When most companies start doing business, they have hundreds of things to think about, including product development, go-to-market strategy, finding customers, finding investors, and recruiting the very best people to join the organization who have the unique skills they need. Building HR operations is typically low on the list.
Enter the PEO, or Professional Employee Organization. PEOs exist to help small employers efficiently provide basic HR necessities like payroll and benefits to streamline administration and enable the small company to focus on growing its business.
They do this by aggregating small employers into a single large group, sourcing the necessary services at a larger scale, and then charging an administrative fee for access to those services.
Here are a few ways to help you think about the pros and cons of a PEO vs. implementing your own suite of HR systems, services, and benefits:
Overview of PEO Pros and Cons
Pros
Cost-effective for small employers who would overwise need more resources and funds to offer benefits on their own.
A PEO takes care of day-to-date administrative tasks, saving time and resources.
PEOs assume much of the liability associated with having and paying employees due to their co-employment arrangements.
Cons
A PEO may be cost-effective when your company starts up, but it can become more costly as it grows; managing HR operations in-house starts to become more reasonable with growth.
They offer much less customization for your company’s specific needs.
While the PEO handles administrative tasks, it also lessens your control in certain areas and limits your access to information. If you or an employee needs to address an issue or make updates, these would need to go through the PEO.
Let’s look at the pros and cons of PEOs in more detail.
1. Cost
One of the primary benefits of a PEO is that group insurance rates are typically much lower than a small employer can get on its own. For a small company, the overall bundle of the PEO’s admin fees and insurance rates is often the most cost-effective way.
However, as your company grows, you’ll reach a break-even point where the savings on insurance rates no longer outweigh the additional cost of the PEO admin fees. At that point, it’s time to consider bringing HR, benefits, and payroll in-house.
2. Administration
The PEO handles the day-to-day administration for you. If you’re used to administration and prefer to control the everyday tasks related to it (processing payroll, managing benefit enrollment transactions, etc.), then maybe you should build your own program from the start.
But if you’re OK with a more hands-off approach and prefer to let someone else handle much of the day-to-day, then working with a PEO can free up your time to focus on other business-critical items that may be more pressing.
3. Customizability
The PEO provides you with a standard menu of pre-built options for core and ancillary benefits. This can drive significant speed & efficiency in quoting, placement, and carrier/vendor relations.
However you’re looking to use your employee benefits as a differentiator to aid in recruiting or retention, it may be harder to do so when providing benefits through a PEO because your offering will be very similar to many other companies.
4. Employment Liability
A PEO takes on much of the liability associated with having and paying employees through its co-employment arrangement. For example, on the payroll side, it cuts the paychecks and calculates and withholds/remits the taxes, taking on this liability in return for the admin fee you pay the PEO.
5. Additional Services
A PEO often provides a company with additional needed services like workers' compensation insurance and 401(k), and sometimes provides your employees with resources like a call center that can answer questions about their paychecks or benefits.
Finding the Right Employee Benefits Management Solution for Your Company
As mentioned above, every company has a unique situation and set of goals that determine whether it makes sense to contract with a PEO or not. Whatever your goals may be, the Bennie team can help you figure out the right solution, both now and as you grow.
At Bennie, our benefits and HR technology consulting services will help you build a plan and technology landscape that aligns with your goals and the results you desire for your organization.
As your workplace grows, your HR operations setup will need to evolve; we provide a 360 view of your benefits with strategic, quarterly touchpoints.
Ready to learn more? Contact us today to schedule a demo to know about our products and services.
