Q: What services do professional employer organizations (PEOs) provide?
A: PEOs provide services in three general categories: payroll, benefits, and Human Resources (HR) administration.
A: The company and the PEO enter into a "co-employment" agreement. The company continues its role as the employer responsible for business operations and the PEO becomes a co-employer responsible for HR administration and employment law compliance issues.
A: No. There is no leasing arrangement and the company continues its role as the common law employer.
A: A PEO helps a company's management team focus on core business functions. Further, a PEO aggregates employees from several independent organizations into a single pool yielding service and cost efficiencies.
A: A PEO offers a standardized service platform with limited room for customization. If the PEO contract is not timed correctly, there could be a duplication of employment taxes (i.e.. FICA, FUTA, etc.) depending on the company's effective date and payroll details.
A: Yes. There are PEOs that specialize on financial service firms, technology companies, physician practices, etc. Most PEOs however have a broad mix of clients from diverse industry sectors.
A: Varies. Most PEOs charge a percentage of the company's overall payroll commonly known as a "fringe rate." Other PEOs charge a flat fee per employee and some do a combination of both. Generally speaking, a flat fee arrangement favors companies whose employees earn incomes higher than the national average.
Q: Should I consider a professional employer organization's (PEO's) client portfolio before I choose one?
A: Yes. A PEO's client portfolio will affect their business in areas such as service platform (e.g., call center vs. dedicated representative), quality of benefit plans offered, cost of insurance premiums, billing method , management of employee issues, minimum client size, etc.
A: Yes. The Employer Services Assurance Corporation (ESAC) monitors PEOs for compliance and financial stability through quarterly audits (similar to the FDIC role with banking institutions). There are approximately 400 PEOs nationwide but only about 8% are currently ESAC accredited. Before choosing a PEO, make sure they are accredited by ESAC www.esacorp.org.