Many companies approach professional employer organizations (PEOs) with a flawed mindset.

They primarily think of a PEO as a way they can:

• Save time
• Reduce costs
• Maintain compliance

There’s no doubt these are some of the main reasons why you’d use a PEO, and we’ll dig into those benefits later in this article. But the reason it’s flawed to think strictly in these terms is that it focuses only on what a PEO takes off of your plate. It views the relationship purely as a transactional, outsourced type of partnership.

The problem is this approach doesn’t help companies evaluate PEOs effectively.

The real value of a PEO isn’t only in the HR work you can outsource to them, but the quality of service they provide to your employees.

So, while saving time, reducing costs, and maintaining compliance are foundational to why you would use a PEO, it’s important to think bigger when it comes to which PEO you use.

With that said, let’s explore the most common reasons companies use a PEO. Then, we’ll discuss the common reasons some companies choose not to use a PEO and how we believe the right partner adequately addresses those concerns.

1. You Don’t Have the Time To Handle HR

As mentioned before, one of the main reasons you’d work with a PEO is to save time.

For example, if you’re the CEO or founder of a startup, the growth of the business demands nearly 100% of your attention. But you still have responsibilities as an employer. This includes managing things such as payroll, compliance, benefits, employee engagement initiatives, and all of the paperwork and administrative tasks that an HR department would handle.

These things take time — time you don’t have.

A PEO takes on the responsibility of those tasks and frees you up to spend the majority of your time on projects that directly drive revenue and grow the business.

2. You Want Access To Better Benefits for Your Employees

PEOs provide an affordable way for you to offer Fortune 500-level benefits to your employees.

This is possible because of economies of scale. PEOs leverage their large employee pool to negotiate better rates that otherwise wouldn’t be realistic for smaller companies. This can be a significant factor in improving recruiting and employee retention efforts.

3. You Want To Lower Your Compliance and Legal Risk

There are seemingly countless federal and state regulations businesses have to keep up with.

Most business owners don’t have time to understand and know all of the regulations, but they need to avoid any potential penalty for not staying compliant. PEOs have legal experts on staff to ensure your business maintains compliance and handle the administrative work that comes with things such as:

• the Affordable Care Act
• Workers’ compensation
• Leave and disability laws
• Unemployment insurance
• Any tax reporting requirements
• Healthcare information returns (IRS Forms 1094-C and 1095-C)

Offloading the administrative work and having access to legal experts gives you more peace of mind knowing that you’re better protected from potential lawsuits or any other costly legal and compliance issues.

4. You Want To Consolidate Software and Point of Contact

Many businesses have their HR scattered across multiple software programs and vendors.

PEOs help centralize these functions so you have fewer tools to work with and relationships to manage. A PEO can bring everything into one system with one point of contact. Consider all the different HR functions you have to manage:

• Payroll
• Onboarding
• Workers comp
• Benefits enrollment

But it’s important to note that not all PEOs are created equal. Some may use overseas call centers and have different points of contact for each function. So, let’s say you have questions about payroll and benefits enrollment. Depending on the PEO, you may have to talk to two different people to get each question answered.

If you’re considering a PEO, you’ll want to make sure you ask about this to gauge the quality of service you’ll be receiving. It will make things easier for you if you have a single point of contact for everything. This is why Emplova provides a dedicated client success manager to each of our clients — to make sure our clients have a streamlined experience with technology and communication.

5. You Want To Grow Your Business

Growing a business requires a focused effort on optimizing operations and driving revenue through sales and marketing. But that’s not all it takes.

Employee recruiting and engagement are critical components of business growth.

Part of the problem, though, is finding time to invest in all of these areas that impact overall business success.

And that’s really only half the battle. You may not even know where to start when it comes to building out programs that focus on things such as culture, training, and team member development.

A PEO brings a wealth of knowledge and experience to the table and can help you build a program that aligns with your unique values. Some of the things a PEO can support include:

• Onboarding and training
• Performance management
• Employee handbook creation
• Retention and growth optimization

This is another way that PEOs contribute to helping recruit and retain talent. Providing new employees with a great experience with onboarding, benefits enrollment, and training helps set you apart as an attractive place to work and bring in talent that contributes to the growth of the business.

