What is a PEO & Why Does My Family Business Need One?

John Komadina

3 years ago

HR Solutions

The life of a small business owner, especially one who oversees a family-owned business, is a busy one. Every day, you keep your operations running smoothly, market your company, and keep customers satisfied. On top of all that, you also manage several time-consuming administrative activities like payroll and payroll tax filings. You may have a hand in recruiting new employees, which can be a full-time job in itself; and you have to handle other paperwork, such as unemployment claims, governmental compliance, OSHA reports — the list could go on and on!

While all of these administrative tasks are necessary, they don’t really add anything to your business’ bottom line. In fact, they actually take away valuable time and energy that you could be using to grow the business. True, you’ll do what needs to be done; but is there a better solution available?

For many family-owned businesses, the answer is a resounding: “Yes!” The PEO model, a form of HR outsourcing, may be the perfect remedy for an operator that’s struggling to balance the many activities that come with owning a small business. Let’s talk about this solution in more detail.

What is a PEO?

A Professional Employer Organizations (PEO) is a human resources outsourcing company that contracts with businesses to handle key administrative tasks like payroll processing, tax compliance, and benefits administration. This solution is often referred to as a “co-employment model.” In other words, the business owner remains the worksite employer, while the PEO becomes the administrative employer of record.

For example, the business owner retains day-to-day oversight of normal operations, as well as the right to hire, manage, and fire employees. The PEO may take on HR-related tasks such as payroll processing, payroll tax filings, new hire reporting, unemployment claims, and workers’ compensation insurance.

Advantages of the PEO Model

The co-employment model offers huge advantages to small business owners and their employees. For instance:

• Time savings. The business owner has much more time to focus on other key aspects of growing the brand, such as marketing, customer service, and employee training and development.
• Peace of mind. The business owner leverages the PEO’s HR experts that have the knowledge and skills to process important documents promptly and accurately. For example, if the IRS wants to audit the business for properly classifying its workers as independent contractors or W-2 employees, the PEO can efficiently deliver the needed paperwork to the auditor, and answer any questions he may have.
• Employee benefits packages. The business’ employees get access to better benefits plans that employees at non-PEO businesses don’t enjoy.
• Employee retention. PEO clients enjoy an employee turnover rate that’s lower by 10-14%. Since PEOs offer better benefits to employees, PEO clients often have greater success in attracting and retaining top performers.

Statistics on PEO Benefits

Still skeptical about the benefits of the PEO model? If you’d like some more proof, we encourage you to consider the following statistics from the National Association of Professional Employer Organizations (NAPEO):

• The annual return on investment for PEO clients, in cost savings alone, equals 27.2% — including reductions in personnel costs, health benefits costs, workers’ compensation insurance rates, unemployment insurance rates, and other cost areas.
• A whopping 98% of PEO clients would recommend a PEO to a small business colleague.
• The annual median revenue growth for PEO clients is double that of comparable non-PEO firms.
• Average administrative costs for PEO clients are approximately $450 lower per employee than those for non-PEO clients.
• PEO clients, and especially small businesses, are 50% less likely to fail than non-PEO clients.

Clearly, partnering with a PEO offers many advantages to small business owners. Are you ready to see how a reputable PEO can benefit your family-owned company? Reach out to our team today to schedule a free consultation.