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8 Professional Employer Organization Pros and Cons

A professional employer organization, or PEO, allows a small business to outsource their HR department needs. Human Resources is one of the costliest administration costs a business faces today, but it is also one of the most essential elements of the business. Without high quality HR, it is difficult to recruit high quality employees. That’s why outsourcing to a PEO is something many business think about.

If you’re considering a PEO today, then here are some of the key points to consider.

What Are the Pros of a PEO?

1. It allows business owners to do what they do best.
Being able to complete a payroll on time, track benefits, or make sure worker’s compensation issues are handled in a timely manner takes a special skill set that not everyone has. Businesses that outsource these tasks to a PEO are able to focus on their special skill sets with confidence because they know the professional employer organization is taking care of those needs on their behalf.

2. A PEO offers a business some legal protections.
Partnering with a professional employer organization often provides a business with an extra layer of insurance against certain legal issues. It isn’t uncommon for employees to come back to a company claiming discrimination, a wrongful termination, or other issue and sue. Having a PEO partnership helps to provide insurance for these actions, which is insurance that many small businesses don’t think to purchase this type of insurance.

3. It gives small businesses the chance to compete with large businesses.
Another great benefit of a PEO relationship is the fact that better benefit packages can be offered by a small business through the remote management of them. This allows a small business to put together a competitive employment offer for some of the best workers on today’s marketplace, giving them a chance to compete. You don’t need to be a Fortune 500 company any more to offer great benefits with a PEO.

4. Almost everything happens online.
Most communication happens online with a PEO, including the forms that need to be filled out. This not only makes things more affordable and helps the environment, but it also allows a small business to have employees working in multiple states at the same time. Even though there are different forms and requirements which need to be met, the professional employer organization handles the headache.

What Are the Cons of a PEO?

1. It requires business owners to relinquish some control.
Many small business owners are used to having their hands in a lot of business aspects every day. By partnering up with a PEO, that owner must relinquish some control of their business. Although the delegation is a beneficial act in itself, the personal adjustments that come with giving up control can be difficult at times.

2. Health care changes happen very frequently.
Employees don’t like it when people mess with their benefits. Health care plans change on an annual basis sometimes and a PEO will change to new plans frequently to best meet the expectations a small business may have. These changes can cause higher turnover rates, so counter this potential disadvantage by outlining what you’d like to see in health care coverages every year with as much specificity as possible.

3. It can result in double costs.
Let’s say a business purchases the employment contract of an employee from a PEO. It’s the PEO that pays this employee, not the small business owner. If that PEO should go out of business for some reason while the contract is still valid, the small business owner may be required to pay that employee. The end result is a double payment for services. Finding a healthy and proven professional employer organization is the best way to handle this issue.

4. It lacks the personal touch.
Although the financial benefits of having a PEO partnership are proven, the lack of a personal touch can be bothersome to many. If someone should get hurt at work, it isn’t the business owner who will be handling the situation. It will be the PEO. They act on their own time and schedule within the framework of the law and this can sometimes delay treatment because of the lack of a personal touch on the situation.

The pros and cons of a professional employer organization show that the cost savings can be highly beneficial. Small business owners can do what they do best. As long as the potential disadvantages are appropriately managed, a partnership with a PEO can be a very good thing.

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