A Professional Employer Organization (PEO) is a co-employment arrangement where a Business hires the PEO as the employer of record. The employees are referred to as leased employees. For a fee, usually a percent of payroll, the PEO will perform a portion of your Personnel & Payroll activities; while the Business performs others —
|On-boarding||Recruit and process new employees.||Provides benefits package.|
|Compensation||Designs plan.||No involvement.|
|Payroll||Process payroll instructions bi-weekly, i.e. salary, draws, commissions. Business distributes the Commission statements.||Pay wages per Business directions.|
|Taxes||No involvement.||Pay and report all employment taxes to state and federal authorities, as required.|
|Unemploy and W/C claims||No involvement.||Administers and manages all claims.|
|Benefits||No involvement.||Makes benefits available per contract.|
|Employee Support||Respond to day-to-day questions based on Policies and Procedures.||Involvement reactionary.|
|Employee Training||Coordinates job training.||Coordinates harassment/ discrimination training.|
|Performance Reviews||Administers.||No involvement.|
|Warning Process||Administers.||Involvement reactionary.|
|Record Maintenance||Maintains employee file.||Maintains employee file “of record.”|
If you are a small business and do not have the resources to hire a full payroll and human resources staff, the PEO approach should be considered. This recommendation is further supported when you consider the HR changes that are “on deck” for implementation, i.e. W2 reporting, 401k disclosure, HSA management, health care regulations. Keeping track of the changes and when they will be implemented may be better handled by a specialist, i.e. the PEO.
If managed correctly, these relationships are fantastic. Following are a few suggestions for your consideration –
- Spend extra time ensuring the payroll you submit for payment, to the PEO is correct. Out of cycle payments are usually expensive.
- Maintain a complete copy of the employee records. Do not be in a situation where the vendor has all of the information for your employees and you have none, i.e. giving up total control.
- Annually, review what you pay for PEO services vs. what it would cost if you maintained in-house support. Depending on your business, there will be a point where bringing the process in house makes sense.
- Conduct meetings with the PEO, on a set schedule, to ensure the quick resolution of issues, as they materialize.
My personal experience with PEO’s occurred between 2000 and 2006, where I was responsible for managing payroll activities for 30 joint venture companies, i.e. 250+ employees.
What is your experience?© Copyright 2012 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!