by Joni Per-Lee, Georgia SBDC Small business owners have had it with payroll headaches. The never ending, tedious tasks of writing paychecks, tracking withholdings, searching for low-cost insurance, and addressing benefits issues have taken their toll on entrepreneurs. Furthermore, small employers feel hamstrung by financial limitations to provide "big company" benefits to their valued employees. To the rescue comes a Professional Employer Organization (PEO). Is a PEO your knight in shining armor? A Professional Employer Organization contracts with small companies (generally with 5 to 500 employees) to manage all or most of their human resource functions. PEOs help their clients in two critical areas: improving and managing employee benefits and obtaining administrative relief. To be more specific, a PEO can handle the payroll, benefits, Section 125 cafeteria plans, workers' compensation, unemployment claims, labor law compliance, record keeping, payroll taxes, and 401(k) pension plans for its clients. In the process, PEOs can save a business owner time and money, increase employee morale, and reduce his liabilities as an employer. Here's how it might work for your company. After negotiating and signing a contract with a PEO, you maintain control of the day-to-day management of your employees. The Professional Employer Organization becomes the administrative employer. In other words, you and your employees technically work for the PEO. As the administrator, the PEO has responsibility for payroll and the other human resource areas. Think of a PEO as an offsite HR department. So, no more payroll withholding questions, insurance disputes, and quarterly filings. Your employees have access to more, less expensive benefits. You get back to running your business. ERROR MSGThe cost of PEO services is usually between 2 percent and 8 percent of gross payroll. The exact cost should become clear during the evaluation process. Remember, though, that a PEO has a large number of employees under its umbrella. Due to its size, the PEO will usually offer reduced benefit rates, particularly for workers' compensation insurance. Some small businesses find the charge for PEO services more than offset by a reduction in employee benefit costs. If it sounds too good to be true, it might be. Human resources is an emotional area for small businesses. Employees rightfully get upset when their payroll is handled incorrectly or they are shortchanged in benefits. PEOs don't have the same vested interest in your employees that you do. If they are lackadaisical, they reflect poorly on you. Plus, it's harder to tell when employees are dissatisfied if you are not actively involved. Finally, the legal status of PEOs has yet to be completely clarified. Bills to do so have been introduced but not yet passed in Congress. I have a client who went through two PEOs in two years and swore never to do it again. Recently, he contracted with a third company and has been extremely satisfied, primarily due to quality service. At its website (www.napeo.org ), the National Association of Professional Employer Organizations offers more information and some guidelines to follow in considering a relationship with a PEO. A wise small business owner will clarify his business needs, research a prospective PEO very carefully, and prepare a cost analysis before riding off into the sunset on a PEO horse.
To obtain small business assistance contact a consultant at a Small Business Development Center. > See also: Human Resources & Personnel |