Why Some Companies Choose Not To Use a PEO (And Our Honest Take)

While Emplova is a PEO — and we believe that the benefits of a PEO outweigh most of the reasons not to partner with one in the majority of cases — we also recognize it may not be right for everybody.

As mentioned at the beginning of this blog, evaluating whether or not you should use a PEO should go beyond the general benefits of saving time and getting help with compliance requirements.

The reasons why companies choose not to use a PEO, we believe, have more to do with choosing the wrong partner. The right PEO will offer immense value to your business that far outweighs any of the potential downsides.

That’s why we believe it’s important to discuss the common reasons companies choose not to use a PEO so you can better evaluate a potential partner and make an informed, confident decision for your business.

Here are five of the most common reasons companies may not use a PEO:

• Cost
• Control
• Company size
• Unique HR requirements
• Impact to company culture

Cost

Working with a PEO might not always result in immediate cost savings.

The truth is some companies might not be able to afford the investment right now. But that doesn’t mean PEOs should be out of the picture forever.

Because you get more time to focus on growing your business, reduce your legal and compliance risk, and benefit from more stability in the cost of employment, a good PEO provider will ultimately lead to a positive ROI.

Control

Some companies choose not to partner with a PEO because they believe it means giving up control of their employees and the HR processes that affect them.

In reality, the opposite is true.

Partnering with a reputable PEO with the proper accreditations means you’re letting experienced HR experts manage your company’s HR processes because they can do it better and more efficiently than you could on your own. You’re not losing any control of the relationship with your employees. When it comes to building employee culture, a PEO is a partner that can support you with this — not take control of it away from you.

Giving up control of something in your business is a valid concern, which is why it’s critical to properly vet any PEOs you’re considering working with.

Company Size

The argument here is that some smaller companies may not yet need the full level of support a PEO provides, while larger companies may have the resources to build an in-house HR department.

But that doesn’t mean those companies can’t benefit from using a PEO. Whether it’s access to better technology, compliance support, or implementing more efficient processes, there’s potential value to be gained from a PEO’s expertise and is worth exploring for all companies.

Even if it’s ultimately not the right decision, we believe it’s something all companies should take the time to consider.

Unique HR Requirements

This also depends on the PEO you’re working with.

Specific industries may have particular HR requirements that certain PEOs won’t have the best solutions for. However, many PEOs have experience working across several industries and can actually be better equipped to handle the unique HR challenges in your specific industry.

Impact on Company Culture

There’s a natural uncertainty in bringing in a third party that could impact company culture.

But a good PEO will enhance your company culture, not damage it. This is why it’s so important to thoroughly vet any potential partners and understand their approach to customer service and their plan for improving employee satisfaction.

How does a PEO arrangement work?

When a company contracts with a PEO, the PEO will then co-employ the client’s worksite employees.

Co-employment involves a contractual allocation and sharing of employer responsibilities between the PEO and the client, which is outlined in a client service agreement (CSA).

A PEO manages a variety of employer responsibilities. These include:

• Reporting, collecting, and depositing employment taxes with local, state, and federal authorities
• Remitting wages and withholdings of the worksite employees
• Issuing W-2s for compensation to employees

You would still retain complete control over things such as:

• Product development
• Business operations
• Marketing
• Service
• Sales

How To Choose the Right PEO for Your Business

It’s extremely important to choose a PEO that’s reputable and trustworthy and will contribute positively to your overall company culture and employee satisfaction.

Here are some tips to help you evaluate PEOs and ultimately make the right choice:

• Ensure the PEO has audited financial statements
• Choose a PEO that has ESAC accreditation
• Verify the PEO’s services are tailored to meet your specific requirements
• Conduct your own research and get a list of references you can speak to
• Evaluate their technology to ensure that it can effectively manage your HR requirements

The right PEO will help your company prosper by giving you more time to focus on growing the business and providing high-quality HR services that drive employee satisfaction.

Emplova is a unique Professional Employer Organization (PEO) that helps small to medium sized businesses grow and prosper by providing benefits, payroll, technology, compliance, and HR administration. To learn how we can create a winning HR strategy for your business contact us today.

Information in the is article is general in nature and not intended to replace legal advice in any particular matter.