Top 7 PEO Misconceptions Answered​

Posted by Derek Carlstrom on October 8, 2020 at 10:45 AM

Top 7 PEO Misconceptions Answered​

Many small and mid-sized businesses have a fear of using a Professional Employer Organization (PEO). Some businesses may not see the full value, while others may not have a complete understanding of what a PEO provides. These misconceptions often prevent businesses from using a PEO.

Here are  the top 7 PEO myths and misconceptions that many small business owners and HR teams have about PEOs. 

PEOs Replace Your HR Employees

This insidious myth is simply not true. PEOs were not designed to replace HR staff; PEOs complement the work your HR staff does.

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When HR focuses on the human aspect, you get more engaged, positive, and successful employees. Instead of having your HR team spend hours each week dealing with benefits administration, calculating payroll taxes, and learning the ins and outs of labor law compliance, they can focus on improving and strengthening the team you have. This not only helps retain your top talent, but it can also help you attract more high-level talent that ultimately contributes to helping your business grow even faster.

Partnering with a PEO Means a Loss of Control

PEOs relieves your in-house HR from dealing with administrative burdens, but that does not mean you lose control over your business. When you partner with a PEO, you will always retain control over hiring, firing, discipline, and other day-to-day decisions.

Your PEO becomes the “employer of record” which means they can file payroll taxes, make appropriate deductions, and issue annual W-2 forms to all employees. This administrative burden often weights down business owners and HR teams time. It is also ripe for mistakes. Using a PEO gives you the confidence that you need to know that your administrative tasks are handled in a correct and timely manner.

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When the PEO is the employer of record, you also gain access to its benefits plan. A strong benefits package is important to both existing employees and potential new hires. APEO partnership gives you access to benefit plans negotiated on behalf of thousands of employees by benefits experts. 

A PEO does not want to take control of your business — its goal is to complement your business. 

PEO is Another Name for Employee Leasing

Employee leasing is often construed as a service PEOs provide. Employee leasing places employees with a business to do a temporary job or a job for a short period of time. In this case, the employee leasing company has control over some day-to-day decisions regarding employees.

A PEO partnership is entirely different. PEOs take on the administrative burden of being the employer of record for your employees - the PEO is not leasing any employees to you. In this way, not only do mundane HR tasks get shifted to the PEO, but you also retain absolute control over your team, something that does not occur with employee leasing.

Some PEOs do provide staffing services. However, unlike employee leasing, day-to-day control remains with the business owner.

IRS Certification is Not Important

The Small Business Efficiency Act (SBEA) provides for certification criteria of PEOs. IRS certification does not mean the IRS endorses one PEO over another. It does mean that certain PEOs have met the standards set forth in the SBEA.

A certified PEO can provide you with certified proof of all quarterly tax payments, audits by a CPA, and access to tax credits for which your business might not have otherwise been eligible. Perhaps most importantly, wage base tax restarts are eliminated so as to prevent double taxation.

Employees Will Not Like Working with a PEO

Employees fear change. However, when employees see the advantages of working with a PEO, they will quickly jump on board. They will see better benefits at a lower cost than would otherwise be possible.

Because of this, businesses that partner with a PEO report more engaged employees. A great benefits package is not only welcome but helps retain top talent in your industry.

PEOs do Not have a Positive ROI

The average ROI for a PEO is 27.2%. And that’s just the average savings. The ROI for top-notch PEOs is even higher.

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This cost savings comes largely from the reduced costs of benefits and workers comp. Your company's ability to provide employees with a high-quality benefits plan at a reduced cost is where many PEO clients see the biggest cost savings. Not only does that allow you to save money off the top, it also saves money in the long run by helping to reduce turnover. Replacing, hiring, and training new employees costs businesses several thousand dollars. You can avoid this by working with the right PEO.

PEOs do the Same Things as ASO's

An Administrative Services Organization (ASO) provides limited services to clients. An ASO would provide you with basic payroll services such as issuing payments. But an ASO cannot file payroll taxes on your behalf. 

With an ASO, you also do not gain access to any benefits options. A PEO can provide this value to your business and your team by giving you access to their existing benefits plan. This helps to reduce your overhead while providing your employees with access to a great healthcare package at a competitive price.

How to Find a Best-in-Class PEO

Not all PEOs are created equal. Choosing a best-in-class PEO can help you get the services you need with the confidence that your HR needs will be handled correctly.

To get a sense of how best-in-class PEOs differ from other options, download the "Grade Your PEO" scorecard today.

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ABOUT THE AUTHOR: 

Derek Carlstrom

 

Topics: Outsourcing HR / PEO

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Here, you'll find educational resources, best practices, and business tips created for business owners and leaders. We cover topics including human resources management, PEO, compliance, risk management, staffing, and more. Learn more about Questco here.

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