Update: We've written a guide on the advantages of PEOs. Download your free copy of this PEO ebook now.
Running a business is hard. You’ve got your product or service - which is why you started the entire business to begin with - but you also have employees, partners, regulations, laws, salaries, benefit and more. All these small things can quickly suck your time away and having you do administrative work all the time. I doubt that’s what anyone had in mind when they first jumped into launching their business.
The acronym PEO stands for Professional Employer Organization.
Fortunately, a PEO is able to handle a lot of those administrative tasks that get in the way of you growing your business. What is a PEO? They essentially become your partner and handle all of your human resources, benefits, compliance and payroll.
Did you hire a new employee? PEOs will add them to payroll, take care of new hire reporting and make sure you complete I-9s. Want to offer better health insurance? PEOs work directly with carriers to get their users more affordable rates for top plans. Expanding from California to New York? PEOs will make sure you file all the paperwork, get the right insurance coverage and they’ll do it faster than you could
Savings on Healthcare and Other Benefits
Although you might want to offer benefits, they can be pretty expensive. And when you’re just starting out, you might not have the available cash flow to make those sorts of moves. Your buying power is limited. If a company that has 1,000 employees wanted to buy insurance for its employees, it would cost less per employee than if you, with 10 employees, wanted to buy insurance. It all comes down to buying power.
What a PEO does is give you that buying power. If a PEO has 100 different companies that each have 10 employees in them, that means that the PEO can buy insurance as if it had 1,000 employees. Suddenly, your small, 10-emplyoee shop has the buying power of 1,000 employees. Your cost per employee drops significantly, putting you in a position to finally be able to afford benefits. PEO savings can be as high as $2400/employee per year in some states.
And it’s not just health insurance. Because of the buying power that a PEO has, it can get competitive 401k programs, vision and dental insurance, and so many other little perks that will help keep your employees happy and motivated.
An Overview of PEOs
Get the guide on how PEOs work for small businesses.
Compliance Becomes So Much Easier
Compliance encompasses anything you are required to do, by the government, as part of having a business. That includes worker’s compensation insurance, unemployment insurance, disability insurance, new hire reporting, W2s, 1099s, state specific forms and much, much more. In fact the list is so long and so specific to location and industry, that it’s actually quite hard to keep track of what you, the business owner, have to do to stay compliant.
A PEOs job is to figure that out for you and then take care of it. The PEO will represent you with the government, since your business will be under their Employment Identification Number (EIN), so they will not only prepare, but also file the paperwork for you.
PEOs handle EPLI, Unemployment Insurance, payroll tax filing, workers’ comp insurance, payroll, taxes, and pretty much every other thing that someone in HR would be responsible for. That’s what PEOs know. Their product literally is the day-to-day administrative work.
In many ways, a PEO is like having access to multiple experts in house. With a PEO, you won’t need someone who runs and understands payroll, someone to handle insurance, so on and so forth. The PEO is able to do it all.
Compliance is a huge part of running a business. If you’re dealing with heavy machinery, there are OSHA regulations. Not sure which ones? Or did you miss one? You’ll pay a heavy fine for compliance mistakes. When it comes to these regulations, ignorance is not a viable excuse. You can’t say, “but I didn’t know.” Your responsibility is to know.
But when you’re using a PEO, you don’t need to know. All you need to know is that your partner is handling all of that. Their tools and expert employees know exactly what the rules and regulations are for your business, so they can ensure every fee is paid, every regulation is handled, and that you have dotted your I’s and crossed your t’s.
Justworks Is a PEO
To be fully transparent, Justworks is a PEO. We started Justworks to help small and medium companies grow and hire more people. We help them take care of their payroll, we get them great, affordable benefits and we take care of all the compliance paperwork. Unlike other PEOs though, we offer our services through an online technology platform that allows us to streamline several processes. This means big savings for our customers and a software platform your employees will actually enjoy using.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.