Businesses often find it difficult to compete with larger companies and are usually at a disadvantage when it comes to providing competitive benefit packages. Health insurance has become the number one benefit for attracting employees. Few, if any, business owners can afford to provide or administer the same kinds of benefit packages that large companies do. A 2002 study by the Kaiser Family Foundation and Health Research and Educational Trust found that the majority (almost 75 percent) of businesses with fewer than 50 employees were limited to one choice of health plan, and the percentage only improved slightly for business with up to 200 employees. In addition, the benefit programs offered by small businesses are usually limited in their coverage and program options.
All this may seem discouraging. However, an increasing number of business owners have found a solution that enables them to offer competitive employee benefit programs while freeing them from the time-consuming burden of administration, compliance and government reporting - Professional Employer Organizations (PEOs).
The expertise required to manage the human resources of a business quickly outpaces the experience and training of most entrepreneurs. When an individual first starts a business, "human resources" usually means little more than calculating weekly payroll and preparing paychecks for employees. As a business grows, the process becomes more complex and involves maintaining payroll records, calculating withholding, producing W-2 forms, quarterly 941s and other tax forms. Add to this the requirements to comply with a myriad of employment laws and regulations and a business owner can easily become consumed by administrative tasks. In fact, the Small Business Administration estimates that business owners spend up to 25 percent of their time handling employee-related paperwork.
These are just some of the reasons more and more business owners are partnering with PEOs to provide professional, effective human resources and benefit programs for their employees. PEOs are full-service human-resources organizations that manage the daily administrative headaches that business owners encounter. Business owners and PEOs establish a co-employment relationship and become partners in the management of employees, sharing certain employer responsibilities and liabilities. While the business retains the day-to-day management of its employees, the PEO assumes many of the human-resources responsibilities. A PEO is, in effect, an off-site human-resources department that helps to ensure employees have a safe workplace that is operated in compliance with employment laws and regulations.
When a business owner forms a relationship with a PEO, he or she gets access to a highly experienced human-resources staff, including human-resources managers, risk managers, compliance managers and benefits specialists. By providing these services, a PEO enables the business owner to concentrate on growing his or her business.
While paperwork reduction and time savings are important to running a successful business, a PEO is able to provide even more benefits. To help attract and retain employees, PEOs offer clients distinct competitive advantages. By teaming with a PEO, small and mid-sized businesses can benefit from the PEO´s negotiating power and volume discounts. Through a PEO, an employer can offer flexible benefit options that allow employees to have access to retirement savings plans, health-benefit programs an employee-assistance programs at an affordable cost.
In addition to receiving an enhanced benefit package, workers have the assurance that their workplace is safe and they are treated fairly. Labor laws and safety regulations often cover workers employed by a PEO that would not have protected them when employed by a small business. Because a PEO has a combined workforce of hundreds or thousands, its employees are protected by laws that usually do not apply to smaller work groups.
There are many benefits to hiring a PEO. The most difficult decision is often deciding which PEO to choose. A business owner should conduct a complete background check before entering into any agreement with a PEO and look for answers to the following questions: