Professional Employer Organizations (PEOs) provide a very valuable service for business owners in need of help in the area of human resources. Quite a few businesses have opted to meet these demands by utilizing the services of a PEO.
Business owners, along with their managers and employees technically become legal employees of the PEO. They retain all of the functions of an employer in terms of hiring employees, setting wages, and dealing with issues related to payroll, benefits administration, workers’ comp, health insurance, and retirement accounts. Peo insurance is necessary to help mitigate any risks and exposures related to dealing with employees and other risks associated with this arrangement.
Enlisting the services of a PEO
Basically, the owner of the business pays the PEO to cover all payroll expenses plus an additional fee for their services. PEO’s often prove to be the right move for many small and medium-sized businesses. There are, of course, advantages and disadvantages of PEO’s and therefore it is well advised to make an informed decision before making a commitment.
Some of the advantages of PEO’s are that owners no longer have to deal with issues related to human resources directly, freeing them up to concentrate on other pressing issues pertaining to running a business. PEO’s are often better equipped to negotiate deals for health insurance and other benefits because of the volume of business they can offer.
There are also some disadvantages with PEO’s, since under this arrangement, legally the company no longer has any employees, and also transitioning to a PEO means that the company legally terminates all employees, who are then rehired by the PEO. While retaining all of the same employee decision-making power that they held before, now paychecks will be issued under the name of the PEO.
Furthermore, the employees may need to identify the PEO as their employer on their tax returns as well as if they apply for loans. Employees should be made to understand how this arrangement affects them ahead of time. With the PEO as the employer, PEO insurance is going to be required for many of the concerns that may spring up and also valuable if lawsuits or other actions of consequence take place.