What does PEO stand for?

PEO stands for Professional Employer Organization.  This third-party company gives organizations the option to outsource their HR functions, allowing them to focus on core business operations.

A PEO provides outsourced human resources services. Organizations can use the services provided by a PEO to supplement or completely replace the services of an internal human resources department, either temporarily or permanently.

The National  Association of Professional Employer Organizations (NAPEO)  reports that approximately 173,000 small and medium-sized businesses in the United States use the services of a PEO, and 15.3% of all businesses with 10-99 employees use a PEO.

What are the most common PEO services?

PEOs provide a variety of services, including:

• Recruitment and placement
• compensation
• compliance
• policy making
• performance management
• Payroll and Payroll Taxes
• Benefits Management and/or Administration
• Documentation and Information Collection

PEO Payroll

Also known as co-employment payroll, PEO payroll is a service where  the PEO becomes the employer of record for the client's employees  , handling a variety of HR responsibilities, including payroll administration. The PEO takes responsibility for processing paychecks, calculating and withholding taxes, managing employee benefits, and ensuring compliance with employment regulations.

PEO payroll is a common practice that has gained significant popularity among businesses of all sizes, with the entire PEO industry  growing at a rate of 7.6% annually.  By partnering with a PEO for payroll services, businesses can reduce administrative burdens, minimize human resources-related costs, and gain access to advanced payroll systems and expertise.

PEO Insurance

PEO insurance refers to insurance coverage provided by PEOs to their client companies and their employees. It usually refers to employee health insurance, but it can be any kind of insurance that benefits employees. For example, PEOs typically offer a variety of insurance options, including workers' compensation, general liability, employment practices liability, and employee benefits such as health insurance and retirement plans.

This insurance coverage helps protect both PEO clients and their employees from potential risks and liabilities associated with their workforce. By leveraging the collective buying power of multiple client companies, PEOs   can often obtain more competitive rates and comprehensive insurance solutions than a small business can negotiate on its own.

Why do companies use PEOs?

There are many reasons to use a PEO to provide HR services; however, this decision is often driven by financial or compliance concerns. Here are some scenarios in which a company might look to a PEO for HR services:

Benefits of a PEO for Startups

A  new company  may not have the funds to hire the HR staff needed to handle its projected growth; even with a sufficient budget, entrepreneurs may not have the experience to know what HR services they need and how many people to hire. A PEO can act as a consultant and service provider, advising on HR needs and giving the flexibility to provide only what is necessary until the HR department is viable.

PEOs can help startups offer more than the usual HR services. On the other hand, outsourcing HR functions to a PEO can cause startups to lose some control and flexibility over the administration of HR services, implementation of unique policies, and sometimes incur higher costs than hiring an internal staff or using HR-focused software.

Why seasonal employers use PEO services

A company that employs seasonal workers – such as a summer camp or winter resort – may have workforce management needs that increase and decrease dramatically with their employee count. A PEO is a way to handle large functions like seasonal hiring, benefits management, and payroll processing without having to hire a full-time HR department to handle a temporary load.

By partnering with a PEO, companies can effectively manage their seasonal employees without the burden of maintaining a year-round HR department. The PEO can efficiently handle large-scale tasks and ensure HR-related compliance, allowing the company to focus on delivering an exceptional seasonal experience.

Do large companies still use PEO services?

HR requirements are often dictated by local, regional and national laws and regulations, not to mention cultural boundaries and customs. It may be impossible for a single HR department to ensure compliance - especially when it comes to payroll - for a company with multiple satellite headquarters across the country or around the world, and it may not be possible to assign HR staff to every location.

A PEO can provide compliant and culturally fluent human resources services in unfamiliar locations, helping a company maintain legal compliance, adapt to local practices, and effectively manage its workforce in different regions.

What are the disadvantages of a P.E.O.?

The most significant weakness of a PEO  is the physical and emotional distance  . A third-party, contracted service provider can never replace the personal touch of a dedicated in-house HR department.

PEOs are a viable solution for large transactional functions, and even for person-to-person functions like recruiting and hiring, when the benefits of on-demand service outweigh any disadvantages due to cultural mismatch.

But compared to an actual “on-the-ground” HR department in an organization, it will be harder for a PEO to establish or maintain any kind of company culture without the significant help of emotionally invested, physically present HR staff.

Is HRMantra a PEO?

No, HRMantra is not a PEO  . HRMantra is a cloud-based human resources software company that provides HR management solutions. Although it offers various HR tools and features to streamline HR processes, it does not provide the full set of comprehensive HR services typically provided by a PEO.

HRMantra focuses on providing HR software solutions rather than acting as a PEO. Our software includes features such as employee onboarding, time tracking, performance management, and HR reporting – all designed to simplify HR functions and improve efficiency within organizations.

 Through  the HRMantra Marketplace , we partner with PEO companies to help you seamlessly integrate your people data with your PEO provider.

Want to learn more about how you can unlock the full potential of your HR department with HRMantra's comprehensive platform?  Learn more today  .