As an organization grows, so do its employees. With a larger workforce comes greater responsibility for HR. To make things easier and simpler for them and to reduce the cycle times for the HR department, PEOs have proven to be reliable partners.
Let’s understand what PEOs really do and discuss the pros and cons of working with PEOs.
What Is a Professional Employer Organization (PEO)?
PEO is the acronym for Professional Employer Organization. In essence, it is a company that enters into a joint-employment contract with an employer. The services they provide include but are not limited to:
- Leasing professional employees to the organization
- Managing employee-related responsibilities and liabilities
- Human resource functions
PEOs often take responsibility for all the employee-related functions of an organization, leaving more room for creative and strategic maneuvering for the organization. You could say that a PEO is the ‘employer’ for the employees and treats the organization like a ‘client’.
If your organization is looking to streamline its employee-related operations, consider the services of a PEO. For a more detailed guide on PEO, read our blog on PEO.
What Are the Benefits of Working with a Peo?
Working with a PEO provides your organization with endless convenience and five major advantages. Let’s see what they are.
1. Employee Benefits
As a specialized agency, PEOs have access to sponsored benefit plans that may be better than what an organization can provide. For these benefits, the PEO professionals take administrative tasks such as negotiations, enrolment, legal and other aspects of employee benefits.
2. Payroll
One of the biggest advantages of working with a PEO is that your payroll processes will be optimized and streamlined. Everything from the calculation of taxes to withholdings, filing, releasing salaries, etc., will be handled by the PEO.
3. HR Compliance
The HR laws change with every region, state, and country. It can be difficult to stay updated with all of them, especially when working with remote employees. In such situations, PEOs help by managing compliance according to the law.
4. Workers’ Compensation
It is in the scope of a PEO to provide workers’ compensation coverage to your employees. They have workers’ compensation insurance programs that extend to your organization. They also handle the affiliated tasks like compliances, audits, and all the requisite paperwork.
5. Recruitment
Recruitment is a complicated process and needs time and money to find the right fit for a job. PEOs help your organization recruit the right employee within the given timeframe and budget, eliminating the waste involved.
What Are the Risks Associated with PEOs?
Working with PEOs isn’t always a walk in the park. There are several risks associated with partnering with PEO organizations that you need to be aware of. Five major PEO risk management issues are discussed below.
1. Accessibility Concerns
The HR department exists to make it easier for employees to get their queries resolved within an organization. Working with a PEO may put limitations to how accessible the HR team is. Communication delays may occur, leading to employee dissatisfaction.
2. Lack of Control
Since a PEO would be managing employee-related operations, the organization may feel that it lacks control over these processes. It can always be managed by outlining the scope and authority of the PEO beforehand; however, the fact that administrative tasks still remain with the PEO stays unchanged.
3. Coordination Problems
PEOs that haven’t been screened and selected based on requirements may end up creating coordination problems with your organization. Too much communicative back-and-forth increases the cycle time of employee-related operations. This isn’t ideal.
4. Information Security
Organizations with sensitive data (such as those working in private security) should consider the possibility of information leaks when deciding to work with PEOs. Even a single breach can lead to reputational damage.
5. Employee Distress
When the administration changes hands, it puts pressure on the employees and leads to distress. When deciding to onboard a PEO for growing organizational needs, you may discover your employees to be resistive.
PEO risk management – How can I mitigate risks?
Working with PEOs may be shadowed by a few risks, but you can easily manage them by ticking the five checkpoints discussed below.
- By delineating a clear scope of authority and work, you can ensure that the control that a PEO assumes is within the permissible limits at your organization.
- You can initiate a prior survey and feedback at your organization to let the employees digest the idea of a change in the administration.
- You can request a thorough data security drill from the PEO that demonstrates that their information environment is secure.
- By establishing dedicated POCs, you can eliminate the risks of coordination problems
- You can perform thorough due diligence to establish that a PEO is indeed a reputed firm
What Due Diligence Should I Perform When Considering a PEO?
Selecting a PEO is easier when you know how to begin and the right questions to ask. Listed below are the steps for due diligence when selecting a PEO.
- Assess the needs of your business. The PEO you select should have the services you need in its scope.
- Explore the full scope of services of the PEO and consider package customization. It helps with optimizing expenses you need to partner with the PEO
- Assess the technologies a PEO uses for its operations with clients. Can these technologies be integrated into your workflows?
- Consider the extent of your organization’s role in employee matters. Demarcate the boundaries clearly
- Lastly, consider the market reputation and feedback of the PEO in question.
What Are Some Common PEO Scams?
Even though PEOs come as a boon to most organizations, some fail to follow the ethical path and try to scam businesses out of their money. Some severe instances have come to light that you must know before proceeding with the partnership.
Texas Employment Tax Scam
In 2011, it came to light that a PEO failed to pay over $66 million in employment taxes and workers’ compensation collected from clients. The conspirators pocketed the cash. They worked with fake papers and phone numbers.
Workers’ Compensation Scam
Between 2001 and 2004, multiple PEO operators scammed many organizations across the USA with fraudulent workers’ compensation. The sum amounted to $100 million and left thousands of employees without insurance. Including insurance fraud, they were indicted for money laundering, wire and mail fraud, and conspiracy.
How Can I Avoid Being Scammed by a PEO?
It is absolutely essential to ensure that your PEO isn’t a fraud. Here are a few things you can do to establish the authenticity of a PEO:
- Always ask for licensing and accreditations. Make it a point to cross-check them.
- Consider asking for references. Always call up the references for better insight.
- Scrutinize their online profiles on every channel possible
- Find a way to assess their financial status.
- It is important to do research on the history of the company to know where they are coming from
How Do I Report a PEO Scam?
At the first sign of fraudulent activity, you should report your PEO service provider directly to the police. Additionally, inform your corporate bank that your organization is being scammed; this will help restrain financial activity by the PEO for a bit. You should also check with your insurance, policy, and other providers to gauge the extent of damage done.
Lastly, inform your employees that your organization has been scammed and that they should stop all communication and exchanges with the PEO.
What Are Some Tips for Choosing a Reputable PEO?
Consider applying the following tips to select the best PEO suitable for your organization:
- Always ensure that the shortlisted PEOs can keep up with your organization’s demands.
- You should make an attempt to understand how they are funding the employee benefits to be sure.
- Have a legal aide review the service agreements
PEO risk management is indispensable
Partnering with a PEO can be useful or problematic, depending on your organization’s needs. Typically, small businesses that are on the growth path tend to manage their employees by themselves. However, a PEO can be a blessing for larger and multinational organizations.
Treat this blog as a guide to help you make the best decision for your company.
