Human resources can be a complex and varied job that requires skills ranging from accounting to managing difficult people. HR representatives today often must use multiple tech platforms and different vendors to accomplish everyday tasks. The work of managing all these different tasks can be overwhelming, and many HR departments suffer as a result.

There is a simple solution for scattered HR departments. Instead of using different vendors for each aspect of human resources, HR can rely on the same provider for both technology and employee benefits. By integrating these two aspects of the job, HR departments can streamline their work.

What does PEO mean?

A PEO (or Professional Employer Organization) differs in several specific ways from an HRO. Perhaps the most important difference between a PEO and an HRO is the bargaining power of a PEO. Choosing a PEO also means that you have a full-service HR solution, rather than a more stop-gap approach. A PEO keeps HR tasks in one location with a dedicated team overseeing all aspects of HR. Considering all the things small business owners must oversee, this siloing can be effective.

Perhaps the strongest advantage of using a PEO is the increase in the quality of benefits it can help you offer to workers. When a company joins a PEO, its employees are included in a larger benefit community. This allows small businesses to offer high-level benefits, including strong healthcare plans and exceptional 401(k) options that are usually available only to larger companies.

What does a PEO do for my company?

A PEO provides your business with a comprehensive human resources solution. Before HR becomes a headache, you should find an HR solution as you’re establishing your business, not after. Most businesses consider engaging with an accountant and a lawyer to be necessary expenses. Unfortunately, the essential work of supporting your staff is often offloaded to an inexperienced employee. It’s important to consider all possible HR solutions so that you can provide a supportive experience for your team members, the most important part of your company.

Who should use a PEO?

In recent years, there’s been a particular focus on the startup community. New businesses built around technology can bring energy and innovation to any industry. Usually, startups and small businesses start with minimal capital and spend the first few years chasing qualified leads, honing their process and product, and bringing on staff to support increased demand. If a business is lagging, the stressors of debt, sustainability, and feasibility start to converge. These sorts of worries are what most people think of when they think of small businesses. Yet, even when things are going well, business owners can struggle to stay afloat. When a small business grows quickly, the accompanying personnel or hiring issues can become exponentially complex.

Should my small business use a PEO?

It’s an understatement to say that small business owners have a lot on their plates. When most entrepreneurs decide to open a business, it’s because they have a service or product they’re excited to bring to the world. They know that the work they do or the product they offer can make a positive difference in someone else’s life. Whether they’re creating an app, innovating software solutions, starting a local coffee shop, or launching a boutique marketing agency, small business owners can be transformational in every sector.

Why do companies use a PEO?

The HR Consequences of Accelerated Growth

With an increase in staff comes a higher chance of staff-related issues. Small businesses want to offer the very best to their employees, but they may be stretched too thin to attend to every issue or question that arises. Instead, their focus is on long-term sustainability. Initially, payroll, healthcare, and retirement can be handled by the business owner or a business partner. However, as additional team members are added, HR implementation and maintenance can easily become a full-time gig. When an on-site employee tries to take this on in addition to his or her main work responsibilities, things can easily slip through the cracks. Often, to be fiscally responsible with their capital, a small business will try to juggle all HR responsibilities until it no longer becomes feasible. Often, small businesses will begin to consider an outside solution when something goes wrong. If paychecks go out late, benefits packages are confusing, or tax withholding is calculated incorrectly, the collateral damage to team trust, harmony, and business integrity can be affected. It can eventually cause your talent to seek the safer waters of a larger company, taking their expertise with them.

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Doing everything and mastering nothing is a critical mistake. Whether out of the gate or seasoned, the efficiency of your business when using a PEO is only going to help you become more profitable.
Rob Sadoff, Scarlett Hotel Group

HRO vs. PEO: A QuickStart Guide

You’ve probably realized that a homegrown HR solution might not be the most effective for your small business. Instead, maybe you’re looking to partner with an outsourced HR company to better serve your employees. As a company, you can decide between an HRO or PEO. We have already covered PEO, let’s review HRO services.

What is HRO services?

