onboarding to benefits, HR administration, and payroll processing. With Fourth as your partner, you can focus on the big-picture initiatives that will drive the growth of your business.

To learn more about how a PEO can benefit your business, download this infographic.

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