PEO defined and explained
White Paper
PEO DEFINED AND EXPLAINED
Why a PEO is crucial to your business.
1
Table of Contents What is a PEO?
Pg. 2
How a PEO Works
Pg. 3
How to Select a PEO
Pg. 4
What Makes PEOs Great
Pg. 5
A Nextep Case Study
Pg. 6
About Nextep
Pg. 7
2
What is a PEO? A Professional Employer Organization (PEO) is a form of human resource outsourcing that supports small and medium size businesses by completing HR functions like employee benefits and other employee management services. A PEO helps businesses save time and become more efficient by outsourcing necessary HR tasks. In addition to employee benefits, a PEO can manage tax compliance issues, employee payroll, workers’ compensation, and government compliance. A PEO will work with you to provide the HR services a small or medium sized business needs to succeed. Entrepreneur Magazine called PEOs “one of the best-kept secrets of many successful small businesses,” in its May 2014 issue.i The author continued to list why a PEO is so helpful:
Insurance and Benefits plans are purchased in bulk to offer huge savings and higherquality options. Experienced HR professionals figure out employee administration tasks, so a business owner doesn’t have to. A PEO takes care of compliance issues and informs employees of proper procedures. Businesses are provided with effective management and access to specialized reports. If a business faces problems with a HR claim, a PEO will know what to do and will work towards solving any issue.
PEOs exist so a business can focus on their core competency. Business owners don’t want to spend all their time working on payroll and benefits. With a PEO, business owners won’t have to. Businesses worried about complying with dozens of tax laws or instituting a health care plan employees will appreciate can forget about it and focus on their work, while a PEO takes care of the rest. Joining with a PEO enables a business to increase efficiency by outsourcing time-consuming HR responsibilities. Instead of business owners doing all the HR work themselves or hiring and training a whole team, they can join with a PEO and shrink their to-do lists. A PEO can be a business’ team of HR professionals. Businesses don’t need to waste time and money going through the hiring process to grow a HR department. With a PEO, businesses automatically get an HR department without all the hassle. While businesses can outsource HR tasks to multiple vendors, a PEO can be a one-stop problem solver. Georgina Clatworthy, of Business 2 Community, believes, “The most immediate benefit of utilizing PEO services is saving time and staff”.ii For small and medium sized businesses, this extra time can mean significant increases in revenue.
3
How a PEO Works In order for a PEO to be able to take on a business’ employee responsibilities, co-employment is necessary. Co-employment is the contractual allocation and sharing of employer responsibilities between a PEO and its client as defined by The National Association of Professional Employer Organizations (NAPEO). A business’ staff will be technically employed by two different entities: the PEO and the business owner. The PEO exclusively delivers human resource services and benefits, while the owner maintains control of personnel related functions. Owners keep 100% control of every business decision and operation. Businesses can get rid of unwanted risk and responsibility with a PEO. A PEO can provide better benefits with more options, wage and employment tax assistance, and help with depositing taxes to state and federal authorities. This is only possible with the relationship created by a coemployment contract. The biggest issue for business owners is the fear of less control. The reality is that coemployment allows business owners to retain all responsibility for staffing and business decisions. A PEO will only be in charge of certain employer responsibilities and risks. At its very core, a co-employment relationship is administrative. PEOs offer more benefit options along with improved benefits; an arrangement that many business owners couldn’t offer alone. Current employees experience minimum disturbance throughout the transition and generally welcome the positive change. A PEO is happy to work with existing HR departments to fill-in where help is needed. Co-employment leads to a stronger and more effective business.
4
How to Select a PEO The benefits of choosing a PEO are clear, but choosing the right PEO is crucial to a good working relationship. Employer Services Assurance Corporation (ESAC), an organization that provides accreditation and financial assurance for PEOs, suggests taking these steps to choose a PEO. 1. Verify a PEO’s accreditation In order to obtain accreditation, a PEO must prove that it has stable finances. Businesses can be reassured that an accredited PEO will stay in business and remain a reliable source of HR assistance. Accredited PEOs are compliant with industry best practices, licensing requirements, and state laws and regulations. Finally, accredited PEOs must pay taxes, insurance premiums and contributions to employee retirement plans. 2. Choose a PEO that offers the best overall value PEOs offer a variety of services. Businesses should make sure to choose a PEO that offers numerous services that fit well with what the business needs. A PEO should be able to provide all the benefits of a big corporation such as increased options, guaranteed issue coverage, and no individual underwriting. Not all PEOs are created equal. Beyond looking at what services a PEO offers, businesses should consider the customer service and stability they provide. It’s important to find a PEO that will immediately solve a business’ problems. 3. Ask for client and professional references What better way to find out what a PEO is like than asking someone who already uses a PEO’s services. These references can give businesses the peace of mind that they’ve chosen the right PEO. 4. Investigate the PEO’s management and staff How is the PEO’s staff qualified? An impressive PEO staffs experienced HR professionals to help you solve a business’ problems. If a business takes the time to get to know the staff of their PEO, they will be comfortable working with them. In addition to these steps, a business should consider what type of payment a PEO requests. Will a business pay for each service or are the services bundled? Business owners should think about what will work best for their business. Also, businesses should be sure to inquire about how long the transition to a new PEO will take.
