A Professional Employer Organization (PEO) is a co-employment arrangement where a Business hires the PEO as the employer of record. The employees are referred to as leased employees. For a fee, usually a percent of payroll, the PEO will perform a portion of your Personnel & Payroll activities; while the Business performs others --
Task | Business | PEO |
On-boarding | Recruit and process new employees. | Provides benefits package. |
Compensation | Designs plan. | No involvement. |
Payroll | Process payroll instructions bi-weekly, i.e. salary, draws, commissions. Business distributes the Commission statements. | Pay wages per Business directions. |
Taxes | No involvement. | Pay and report all employment taxes to state and federal authorities, as required. |
Unemploy and W/C claims | No involvement. | Administers and manages all claims. |
Benefits | No involvement. | Makes benefits available per contract. |
Employee Support | Respond to day-to-day questions based on Policies and Procedures. | Involvement reactionary. |
Employee |
Coordinates job training. | Coordinates harassment/ discrimination training. |
Performance Reviews | Administers. | No involvement. |
Warning Process | Administers. | Involvement reactionary. |
Record Maintenance | Maintains employee file. | Maintains employee file "of record." |
If you are a small business and do not have the resources to hire a full payroll and
If managed correctly, these relationships are fantastic. Following are a few suggestions for your consideration -
- Spend extra time ensuring the payroll you submit for payment, to the PEO is correct. Out of cycle payments are usually expensive.
- Maintain a complete copy of the employee records. Do not be in a situation where the vendor has all of the information for your employees and you have none, i.e. giving up total control.
- Annually, review what you pay for PEO services vs. what it would cost if you maintained in-house support. Depending on your business, there will be a point where bringing the process in house makes sense.
- Conduct meetings with the PEO, on a set schedule, to ensure the quick resolution of issues, as they materialize.
My personal experience with PEO’s occurred between 2000 and 2006, where I was responsible for managing payroll activities for 30 joint venture companies, i.e. 250+ employees.
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