Outsourcing HR: Are PEO's a Good Idea?

Outsourcing HR: Are PEO's a Good Idea?

Small- to mid-sized employers in Rhode Island will soon have another choice when it comes to pooling benefits to lower costs: the PEO.  

With this option, companies outsource their employees to a Professional Employer Organization (PEO), who assumes many of the rights and responsibilities associated with an employment relationship. In turn, the PEO aggregates its clients’ employees together to get better pricing for things like benefits, payroll and workers’ compensation insurance.  

Who’s the Boss?

With a PEO, companies still direct their own team members in their daily activities: hiring, setting job responsibilities, managing each worker’s actions, and related tasks. The PEO simply assumes the role of an outside HR department, taking over the administrative management of employees. 

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When you sign with one, the PEO becomes the “employer of record” for your employees. What that means is that the PEO handles employee benefits, payroll and tax administration, workers compensation, unemployment insurance and so on. So its clients can focus on what they do best: running their business. 

Benefits Beyond Benefits

The PEO doesn’t just pool benefits. It also serves as a comprehensive outsourcing solution to help organizations save time and money on all HR responsibilities. With a PEO, you don’t have to worry about staying on top of employment laws, time-sensitive filings, workplace policies and procedures or other complex issues that require in-depth knowledge, and lots of follow-up. 

Plus, the PEO assumes some of your employer-related liabilities, especially with regard to employment-related legal issues, so you minimize your risk. 

Improved Employee Attraction and Retention

By enabling better priced benefits -- and outsourcing plan design to a PEO with specialized expertise in available options – companies can offer a more attractive package, adding choices previously not frequently available at smaller employers like consumer-driven products, vision coverage or 401(k) plans.  

Studies continue to show that benefits speak just as loudly as cash when it comes to attracting talent. In these belt-tightening times, companies who may not be able to boast the biggest salaries can entice workers with a PEO’s access to a broader array of benefits designed to suit employees with varying needs.  

Before you PEO

Before you select a PEO, here are some things to consider:

• Ask for references. Specifically, try to get names of similarly sized businesses in similar industries.
• Be sure the PEO is licensed, if necessary, to provide the services you require.
• Find out how the PEO charges. Some work on a fee-per-employee basis while others charge based on a percentage of payroll. And if you’re small, look out for minimum monthly fees.
• Ask if the PEO offers a la carte services or if you need to contract for the entire package of HR outsourcing. Consider the costs of administering the programs on your own versus the time saved to spend core business issues.
• Talk to your accountant and attorney to make sure you understand all the ramifications to your business before you sign an agreement with a PEO.

 

Amy Gallagher has over 19 years of healthcare industry experience.  As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.

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