5
What Makes PEOs Great Nearly 2-3 million people are covered by a PEO according to the National Association of Professional Employer Associations. Once a business knows all the benefits of a PEO, it comes clear as to why. Less Paperwork, More Time Business owners didn’t get into business to fill out hours of HR paperwork. Contracting with a PEO can make all a business’ HR woes disappear. A business owner’s time is much better spent working on their business. Business owners shouldn’t stretch themselves too thin. Businesses should focus on what they do best and let the HR professionals deal with the stacks of paperwork. Many businesses can’t afford to spend time away from their business working on HR responsibilities. The good news is, they don’t have to. Finding and negotiating the best benefits plans for an employer’s staff can be a huge time waste. A PEO will already have great benefits worked out at an incredible price. Max Chafkin, with Inc Magazine, wrote that PEOs allow businesses better benefits with almost no effect to their bottom line.iii Businesses that sign on with a PEO can forget the problem of dealing with benefits. An Instant HR Department While a business may not have an in-house HR department, a PEO will provide one. A PEO consists of high-quality HR professionals who study a business and learn how they can help that business succeed. If a business already has HR employees, a PEO will fill in where help is needed. PEOs provide great service and great professionals to help solve your problems. Better Offerings, Better Staff While a business may not be a large corporation, they’ll still be able to offer the amazing benefits that a large corporation does. A PEO can provide a business with more options for benefits enabling them to recruit awesome staff. A small business shouldn’t let great candidates go just because they can’t offer recruits what they want! Businesses can get new recruits on board with an excellent benefits package. Winning Workplaces, a non-profit consultancy, estimates that replacing an employee costs 50%-150% of that employee’s salary.iv Businesses can keep employees happy with great HR services and avoid huge costs. Minimize Risk and Responsibility As employment laws change, it’s important to be up to date on HR protocol. A PEO is committed to doing just that. When a business joins with a PEO, they can automatically shift some employer risk. Some risk can be completely transferred to the PEO and other risk simply shared. A PEO will be able to work with a business to manage risk in such a way that a business owner feels comfortable and satisfied with less responsibility.
6
A Nextep Case Study Tech Company Seeks Stability and Savings
M3 Technology Solutions is a software development company in Norman, Oklahoma. Years with a lackluster PEO had M3 searching for a better option. M3 searched for an opportunity to save money and do something different for their staff. The Problem With rising concerns about healthcare and a PEO that couldn’t offer them stability, M3 sought to make a change. M3’s previous PEO didn’t provide the company with the information they wanted and left them unsure about future healthcare costs. M3 often wondered if they were getting a good value for what they were paying for. Hours spent away from business and investigating other PEOs wasted valuable time. Without human resource personnel, M3 desperately needed help from a third party. Nextep’s Solution Nextep stepped in and compared M3’s current benefits offering to other PEOs and Nextep’s plans and premium. A study of M3’s current premium, employer contributions, and plan designs gave Nextep the insight needed to create a solution for M3. Nextep proposed a HDHP with an employer contribution to each employee’s HSA bank account with the option for traditional health plans. Nextep’s HDHP solution provided M3 with the rate stability they desired. To respond to M3’s healthcare cost concerns, Nextep negotiated with a broker partner to generate the creative benefits strategies necessary to lower M3’s cost of medical benefits. Additionally, Nextep issued the required ACA notifications on behalf of M3 and notified new employees of the benefits available to them. A Perfect PEO Match M3 found a PEO that was local and easy to work with. Nextep gave M3 employees the healthcare options they wanted and significant cost savings for their employer. M3 formed a relationship with Nextep better than any previous PEO. Excellent customer service gave M3 comfort. With direct contact from a Nextep representative on a regular basis, questions are answered and problems are resolved quickly. Impressed with Nextep technology, M3 finds Nextep easy to use. Now in a better place with healthcare and human resources, M3 can focus on their core business. M3 finds Nextep aides in recruitment with valuable PEO services like healthcare and employee benefits. M3 can move forward without concerns about their future.
