Though thousands of companies work with professional employer organizations (PEOs) in the United States, many people may be unaware of what a PEO is and how they help small to medium sized companies. By hiring a PEO, a company is choosing to use experts in human resource management from outside of their existing company structure to complement the current HR staff. Many questions arise when looking into contracting with a PEO and today we’d like to answer five of the most common questions we encounter at The Medical Link.
How does a professional employer organization arrangement work?
We’ve previously posted about what a PEO is but how does the arrangement really work? Contracting a PEO is a type of co-employment. This means that as a company you will hire a PEO to do human resource management, payroll, benefits, advice on compliance, and a variety of other services related to HR. This contract means that both the PEO and company contracting with the PEO have an employment relationship with the employee. By doing this the PEO and company share responsibility of risks and liability for the employee.
Are professional employer organizations recognized as employers by states and the federal government?
All 50 states and the federal government recognize PEOs as employers. In fact, many states have specific regulations set forth governing PEOs and requiring licensing and/or registration. Both states and the federal government recognize PEOs as being able to withhold taxes and as being responsible for workers’ compensation. Along with the IRS recognizing PEOs as being able to withhold federal, state, and unemployment taxes, they also provide specific guidance for PEOs to be able to provide retirement benefits to employees.
Do the business owners lose control or partial ownership of their companies when they work with a professional employer organization?
This is a major concern for many companies interested in working with a PEO and rightly so. The answer is absolutely not. The owners of the company maintain full ownership and business control of the company. Through co-employment the PEO shares employment responsibilities while the owners still retain responsibility for the business operations and onsite compliance. Company owners are experts at what they do and a PEO is an expert in human resource management. A PEO allows everyone to do what they do best.
Do workers receive competitive and comprehensive benefits through a professional employer organization?
Absolutely. We all know that the employment marketplace is competitive. Finding, hiring, and retaining superb staff can only be achieved when you can make competitive offers. Benefits are a main source for employee retention as well. By working with a PEO, you will have access to a wide variety of benefit offerings that are competitive with Fortune 500 companies. In many cases, partnering with a PEO is the only way small and medium-sized business can achieve this.
How many companies in the United States use a professional employer organization?
According to the National Association of Employer Organizations, “PEOs provide services to between 156,000 and 180,000 small and mid-sized businesses, employing between 2.7 and 3.4 million people.” This is roughly the size of all those employed by the federal government, the education sector, or the information sector according to the Bureau of Labor Statistics.
