Categorized | Featured Articles, HR

Need administrative relief? A PEO may be the answer

By Brad Long       

Small-business owners are a special breed, willing to take on financial and professional risks for the promise ofpeo building a great enterprise from the bottom up.[private]

But passion, ambition, and know-how needed to create and nurture a business often can be stymied by burdensome piles of administrative paperwork. Personnel issues, government red tape, and matters of employee benefits can eat up valuable energy. In fact, the U.S. Small Business Administration (SBA) reports up to 25% of a CEO’s time is spent on these types of tasks and keep owners from their most critical roles of serving customers and generating revenue.

A growing number of companies are finding relief through professional employer organizations (PEOs). A PEO serves as a human resources (HR) department and handles employment administration, employee benefits management, training and development, payroll processing and more.

The PEO advantage

PEOs offer a number of benefits to small business owners:

• Administrative relief. PEOs help small and medium-sized companies keep up with paperwork, freeing managers to concentrate on their building business by serving customers, developing new products and services, and keeping an eye on the competition.

• Improved productivity. Full-service PEOs can help improve a company’s productivity and profitability by identifying and implementing appropriate personnel-management strategies, particularly those involving employee recruitment and hiring, performance management, and training and development —critical areas for your business but areas in which you may not have expertise.

• Employer-liability management. Handling employee disputes can be a huge headache for any business, and mistakes can lead to expensive litigation. Employer-employee disputes are among the fastest-growing areas of litigation in the United States. A PEO can provide relief from such liabilities. In a typical co-employer arrangement, a company transfers many of its liabilities to the PEO, shares others and retains the rest.

• Big-company benefits. A major disadvantage to small businesses is the inability to compete with big companies on employee benefits. But many PEOs offer clients a comprehensive package of employee benefits rivaling those at large companies by using volume-buying power to level the playing field. Full-service PEOs typically offer a wide range of benefits, including medical, dental and vision care, a prescription-drug plan, life and disability insurance, retirement services, education-assistance programs, and adoption assistance.

• Slaying the government red-tape dragon. Small and medium-sized businesses can be overwhelmed by an ever-expanding web of federal, state, and local government regulations. A PEO’s HR compliance expert can help company executives sort through the regulatory alphabet soup of ADA, COBRA, FMLA, HIPPA and OSHA, reducing the risk that an obscure rule is overlooked, exposing the company to costly penalties or other consequences.

How it works

PEO and client companies contractually become co-employers. In this way, the PEO assumes substantial employer rights, responsibilities, and risk while overseeing most, if not all, HR administration and compliance.

As a co-employer, the PEO:

• Co-employs workers and therefore assumes the responsibility as an employer for those workers;

• Directs and controls employees;

• Pays wages and employment taxes of employees out of its own account;

• Provides payroll services including reporting, collecting, and depositing employment taxes with state and federal authorities;

• Establishes a long-term (not temporary) employment relationship with workers; and

• Retains a right to hire, reassign, and fire workers.

Freed from administrative burdens, the client can focus on increasing efficiency and productivity by concentrating on the revenue-producing side of operations.

Choosing the right PEO

If you assess your workplace and decide your human resources needs could be best met by a PEO, the National Association of Professional Employer Organizations (NAPEO, suggests this checklist to help select a PEO suited for your company:

[   ] Does it have experience in managing employees in your industry? Make sure the PEO is capable of meeting company goals.

[   ] Does the PEO have client and professional references? Call these references to find out the level of satisfaction they have experienced.

[   ] Is the PEO a member of NAPEO, the national trade association of the PEO industry? A membership directory is available on the NAPEO Web site.

[   ] Does the PEO have a demonstrated history of adherence to the industry’s professional-performance practices, including responsible financial management of its business? Check to determine if the PEO’s financial statements are independently audited by a CPA, and if their operational, financial and ethical practices have been independently accredited by the Employer Services Assurance Corporation (ESAC).

[   ] What experience and depth does its internal staff have? Does the PEO corporate staffing allocation follow the priorities of the PEO’s marketed services? Investigate the company’s administrative and management expertise and competence. Ask for credentials in addition to references.

[   ] How are the company’s employee benefits funded? For example, are they fully insured or partially self-funded? Who is the third-party administrator (TPA) or carrier? Is the PEO’s TPA or carrier authorized to do business in the state?

[   ] How are the employee benefits are tailored? Determine if they fit the needs of your company’s employees.

[   ] What does the service agreement specify? Are the respective parties’ responsibilities and liabilities clearly defined? What provisions permit the business or the PEO to cancel the terms of the contract?

[   ] Does the PEO under consideration meet all state requirements?

All small business owners know that staying ahead of the competition is hard work. But with a trusted PEO on board, staying focused on the core functions of the business will be infinitely easier.

Brad Long is a district manager with Administaff in Jacksonville. Administaff ( is a full-service PEO. For more information about Administaff, call 800-465-3800 or visit the company’s Web site.




What functions can a PEO take over?

• On-time and accurate payroll administration;

• HR, benefits, payroll and risk management;

• Professional assistance with compliance (payroll, OSHA, EEOC);

• Healthcare and workers’ compensation claims;

• Recruitment and training.[/private]

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