Professional Employer Organizations

PEOs, or professional employer organizations, provide small to mid-sized businesses the clout they need to compete with larger enterprises and offer employees better benefits packages and incentives. Highly qualified job seekers won't settle for working at companies which do not offer benefits. Today's college graduates entering the workplace, and those who have been accustomed to getting all the perks of employment at larger companies, expect employer-provided retirement programs, such as 401ks, Roth IRAs, unemployment insurance, and worker's compensation. But for smaller businesses, the cost of providing such benefits can break the bank. Co-employment contracting with reputable PEOs gives cash-wary entrepreneurs an opportunity to provide high-end benefits.

Professional employer organizations are independent agencies which hire a small company's employees and lease them back to the owner. As employer of record, the professional employer organization handles Human Resources functions for the client, including payroll, unemployment insurance, quarterly taxes, and retirement programs. PEOs issue client-leased workers paychecks each pay period and w-2s at the end of each tax year, just as if those employees belonged to the PEO. And in fact, on paper, they do. Client/owners are free to focus on generating revenue and maintaining the daily operation of the business without the headache of handling human resource functions or feeling a pinch in the pocketbook for paying exorbitant insurance rates.

Anyone who has a kid brother can understand the concept behind professional employer services. Older siblings watch over younger brothers and take the brunt of the responsibility for little brother's welfare. Tiny tykes know that as long as big brother is around, they don't have to fend for themselves. Similarly, PEOs are like a business owner's benevolent big brother: they go to bat for small owners by brokering unemployment insurance, paying for worker's compensation insurance, and administering attractive, high-end benefits packages -- all under their own employer identification number -- to save little brother time and money. Professional employer organizations take on the risk and liability of running the business by covering leased employees with unemployment insurance and worker's comp. If a client-leased worker gets hurt on the job, the PEO handles the claim, while the client is free from obligation. Everyone needs a benevolent big brother; and there is none greater than Christ Jesus. Those who accept Him as Lord and Savior and develop an intimate relationship will find that He is beautiful for situations, including making the right business decisions: Prov. 18:24: "A man that hath friends must shew himself friendly: and there is a friend that sticketh closer than a brother."

Professional employer services give small businesses credibility with top notch job seekers, too. Because of the ability to offer the same benefits as the big guys, small entrepreneurs can compete for the best qualified workers who, in turn, help increase profitability and productivity. The advantage to co-employment with a PEO is that professional staff leasing psychologically expands a client/owner's corporate presence and lends more credibility. Compare two businesses in the same field: one co-employs a PEO, while the other one goes solo. Both have the same operating budget, the same number of employees, and provide similar services. On payday, the PEO client's leased employees report to the staff leasing office to collect paychecks, which are already printed with withholding taxes, insurance and other deductions tabulated. Leased employees leave feeling confident that they have a secure job with a stable business that takes care of its workers.

Meanwhile, the solo owner begins distributing payroll checks that a family member has laboriously toiled over the previous night. Some employee hours were unaccounted for, while others had deductions that couldn't be verified. The family member doing the books is also unsure of how much withholding tax to take out on several workers. When the non-PEO owner's workers pick up their checks, many dispute inaccurate hours and leave disgruntled. A few decide not to return, because the company seems a bit shaky, especially when it comes to getting paychecks accurately and on time. Some workers complain about the lack of benefits and worry about what will happen if they get hurt on the job. After several years of working without the benefit of professional employer services, the solo owner decides to close up shop, disheartened by a high employee turnover rate, discouraged by an inability to make payroll, and dismayed at mounting federal and state tax obligations. It's clearly owners who try to manage small companies without the aid of professional employer organizations that stand a greater chance of failure.

The cost of partnering with professional employer organizations is relatively inexpensive and can save a small business owner thousands each year. PEOs generally charge from 3% to 15% over client/owner payrolls. Fees are billed on a weekly or quarterly basis and include payroll expenses, insurance, and administrative costs. PEOs can purchase lower rate unemployment and worker's compensation insurance and add a markup, which is passed on to the client. But the savings owners realize by partnering with a competent PEO more than compensate for the added expense, especially since they don't have to foot the bill for higher premiums. Small business owners seeking professional employer services can browse the Internet or look in the local telephone directory. Owners can work online with a reputable PEO or within a local office. Because PEOs have had a bad reputation for abusing the staff leasing system, prospective providers should be thoroughly investigated through the Better Business Bureau (BBB), the Securities and Exchange Commission, and the state Secretary of State's office. Owners should ask for references and read contractual agreements carefully to ensure the company's credibility.

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