PROFESSIONAL EMPLOYER ORGANIZATIONS
A PEO lets business owners focus on making money for their business
By: [LEE CHAPMAN] Special to NSIDE
In today’s competitive business world, owners must utilize every available advantage. The businesses that thrive in strong and weak economies work smarter, not harder to achieve sustained growth within the organization.
Many savvy business owners use a PEO or professional employer organization to streamline their costs and handle back office and human resources operations. Every business must accomplish several crucial non-revenue producing activities in an efficient manner, or risk squandering the valuable time of expensive office employees. We can observe a direct relationship between the efficiency of your time spent as a business owner and the health of your bottom line.
My organization provides consulting services to a large portion of business owners who start out with great intentions and a great plan. Many owners possess considerable capital and skills in their specific trade, skills they often acquire while working for previous employers.
Unfortunately, when an owner establishes a business in modern times, he effectively establishes two business, one that includes the revenue generating activities the owner started out to accomplish, and the other which includes the non-revenue producing activities that the government forces employers to perform through federal employment, safety, and labor law.
When using a PEO, an owner outsources several key areas of that “second” business to the PEO, thereby reducing company liability and streamlining operations. A PEO will allow you the business owner, and your key employees to focus on revenue producing activities instead of wasting valuable time on non-revenue producing clerical work.
THE CO-EMPLOYMENT RELATIONSHIP
Small to mid-sized businesses often find that human resources tasks, paperwork, and governmental filing can pile up swift and deep. Commonly the person responsible for human resources (usually the owner or a general manager for the company) wears too many hats reducing their overall productivity. Furthermore, administering human resources requires substantial knowledge of tax law, workers’ compensation law and many other areas that most business owners t and managers simply do not possess. This reason alone prevents many business owners from managing their real workload, i.e. revenue producing activities; so they can deal with mountains of complicated human resources paperwork. A PEO eliminates these headaches in a professional and cost-effective manner.
When a company enters into an agreement with a PEO it establishes a three-way relationship between the owner, employees, and the PEO. Utilizing a PEO allows the owner and the PEO to become co-employers, instead of the traditional employer/employee relationship.
This beneficial relationship allows the PEO to provide the owner with employment administration relief in such areas as payroll, taxes, HR, workers’ compensation insurance, safety and employee benefits management. PEO services allow owners/management to enhance the total quality of the organization, which results in greater efficiency and productivity.
The PEO charges a service fee to take responsibility for the non-revenue-producing areas of a business. This service fee includes the cost of payroll taxes, workers’ compensation insurance, and overhead costs. In most cases when you analyze the internal cost of providing the services in-house, the PEO delivers a remarkably better solution by using economies of scale through large numbers of employees to drive down costs. PEOs can also eliminate items, such as down payment on workers’ compensation insurance, fees associated with setting up and maintaining a 401k, payroll services and outsourcing of human resources and safety.
You will find that you attain better control of your company with proper time and money management. In addition, your employees will gain from access to a quality employee benefits program that helps motivate workers and increase employee loyalty.
In a nutshell, the goal of the PEO is to relieve you of the many time consuming and non-core business functions, so that you can do what you do best, run your company.
Lee Chapman is president of The PEO Link. For more information, visit www.napeo.org.