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What is PEO and Its Advantages for Recruiting?

When it comes to running a business, business owners and managers understand that every dollar, and honestly, every cent, counts. As your company expands, so will your HR needs. What if you had specialist HR professionals on hand to assist you fine-tune and save money on some of your company's most difficult aspects? What about a trustworthy group of consultants to help your organization with employment issues? And how might giving your employees access to big-business perks help with recruiting and retention? All of these elements have the potential to revolutionize your company, but are they realistic? They are when you outsource your most difficult HR responsibilities to a professional employer organization (PEO).

Stay tuned and follow all valuable information on this TSC site to find out more about PEO’s engineering staffing solutions in Vietnam, technology staffing and solutions experts, as well as its benefits for the hiring process in the future.

1. What exactly is a PEO?

The HR duties of running a business may quickly become overwhelming, which necessitates monitoring compliance across different states. Businesses struggle to attract and retain great people if they do not provide competitive incentives. A PEO can assist.

A PEO specializes in payroll, benefits, human resources, and labor compliance, allowing a firm to reduce many employee-related administrative tasks and free up time and resources for higher-value operations. A PEO can take over and/or automate activities including administering payroll, enrolling employees in benefits, monitoring compliance with current labor and employment regulations, and more by co-employing a company's workforce (more on that later).

It may be frightening to entrust your most valuable asset—your employees—to a third party. However, the National Association of Professional Employer Organizations (NAPEO) reports that companies that use a PEO have greater employee satisfaction and up to 14% less employee turnover.

Employees are not the only ones who profit. According to NAPEO's 2019 research, "the average cost savings from using a PEO are $1,775 per year per employee, while the average PEO cost per employee is $1,395, yielding an annual ROI of 27.2 percent." Not surprisingly, the study discovered that businesses that employ a PEO develop quicker and are significantly more likely to survive than businesses that do not.

Professional Employer Organization (PEO)
Figure 1. Professional Employer Organization (PEO)

2. How does a PEO work?

While PEO services and price structures differ, the following is a description of how PEOs work for SMEs and startups.

2.1. They co-employ your employees

When you join a PEO, it’ll co-employ your personnel for administrative purposes such as employee payment and payroll tax filing. Importantly, you will continue to have complete control over who you recruit, which benefit plans and designs are given to workers and other critical human resource choices.

The NAPEO describes co-employment as "a contractual allocation and sharing of certain employer responsibilities between the PEO and the client." In other words, co-employment implies that you and the PEO jointly employ your employees. Essentially, you split employer obligations as follows:

  • The PEO serves as an administrative employer (or statutory employer, as the IRS defines it). They normally process pay, benefits, withholdings, and taxes under their federal employer identification number (EIN) and employ your personnel on record for tax reasons.

  • You serve as the worksite's employer, with complete control over who you hire/fire and how much you pay them. You will also continue to be in charge of your company's entire strategy and commercial operations, which include product research and development, marketing, sales, and customer service.

According to NAPEO, "each party will be responsible for certain obligations of employment, while both parties might share responsibility for other obligations and be 'an' employer, but neither party is 'the' employer for all purposes."

2.2. They offer services that handle your HR tasks

In general, the PEO handles or automates employment-related HR administrative tasks such as:

  • Payroll: When you work with a PEO, they handle everything from employee payroll to withholding and paying taxes. You can automate this in-house using modern PEOs and spend only seconds on each pay run.

  • Employee benefits: A PEO can use its economies of scale as a large organization to negotiate rates with providers, facilitate employee registration, process claims, and more.

  • HR compliance: Labor and employment regulations are intricate, vary in each state, and frequently change. A PEO assists you in following the regulations and avoiding hefty fines.

PEOs bring technology, HR knowledge, and proven procedures to the table, helping you to save time on administrative tasks while remaining compliant.

As the trend toward remote labor increases, small firms and startups may find it increasingly challenging to navigate the many state and municipal rules governing employment standards such as payroll, PTO, minimum wage, and final pay. One in every four Americans will be working remotely by 2021, according to Upwork's Future of Workforce Pulse Report. Furthermore, by 2025, 36.2 million Americans will be working remotely, representing an 87% rise from pre-pandemic levels. Leveraging a PEO's experience might be a significant option to consider for organizations that lack an in-house understanding of each state's special requirements.