HRO stands for Human Resource Outsourcing, and it does pretty much what it sounds like. HROs offer HR services on an outsourced basis. The advantage of an HRO for small businesses and startups is that it allows companies to pick and choose what benefits and HR tasks they need outsourced. In effect, it’s like choosing among a buffet of HR options so that you can custom-design a plan that works for you. Keeping simple tasks in-house while outsourcing more complex tasks to a specialized HR company is a fantastic way to support a fledgling venture.

HRO solutions don’t provide an employer partnership, so the client remains the employer of record. An HRO is a good solution for larger businesses that want to keep most HR procedures in-house but outsource additional tasks for extra help with the selection and administration of certain HR functions.

The Benefits of a Co-Employment Relationship

The co-employment relationship is one of the most misunderstood concepts when it comes to small business HR administration. Many small business owners feel a strong sense of pride and ownership when it comes to the businesses they’ve built. When you hear terms like “co-employment” or “employment partnership,” you may feel some hesitancy about providing your employees benefits through an employment partnership.

In reality, an employment partnership or co-employment relationship doesn’t extend past the HR realm. It’s an innovative approach to providing benefits for small companies. PEOs give small business owners greater market impact and bargaining power in a healthcare market where quality care costs can often be astronomical, both for employers and employees. By entering into a larger benefits community, you can provide exceptional benefits for a reasonable price. Since healthcare and retirement providers are interacting with you as a larger entity, they’re incentivized to provide reasonable, comprehensive plans to your employees and the employees of other small businesses. Joining a PEO gives employers power at the bargaining table.

Rest assured, using a PEO to locate the strongest benefits package possible won’t dilute the identity or ownership of your small business. Instead, a strong and well-administered benefits package will only raise the profile of your business.

Advantages of Choosing a PEO for Your Business

For many small businesses, a PEO offers them high-level benefits at a reasonable cost, and it allows them to outsource all HR tasks to a common partner. That way, all tasks, paperwork, and administration are housed under a single roof. There are several advantages to a PEO that makes it a solid fit for small business owners.

Higher Efficiency

When HR uses different providers for benefits and technology, company reps are often forced to do the same tasks multiple times on different platforms. With one single provider, there is only one platform and one set of information for each individual task. This saves time for the HR department and also for employees who will have one set portal for all their information.

Better Integration

When information is spread across multiple places, it gets lost. Having employees input information into one technology platform and then request benefits from another can be a recipe for disaster. By using the same provider for HR technology and benefits, employees don’t have to worry about making requests and changing information in the wrong place.

Cost-Savings

Aside from the time saved by combining benefits brokers and HR technology providers, companies who combine vendors will also likely save money. Using a broker who also provides HR technology consolidates costs. It also allows HR representatives to see all employee information in one place, making it easier to identify places to cut costs and make future changes with new employees.

Streamlined Communication

By getting multiple HR services from one place, companies reduce the number of people with whom they need to be in regular communication. With one point of contact, communication becomes simpler, and it’s easier to track who is accountable for particular problems.

Give Employees Access to Excellent Health Insurance

The bargaining power of a PEO is the main reason many small businesses select a PEO to meet their HR needs. As healthcare laws become more complex, it’s essential to partner with a company that can give your employees access to affordable, high-coverage healthcare and keep you in compliance with changing regulations. However, as a small business, you often can’t attract feasible offers from insurers. A PEO places your business in a pool with thousands of other employees, making it an attractive client for many insurance companies. Competing bids will lead to reasonable offers, and you and your employees will benefit.

Negotiate for a Strong Retirement Package

A solid benefits package can be the difference between retaining talent and losing it to a larger organization. As employees build families and careers, they take a greater interest in the money they are saving for retirement. As a small business owner, the 401(k) plans you have access to may not be as competitive as plans offered at a larger corporation. With a PEO, that doesn’t have to be the case. As part of a larger group, you can offer employees impressive retirement plans that allow them to proactively plan for the future.

Protect Your Company Against Liability Claims

Partnering with a PEO can give your small business access to liability insurance. Although many startups don’t consider the need for liability insurance, it can save employers thousands of dollars in legal fees. When a business is just starting out, that type of loss can have a huge impact on a company’s viability. A PEO can take the lead on managing the claim process and can provide expertise and guidance through a difficult and complicated employment situation.

