Outsourcing to a Professional Employer Organization: What to Expect

professional employer organization

Outsourcing to a Professional Employer Organization: What to Expect

If you are considering working with a Professional Employer Organization (PEO) to take over many of the labor-intensive human resources tasks necessary to run your business, you may wonder what to expect.

You can expect lower costs, lower risks, and increased confidence in knowing that payroll, taxes, workers’ compensation, and any benefits your PEO handles on your behalf are administered correctly. Here are some general guidelines about what to expect when you work with a PEO.

Signing On With a PEO

When you select a PEO, you’re assigned an account representative to assemble all necessary paperwork, which may include:

• I-9s
• W4 forms
• Benefit enrollment plans
• Employee pay rate establishment
• Direct deposit information

Some PEOs can import existing payroll data from your current payroll software. You may provide the PEO with information for your vacation and sick leave policies, plus the respective account balances for your employees.

You can start a PEO contract at any time, but many companies choose to start on January 1 to make tax accounting easier. Other companies choose to start PEO contracts when it’s time for their benefit plans to renew.

How the PEO Arrangement Works

Once you’ve contracted with the PEO, the PEO co-employs your worksite employees. In other words, both the PEO and your company have employment relationships with your employees, with responsibilities and liabilities allocated and shared. The PEO assumes most responsibility and liability for things like HR management, payroll, tax compliance, and risk management. The PEO may also be tasked with providing a complete HR and benefits package for your employees. Typically your business is the managing employer while the PEO is the administrative employer. Your service agreement should spell this out in detail.

Once you sign with your PEO, your employees should notice no difference in day-to-day work, other than a possible increase in benefits. You retain ownership of your company and control over daily operations.

State Laws, Federal Laws, and Collective Bargaining Agreements

Many states provide licensing, registration or regulation for PEOs where the states recognize PEOs as co-employers of worksite employees for many purposes, like unemployment insurance taxes and workers’ compensation. On the federal level, the Internal Revenue Service accepts the right of the PEO to withhold and submit federal income and unemployment taxes for your worksite employees.

Your arrangement with a PEO does not affect collective bargaining agreements. PEOs work with both union and non-union worksites. The National Labor Relations Board states that in co-employment relationships, your worksite employees are included in your collective bargaining unit, if you have one. PEOs must fully abide by collective bargaining agreement terms.

PEO Billing

The amount you pay for PEO services varies considerably depending on how big your company is, what industry you’re in, employee job duties, and the benefits packages you want to offer employees. Whether your pay cycle is biweekly, monthly, or on some other schedule, the PEO will present you with an invoice for each payroll cycle. Typically, PEOs pay employees after your payment to the PEO has cleared.

Evaluate Your PEO Options with SourceOne Partners

An employer-PEO relationship is ongoing and requires periodic interaction concerning things like payroll, taxes, insurance claims, and HR issues. Usually you’re assigned an HR consultant or payroll representative that will be your assigned contact for your PEO account and for any questions you may have.

Choosing a PEO is an important decision, and may seem overwhelming if you’ve never worked with one before. SourceOne Partners will help you evaluate your needs as an employer and determine which PEO offers the right level of services and the right cost range for your needs. When it’s time to select the right PEO for your company, SourceOne Partners, with over 50 years of experience in the PEO and payroll industry, is ready to help. Call 561-674-0748 or contact us online online for a free PEO or payroll quote for your business.