The current erratic economic landscape leaves businesses craving the resources to establish stability.
A PEO (professional employer organization) offers support to small and medium-sized businesses. Businesses form a joint-employment relationship with PEOs to share employee related responsibilities and liabilities.
Small businesses without established HR processes benefit from a partnership with a PEO. The organizations provide access to resources that support employees as well as alleviate administrative burdens to employers.
PEOs uptake numerous administrative responsibilities associated with HR functions such as payroll, benefits, and compliance. This allows businesses to focus on core growth activities. In fact, businesses that engage PEOs grow 7%–9% faster than non-PEO collaborators according to a NAPEO (National Association of Professional Employer Organizations) study.
The competitive advantage that PEOs present to small businesses explains the organizations’ rapid growth. NAPEO found that PEOs collaborate with 175,000 SMBs, representing 15% of all employers with 10–99 employees.
PEOs absorb critical HR processes, which offers an opportunity for small businesses to leverage in a time of economic volatility.
1. Access to Robust Benefits
PEOs provide small businesses with access to benefits associated with Fortune-500 companies at affordable rates.
The unanticipated widespread hospitalizations associated with the novel coronavirus will impact businesses. One organization estimates that insurers, businesses, and individuals may encounter anywhere between $34–$251 billion in additional expenses according to health insurance marketplace, Covered California.
A relationship with a PEO enables small businesses with limited resources to offer employees comprehensive benefits without subsequent costly administrative and regulatory burdens.
Under the co-employment model, PEOs’ represent hundreds of thousands of small businesses. This translates to significant bargaining power and empowers the organizations to drive down the cost of benefits. This gives small businesses access to better healthcare, retirement, and workers’ compensation coverage.
PEOs enable small businesses to provide competitive benefits packages that maintain the budget and satisfy legal standards. PEO-sponsored benefits plans offer robust coverage including medical, dental, and vision.
Administrative responsibilities fall on PEOs, including negotiations with carriers, employee enrollment, legal notifications, and COBRA administration.
PEOs also presents centralized resources that make benefits more accessible and comprehensible to employees.
One of the most popular PEOs—ADP— provides a website with resources that help employees understand their options.
Through the portal, employees access personal information including enrollment tools and a support center to get answers to questions about benefit plans. This greater access to information will not only ensure that employees leverage their benefits but also feel more satisfied with their employment.
The majority of Americans state that healthcare coverage is a primary factor in their decision to remain in their jobs according America’s Health Insurance Plans. PEOs will not only save costs on benefits but may also mitigate the high cost of employee turnover.
Small businesses gain access to cost-effective and comprehensive benefits through partnerships with PEOs.
2. Manage Payroll Administration
PEOs absorb payroll responsibilities in accordance with changeable tax laws and the rapid evolution of employment regulations during the global pandemic.
In the co-employment model, a PEO hires the business’s employees to become the employer on record. This makes the organization responsible for filing payroll taxes under its own tax identification numbers.
Businesses provide the PEO with the necessary employee information such as full-time or part-time status, wage or salary, and any exemptions. Then, the PEO calculates paychecks and pays employees by either check or direct deposit.
The PEO will also manage tax liabilities related to pay, which is especially complicated given the changing health and safety standards at the moment.
For example, The Fair Labor Standards Act (FLSA) sets minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in both the private and public sectors. Under the law, employees must meet specific criteria to gain an exemption from overtime.
Employers that do not maintain stringent time and wage records may unknowingly commit a violation known as wage theft. There are several forms of wage theft including not paying for overtime and not paying employees for all the hours worked.
PEOs maintain digital records of employee information and automate compensation to ensure that small businesses remain compliant even during global pandemics.
As recorded under their tax identification numbers, PEOs are also responsible for filing payroll taxes and tax reporting for employees on W-2s. The organizations also administer garnishment and deductions.
This relieves the burden from small businesses that may neither have the resources for accountants nor the time to scour the 2,600 pages of tax code.
It can also save small businesses from incurring trust fund recovery penalties, which occur in cases when businesses evade or fail to collect, pay, or account for tax. These penalties range from 2%–100% of the unpaid tax.
PEOs provide small businesses with assurance that payroll will be accurate and timely to avoid legal repercussions.
3. Provide HR Administration
PEOs provide resources to supplement the management of key HR functions for small businesses.
The organizations offer access to HR professionals with expertise to support small businesses with core responsibilities from risk management to workers compensation.
PEOs have resources to help small businesses establish an HR infrastructure. These organizations provide guidance for crafting compliant job descriptions and employee handbooks.
PEOs will also ensure that small businesses manage leave requests without incurring liability. The organizations not only remain up to date with the regulations related to various leaves but also monitor employee’s statuses. This ensures that employees access entitled leaves and employers remain compliant.
Given the changeable paid leave regulations associated with COVID-19, a PEO will mitigate risks that small businesses will be out of date and liable.
Many PEOs also provide on site and digital training sessions to support internal development.
For example, ADP offers a variety of training sessions to its partners including eLearning and customized consulting services.
The organization also provides webinars on a range of topics pertinent to the success of small businesses. One example of an ADP webinar teaches attendees how to manage terminations.
Certified consultants lead the classes in real-time via a webinar, which enables interaction with the instructor.
A digital resource, ADP’s training solutions ensure that small businesses can access information to support operations without direct engagement. This helps small businesses to continue to grow during the global pandemic.
PEOs manage HR administration to establish operations, reduce liabilities, and support development whether small businesses are operating on site or remotely.
Small Businesses Can Leverage PEOs to Navigate COVID-19
Small businesses can better navigate the novel coronavirus pandemic with the support of PEOs.
The economic downturn and expected increases to healthcare premiums place long-term stress on small businesses. PEOs offer competitive benefits at affordable rates to support employees and a small business’ success long-term.
PEOs remain up to date on tax codes and employment regulations, which fluctuate due to COVID-19 advancements. This ensures that small businesses remain compliant no matter the moment in time.
PEOs provide resources to supplement the management of key HR functions for small businesses.
As leave policies change to accommodate the massive number of viral infections, PEOs will manage requests and track absences to provide employees with proper entitlements and mitigate employers’ liability.
In this moment of disruption, small businesses may find stability in PEOs.