Your client service agreement (CSA) with a PEO will describe the precise services the PEO will perform as well as the specific duties of each party. Before signing, go through it carefully and make sure you understand everything. A competent PEO will clarify all of the terms and answer any questions you may have.

3. How much does a PEO cost?

Your final cost will be determined by several criteria, including the size of your firm, the services you choose to use, and the price structure of the PEO.

Cost of a PEO
Figure 2. Cost of a PEO

PEOs often employ one of two pricing models:

  • Employees pay a set monthly charge.

  • Payroll plus appropriate taxes, workers' compensation, and employer practice liability insurance (EPLI) as a percentage of payroll

Both methods may also include administrative fees, setup fees, and other expenditures if you want more bells and whistles—be wary of hidden prices. Before signing, make sure you completely understand your contract and the overall cost of working with the PEO.

4. Advantages of the PEO for recruitment

Based on TSC’s point of view, almost all PEO customers might suggest the PEO to a smaller business. From delightful staff to cost savings, there are primary advantages of PEOs below which you need to know.

4.1. Provide great staff advantages and a good HR experience

It might be tough to compete with the ideal talent if you might not provide attractive salaries or a wide range of benefits, particularly as a lot of organizations are boosting their benefits. As PEOs co-employ a lot of employees, they are capable of harnessing the purchasing power reserved for bigger organizations and offer access to very robust advantages for small business staff.

On the other hand, it can permit them to get access to a variety of leading qualities, and better choices. In reality, those advantages end up being less costly for all staff. By bringing access to an advantage on par with a software development company, the PEO might assist in maintaining you to be competitive in the search for new staff and make your existing staff satisfied.

4.2. Save more bucks

The next advantage of PEOs co-employing a lot of staff is that they are regularly capable of negotiating high ratios with insurance organizations and various advantages providers. TSC even claims that “administrative expenses are about $450 lower per staff for businesses which get the PEO”, likely since PEOs are human resource specialists capable of utilizing their current infrastructure to do more tasks effectively than a small human resource group can.

Saving money is very important for all businesses
Figure 3. Saving money is very important for all businesses

4.3. Maintain the payroll compliance

Based on recent research, Human resource, and payroll functions take an average of 38 hours per week on compliance-related work, whether it is monitoring regulatory transformations or making and communicating new policies.

The PEO recruiting supports either compliance-related works or staff liability and offers you peace of mind. PEOs also get some compliance specialists who track employer-related laws and benefits compliance so that you might not get to.

The benefit of maintaining payroll compliance is essential
Figure 4. The benefit of maintaining payroll compliance is essential

4.4. Save time

Let's face it: you and your HR department have more important things to do than submit paperwork, negotiate with benefits suppliers, and sort through ever-changing employer-related legislation. While cost savings are crucial, another significant advantage of employing a PEO is freeing up time to focus on developing your business.

PEOs can help you save time on several HR administrative tasks. PEO services frequently include:

  • Payroll: Tracking hours and PTO, paying employees, reporting earnings, withholding and paying payroll taxes, and occasionally assisting in the payment of vendors and contractors.

  • Benefits: Everything from negotiating with providers to registering employees and processing claims is being streamlined.

  • General employee management: Administering unemployment and workers' compensation, managing leave of absence requests, developing an employee handbook, conducting performance evaluation evaluations, dismissing employees, training managers, and other duties.

  • Risk and security: Reviewing safety standards, teaching staff to help reduce claims, and assisting with Occupational Safety and Health Administration (OSHA) inspections are all part of the job.

Closing Ideas

Here are the main aspects of TSC related to PEO and even its advantages for recruitment. Last but not least, do not hesitate to leave your thoughts on this issue if needed.

Source: Internet

Get top-notch Staffing and Payroll solutions from TSC in Asia. Our services, including Staffing and Payroll Outsourcing, BPO/RPO, and BOT model, enable businesses of all sizes to hire and operate cost-effectively. Since 2018, our recruitment team has provided candidates in diverse fields catering to specific client needs, from junior to management positions.


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