A PEO (Professional Employer Organization) can bring many solutions to a company. PEOs are the all-in-one outsourced vendor consolidation option that many small businesses are choosing to create and manage human resources and attractive benefits packages today. A PEO can provide full Human Resource services, payroll administration, benefits administration, state unemployment guidance, workers´ compensation compliance, safety, and many more areas of expertise to small and medium sized businesses. 

A PEO is defined as an organization that provides an integrated and cost effective approach to the management and administration of the human resources and employer risk of its clients, by contractually assuming substantial employer responsibilities and risk, through the establishment and maintenance of a shared-employer relationship with the client´s employees.

Generally, a PEO will legally hire a company's current employees, thereby making the PEO the "employer of record" for taxation and insurance purposes. Subsequently, the employees are leased back to the original employer (now a PEO client) under a shared-employment contractual relationship, which sets out the powers, responsibly and liabilities of the parties. This practice is also known as employee leasing or staff leasing.

The PEO then assumes responsibility for all payroll obligations, workers compensation coverage and tax filings. Additionally, health benefits, welfare and retirement benefits can be contracted, as well as all the associated administrative paperwork.

Now small and medium sized businesses can provide the same type and selection of benefits a large Fortune 500 company provides to their employees with the full service HR department that goes with it.  Joining a PEO (Professional Employer Organization) can benefit employers by enjoying the same things a large company can do without all the overhead or internal space requirements.

PEOs started in the 1980s and have grown quickly in the last few years as the number of state and federal regulations has dramatically increased. There are fewer than 1,000 PEOs in the United States serving more than 100,000 businesses with approximately 2.5 million employees and growing. 

Because they take over most of the headaches of being an employer, PEOs are ideal for small businesses. In fact, most PEOs target companies that have 150 or fewer employees.

Many times, a PEO arrangement is the only way a small business can offer benefits like health insurance, dental and vision care, life insurance, retirement saving plans like 401(k)s, Section 125 cafeteria plans (flexible spending accounts for healthcare and childcare), job counseling, adoption assistance, and educational benefits. Most small businesses could not afford nor manage these benefits on their own.

PEOs can offer and manage such great benefits because they pool the employees of all their clients together.  PEOs have dedicated internal staff that is focused on taking care of these tasks.   With more employees, PEOs get better benefits at better rates.  A health insurer would obviously be more interested in selling a group plan for thousands of employees than one for just 5 to 10.

In addition to bringing your employees more benefits and managing these plans for you, PEOs offer expert guidance through the complex maze of state and federal regulations. Today there are more than 100 federal and state agencies that regulate your businesses.  Do you know how the new Interim rule on electronic I-9 effective June 15, 2006 and how it will effect you?  What about OSHA safety requirements for your industry, are you up to date at your company? 

Even the best third-party provider won't cover absolutely every HR duty. Most business owners will still do their own recruiting, interviewing, and hiring, although the PEO may be a consultant in the process.  

You'll also probably retain certain company processes that build your company's unique culture: setting quarterly performance goals and how well employees achieve those goals, for example, offering special perks customized to be an incentive for your type of business, or devising a special way of acknowledging employee birthdays.

As someone who has spent 17 years in the human resources industry-with 11 of those years spent with a PEO-I have seen the good, the bad, and the ugly when it comes to Professional Employer Organizations. Ideally, a PEO will relieve its client companies of the time-consuming and money-draining burdens associated with HR. In order for this scenario to take place, there must be an understanding on both sides of the goals and needs of the business and of the purposes of the arrangement. To effectuate this understanding, companies who are contemplating entering a PEO commitment should consider the following factors to find the best possible PEO arrangement to meet their needs:

• First, and most importantly, conduct a basic needs analysis of your business. Determine what type of human resource and risk management concerns your business has.
• Ensure that your PEO can meet all of these needs, and will do so in a manner that meets-if not exceeds-your expectations. Do a little background research to find out if the PEO´s sales pitch is really what they deliver.
• Check out the company's staff. Does it have the depth and expertise to deliver on its promises?
• How does it deliver its services? In person? By phone? Via the Web? A mix of all three?
• What kind of consultation does the PEO provide on strategic HR issues like recruiting, HR procedures and processes?  A good PEO can help you develop processes that really work for your individual company.
• Ask for a few references, and check them. If a particular PEO can´t relieve your HR burden, then there is certainly another that can.
• Does the PEO have upfront fees and how are they determined?
• What about pre-payments?  Do you have to put up a deposit?
• Ask for some demonstration that payroll taxes and insurance premiums are being paid properly, and that any past clients´ legal issues have been correctly and efficiently handled.
• Lay the foundation for a lasting relationship with your PEO by meeting the people that you will be working with. An open line of friendly communication ensures that you won´t be lost in the in-box.
• Gain an understanding of the structure of PEOs and how they can benefit you or how they can limit you

Taking these items into account when searching for the best PEO for your company, these will certainly help reduce the wasted time looking at PEOs that don´t deliver what you want or need.

Approximately 96% of companies that begin using a PEO continue to use the same or similar services for years.

There are services that take care of these steps for you and allow you to make a final decision instead if sitting through dozens of sales presentations.  A PEO Brokerage Firm like NetPEO (www.NetPEO.com) can cut through the complex decision and make it easy by finding the best PEO to fit the needs of your company. 

Layne Davlin, President of NetPEO, www.NetPEO.com can be reached at 678-376-1212, or toll Free at 866-463-8736 or by e-mail Layne@NetPEO.com with any questions.