How do SMEs benefit from outsourcing HR responsibilities to a PEO?
The HR department is often in charge of everything from payroll to regulatory compliance and employee benefits. Not only are HR obligations expanding, but so have statutory and regulatory burdens. You may be considering outsourcing one or more of your HR functions to decrease risk, lower expenses, and allow you to focus on your core company. Regardless of your company’s size, you may gain scalability and flexibility by outsourcing core HR activities to a CPEO.
A PEO Can Help
A PEO is a comprehensive and integrated solution. PEOs offer clients complete HR services. You can outsource many HR services with a PEO and save money on a dedicated HR department.
What is a PEO?
Employees of PEOs (Professional Employer Organisation) and CPEOs (Certified Professional Employer Organization) work for both the firm and the PEO, called co-employment. The peo handles payroll, benefits, workers’ compensation, and other HR-related duties while the business retains complete control over all business decisions and activities. Even if you already have an HR department, PEOs can help free up on-site HR personnel to work on strategic projects rather than administrative tasks.
How can a PEO work?
- Affordable access to big-business perks (healthcare, pensions, etc.)
- HR specialists that are well-versed in all facets of human resources.
- Payroll and accounting expenditures have been reduced.
- Employer liability management is comprehensive.
- Administrative duty exemption
When you require a full HR outsourcing solution, you should consider a CPEO. A certified PEO offers similar services as a conventional PEO but must meet IRS certification standards regarding tax status, background, expertise, financial reporting, bonding, and other factors.
A CPEO is fully responsible for paying employment taxes, submitting returns, and other tax-related responsibilities. In contrast to HR outsourcing firms, which may be able to perform one or two core HR operations, a PEO or CPEO can manage all of your company’s HR needs. You won’t have to invest any more time and effort in complicated HR procedures, nor will you have to hire more employees.
Advantage of SMEs choose to outsource to PEO
Reducing hiring cost
As a small to medium-sized business, it might not be easy to compete for the most exemplary employees if you can’t offer competitive salaries or benefits—primarily when the Society for Human Resource Management reports that more and more companies are raising their benefits (SHRM).
Because PEOs employ so many workers, they can leverage the purchasing power reserved for much larger organizations and provide access to more robust benefits for small business employees, allowing them to access a broader selection of high-quality, inexpensive solutions.
Reducing Admin cost (Payroll, Taxes, employee benefits etc.)
Another peo service benefit for SMEs is the aspect of payroll. Dealing with payroll is problematic because it necessitates a thorough understanding of local tax and benefit laws. PEOs employ accounting specialists with years of experience processing payroll. This frees up business owners to focus on the growth and development of their company and reduces the possibility of costly payroll management blunders.
Simplified de-registration and wind-down procedures
A professional employer organization (PEO) can also handle your workers’ compensation claims, including communication and aid with return-to-work programs. A good PEO will also provide other safety and risk management services, such as:
- Workers’ compensation insurance
- Claims management
- On-site safety reviews and training
- Safety materials
- State and federal compliance posters
- Premium payment and reconciliation
- Post-accident drug testing
- Drug-free workplace program
- Accident investigation
- Certificates of insurance
- Light duty program
Limiting risk on new market entry
If you do not have workers’ compensation coverage, you may face fines, penalties, and litigation. With the rising liabilities that small businesses are experiencing, your PEO may be a safety net for those trying to raise revenue, develop their business, and reduce risk. Working with a PEO decreases workplace injuries and cuts your workers’ compensation coverage and rates.
Common misunderstanding on PEO?
While there has been much discussion about the advantages PEO, there has been little discussion on the drawbacks of PEO services. Here, we will look at some problems of Professional Employer Organizations and analyze whether or not these perceived drawbacks of PEOs are accurate.
PEOs are Expensive
It is also suggested that one of the primary disadvantages of Professional Employer Organizations is that they are a costly payroll and employment choice. This, however, is inaccurate. Through economies of scale, expertise, and standardizing international payment, PEO services can lower your HR and expansion costs by up to 90%. In the long term, it is more expensive for a firm to recruit, hire, and process payroll across all of its worldwide locations in-house.
A Professional Employer Organization Disadvantages the HR Team
Some businesses believe that hiring a PEO will no longer need an HR team for in-house administration. This is not the case. Instead, a PEO eliminates the necessity for the company’s HR department to perform what some believe to be monotonous and redundant work. This allows senior HR professionals to focus on more strategic activities such as building in-house policy and improving HR operations within the organization. HR departments overburdened with administrative and clerical chores may lose sight of their true value-added operations. Arguably, by collaborating with a PEO and an in-house HR team, the company may efficiently handle its HR duties and compliance requirements while focusing on core level improvements. HR can manage performance management, employee relations, and training activities while the PEO performs administrative functions. When you use PEO services, you gain access to a vast team of HR, business, tax, and legal professionals. You can apply the most excellent HR and compliance standards while still running an in-house HR team this way.
PEOs Are Suitable Only for Large Companies
It is commonly misunderstood as an outsourcing strategy for large corporations focusing on their primary business. In theory, multinational corporations employ Professional Employer Organization services to cut expenses and free up their HR teams to do essential HR tasks. In actuality, PEO solutions may benefit both small and large firms. Non-experts find it difficult and costly to ensure employment law, tax, and payroll compliance. Small businesses that seek to handle this in-house may quickly find themselves spending more time than anticipated. Furthermore, PEO solutions are easily scaleable: because they are paid per employee, the cost of a PEO service is often proportional to the organization’s growth. And when the company expands, the PEO can swiftly hire new employees without restructuring payroll operations.
Companies outsource HR functions in order to spend less time on daily HR to-dos and more time on the business decisions that affect the bottom line. According to recent surveys, With a PEO solution, a PEO becomes the legal employer for your workforce, taking over compliance, tax and payroll responsibilities. The most common business challenges include:
- Hiring new employees
- Health care
- Taxes and regulations
- Attracting new clients
- Growing the size of the business
The top concerns of business owners are exactly the types of issues PEOs focus on. Businesses that outsource their HR functions to a CPEO experience less risk, more profit, and happier, more productive employees.