Help Your Businesses Establish HR Documents and Policies

It can be overwhelming to consider all the policies, protocols, and paperwork necessary to make sure your HR needs are completely covered. A PEO can help set up all the legal, governmental, and liability paperwork to make sure you and your employees are properly protected. This is particularly important, considering the frequent changes that occur in state and federal regulations. New businesses also need an employee handbook, answers to frequently asked questions about the benefits package, and procedures in place for any HR issues that may arise. Having a trusted professional handle all these things can take the pressure off an already-stressed business owner.

Attract and Retain Qualified Candidates

Capable and conscientious employees are efficient, effective, and bring creativity and innovation to a company. Unfortunately, these talented individuals can be difficult to keep on a small business payroll, due to their desire to advance their careers. Impressive benefits packages can also draw talent away from a smaller organization. With a PEO, you can retain valued employees by giving them access to excellent benefits. This can prevent talent from being poached by bigger corporations after a few months or years. You can keep expertise and innovation in your office and keep low turnover numbers.

Ensure Compliance with All Federal and State Regulations

Workplace policy is a constantly changing world of new legislation, governmental compliance, repealed bills, tax credits, and new initiatives. Making sure you’re in compliance with FUTA, SUTA, FICA, and myriad state and local requirements can take time, energy, and expertise. Most importantly, it can take your attention away from more important company-wide and overarching goals. This is where a PEO comes into play. Your HR provider should stay abreast of all relevant regulations that apply to your business. From reams of paperwork to submitting everything in a timely manner, a strong HR partner can help you meet every deadline with confidence. When information about healthcare and other employee data is in different places, compliance issues can easily go unnoticed. Combining an HR technology provider and a benefits broker puts everything in one place, allowing HR professionals to easily locate and solve compliance issues.

Organize Payroll Tax Documents and Prepare for Audits

It’s hard to keep track of the countless forms small businesses must prepare and submit to the government. Preparing payroll taxes is especially complex for smaller organizations. In addition to applying for state, local, and federal tax credits, small businesses must be prepared for an IRS audit, should one occur. Using a PEO can help keep all these forms correctly completed and organized, making it a breeze for an accountant to pull the relevant information when taxes are being prepared. Many small business owners feel trepidation and confusion about the complex payroll tax laws surrounding corporations. A PEO will help you feel confident that you’re prepared for anything.

Serve as a Liaison for Employees

Employees don’t always want to discuss medical issues, retirement savings, or other HR topics with a direct supervisor or someone in a C-level position. Instead, a PEO provides a safe and comfortable buffer between employers and employees around employees’ personal information. That confidentiality is highly valuable to your employees. It can be deeply reassuring to know there is an accessible expert who can provide them with pertinent advice and guidance. Employees can feel free to ask all the questions they want, not worrying that they are taking up the time and energy of their direct supervisor. Instead, they can go deep into the weeds of their benefits package with people who know it best.

Provide Ongoing Counsel for Business Owners

As your business grows, your HR needs can change. When you partner with a PEO provider, you’ll receive guidance and help as you navigate new waters. If you’ve worked with a PEO from the very first day of your business, your HR company will have the knowledge and perspective of your company’s history to suggest options going forward. Since they also partner with many other small businesses, they have a wealth of data and experience to draw from while advising their clients.

Collect and Analyze HR Data

A solid PEO provider will collect and share your HR data year-to-year so you can focus on being strategic with your employee-related payroll and benefits information. That way, you don’t have to rely on anecdotal data to make crucial business decisions. Instead, you can analyze your company’s trends so you can assess how your benefits package is functioning. You can also look at employee retention, bonuses, salary, and incentives. This will allow you to make larger systemic changes based on the trends you notice and to be proactive rather than reactive when it comes to tax planning, benefits, and salary deployment.

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Even though I have a background in tax, payroll can be frustrating. With a PEO, I never have to worry about making mistakes.
Greg Erickson, CFO General Graphene

HR Checklist for Small Businesses and Startups

Whether you’re just establishing your business or you’re in the early years, you may want a refresher about all the HR-related tasks and policies that need to be implemented. We’ve created this helpful checklist so you can walk through each HR need to ensure you’ve handled it. Since HR covers so many aspects of a business, this tool can help you identify where your HR bases are covered and where you need to bring in a partner.

Standard Written Policies for Hiring and Termination

It’s important to have a clearly spelled out protocol for both bringing on new employees and letting employees go.

New Hire Orientation Packet and Onboarding Procedure

Welcoming new team members is an important part of creating a healthy workplace culture. Ensure all new hiring tax forms, NDAs, and codes of contact are signed and stored.

Harassment Policy and Investigation Protocol

Protecting your employees from harassment is essential. Make sure you have a strong anti-harassment policy that is written in accordance with all local and national laws, and a plan for investigating any complaints that are made.

Healthcare Insurance Policy and Administration

Since healthcare legislation can change quickly, you need to be able to respond to those changes with a robust healthcare plan that offers a bevy of options to employees. Make sure you can answer any and all questions that come up or can point your employees to someone who can answer them.

Retirement Package Selection and Administration

For this, you’ll need to compare available retirement plans and decide on your company’s matching contribution, if any. Retirement contributions should be deposited from employee payroll.

Medical Leave, Long Term Disability Leave, or Family Medical Leave Policies

Accidents and crises do happen, and as an employer, you must have a plan in place for the unthinkable. Serve your employees by establishing parameters and supports around unplanned and unexpected leave.

Paid Time Off, Unpaid Time Off, and Vacation Policies

Good workers need time off, and they need to understand how they can request time to relax and rejuvenate. Vacation policies can vary among sectors, so conduct informal research to see if your PTO is in line with your industry standards.

Parental Leave Policies

When a new child is added to the family, your employees will need to take time away from work to care for that child. A clear, generous parental leave policy will help support your employees as they support their new arrival.

Employee Job Training

All positions have specific skills, technology, or protocols that must be taught and mastered in order to do the job well. Having a set curriculum for commonly used skills will be incredibly beneficial to employees.

Unemployment Claims Administration

First, you need to make sure that all SUTA and FUTA requirements are met. After that, if a former employee makes an employment claim, you must be able to verify their employment and explain the reason for their termination.

Employee Handbook Development

Once you’ve developed your HR policies, you need to make sure those policies are available to workers. They should be carefully vetted by an HR professional and an attorney to ensure they follow all relevant legislation.

Performance Reviews and Assessment

Documenting employee performance and keeping excellent records about the underlying evidence for those reviews will pay dividends in the future. This information can provide data about hiring, termination, employee progress, and promotions.

Conflict Resolution Strategies

It’s human nature that not everyone in a group will get along. You need to have clear steps to help two parties who are at odds reach a mutually beneficial solution. If the conflict continues to escalate, you need to have documentation around the steps you took to facilitate an effective resolution.

PEOs Help Small Businesses Run More Smoothly

When you’re focusing on growing your small business or startup, you wear many hats. You know that handling HR, payroll, and benefits are essential, but it can fall low on your priority list. Using an outsourced HR partner can help give you time to focus on big-picture strategic thinking and planning, as well as business development.

By partnering with a PEO, you’re providing your employees with high-level support. It’s a complete solution, rather than a piecemeal approach. In this way, your company can have the best of both worlds. A PEO brings you excellent HR solutions without taking time, energy, and brain space away from your team. After all, hiring a single employee to handle your HR needs in a small business or startup just isn’t practical. It isn’t the best use of profit initially, simply because you’re focused on hunting down qualified leads, growing business and personnel, streamlining processes, and creating and testing new products. With a strong HR partner, you can see measurable benefits that make your life easier and enhance the lives of your employees.

Keeping track of all your HR needs can be overwhelming, especially if you are a small or mid-sized business. That’s where our team at LBMC Employment Partners comes in. If you’re looking to outsource the daily management of your HR tasks, we’re here to help. You can connect with our team anytime to make sure your small business is prepared for all your HR needs.