How Does a PEO Business Partnership Actually Work?

How Does a PEO Really Work?

When you’re running a business, every dollar – and every hour –counts.  

Think of all the ways a team of specialized HR experts, readily available to help you fine-tune and economize your talent management responsibilities, could help. That’s where partnering with a professional employer organization (PEO) comes into the picture – especially this year, as your business reopens following the COVID-19 pandemic. 

How a PEO Partnership Works 

When you collaborate with a PEO, you enter into a co-employment relationship. Your PEO assumes many employer-related responsibilities through the terms of a client service agreement (CSA). This frees up time you can devote to running your business. 

For example, PEOs typically: 

  • Remit employee wages and withholdings and collect and deposit employment taxes with local, state and federal authorities. 
  • Issue W-2 forms for compensation paid by the PEO under its EIN. 
  • Provide a comprehensive HR and benefits package for your employees. 
  • Handle training, payroll processing, regulatory compliance, risk management and insurance functions. 

You don’t lose control of your business. In fact, you’ll be more in control as you take advantage of your PEO’s specialized offerings and expertise – and you have more time and energy to focus on strategy, planning and key employee and client interactions.   

Economy of Scale 

As reported by the National Association of Professional Employer Organizations (NAPEO), small businesses that use PEOs grow seven to nine times faster, have 10 to 14 percent lower turnover, and are 50 percent less likely to go out of business than their non-PEO counterparts. This is attributable in large part to the economy of scale offered by a PEO. 

  • Your hiring and employment costs are reduced. Your PEO handles myriad routine, redundant tasks that quickly devour your time, allowing you to work on core business competencies and growing your bottom line.  
  • Your employees have access to big-business benefitsUsing group purchasing power, PEOs pool all their employees together, so those who work for smaller companies like yours have benefits comparable to workers at Fortune 500 firms. As benefit plan sponsor, your PEO handles all related administrative tasks including negotiating with carriers, enrolling people, providing legal notices, handling COBRA administration, and more. 
  • You stay compliant with employment laws. PEO experts are up to speed on all employment laws and regulations, even as they change in the blink of an eye. This is always important, but even more so with a growing number of people working remotely. Regardless of the circumstances, where your physical facilities are located or where your employees live, your PEO will help keep you in compliance. 

Last but not least, your PEO provides experienced recruiters who will thoroughly assess and help meet your business critical talent needs. From formulating hiring plans, writing job descriptions and sourcing candidates through retirement planning, your PEO can take on the task. 

What’s a CPEO? 

CPEO stands for “certified professional employer organization.” This designation indicates that a PEO meets the strict requirements of the Internal Revenue Service (IRS), including the provision of audited financial statements. 

When you seek out a PEO, take your search criteria and extra step and look for a CPEO. Another important designation is ESAC (Employer Services Assurance Corporation) accreditation. This is a distinction earned by only about five percent of all PEOS nationally.  

Want to know more?

To learn more about PEO business partnerships, read our related posts or contact Lyons HR today.