7
About Nextep For 18 years, Nextep has provided excellent service to small and medium sized businesses. With all of the PEO industry’s respected accreditations and superior performance, Nextep offers their clients the best. Nextep was founded by a determined entrepreneur with a dream. “I left a publicly-traded PEO in 1996 with a dream of doing it differently. My goal was to give my clients the best of both worlds: the benefits and state-of-the-art technology that large companies have to offer, and the personal service and flexibility that smaller companies deliver. We’ve grown over the years, and we’ll continue to grow, but I’ve never lost sight of that dream. It’s still what I’m passionate about today.” Brian Fayak Founder & Chief Visionary Officer Speak to one of our HR professionals today and find out how Nextep can fit your needs. i
Worth, Joe, May 9, 2014. What's a PEO and How Can It Help My Business? Entrepreneur Magazine. Clatworthy, Georgina, January 7, 2013. Outsourcing HR: The Pros and Cons of Using a PEO Service. Business 2 Community. iii Chafkin, Max, May2006. Fed Up with HR? Inc Magazine. Vol. 28 Issue 5, p50-52 iv Sloane, J., 2007. Cure Your HR Ills. FSB: Fortune Small Business, 17(2), 64-65. ii
PEO DEFINED AND EXPLAINED
Why a PEO is crucial to your business.
1
Table of Contents What is a PEO?
Pg. 2
How a PEO Works
Pg. 3
How to Select a PEO
Pg. 4
What Makes PEOs Great
Pg. 5
A Nextep Case Study
Pg. 6
About Nextep
Pg. 7
2
What is a PEO? A Professional Employer Organization (PEO) is a form of human resource outsourcing that supports small and medium size businesses by completing HR functions like employee benefits and other employee management services. A PEO helps businesses save time and become more efficient by outsourcing necessary HR tasks. In addition to employee benefits, a PEO can manage tax compliance issues, employee payroll, workers’ compensation, and government compliance. A PEO will work with you to provide the HR services a small or medium sized business needs to succeed. Entrepreneur Magazine called PEOs “one of the best-kept secrets of many successful small businesses,” in its May 2014 issue.i The author continued to list why a PEO is so helpful:
Insurance and Benefits plans are purchased in bulk to offer huge savings and higherquality options. Experienced HR professionals figure out employee administration tasks, so a business owner doesn’t have to. A PEO takes care of compliance issues and informs employees of proper procedures. Businesses are provided with effective management and access to specialized reports. If a business faces problems with a HR claim, a PEO will know what to do and will work towards solving any issue.
PEOs exist so a business can focus on their core competency. Business owners don’t want to spend all their time working on payroll and benefits. With a PEO, business owners won’t have to. Businesses worried about complying with dozens of tax laws or instituting a health care plan employees will appreciate can forget about it and focus on their work, while a PEO takes care of the rest. Joining with a PEO enables a business to increase efficiency by outsourcing time-consuming HR responsibilities. Instead of business owners doing all the HR work themselves or hiring and training a whole team, they can join with a PEO and shrink their to-do lists. A PEO can be a business’ team of HR professionals. Businesses don’t need to waste time and money going through the hiring process to grow a HR department. With a PEO, businesses automatically get an HR department without all the hassle. While businesses can outsource HR tasks to multiple vendors, a PEO can be a one-stop problem solver. Georgina Clatworthy, of Business 2 Community, believes, “The most immediate benefit of utilizing PEO services is saving time and staff”.ii For small and medium sized businesses, this extra time can mean significant increases in revenue.
3
How a PEO Works In order for a PEO to be able to take on a business’ employee responsibilities, co-employment is necessary. Co-employment is the contractual allocation and sharing of employer responsibilities between a PEO and its client as defined by The National Association of Professional Employer Organizations (NAPEO). A business’ staff will be technically employed by two different entities: the PEO and the business owner. The PEO exclusively delivers human resource services and benefits, while the owner maintains control of personnel related functions. Owners keep 100% control of every business decision and operation. Businesses can get rid of unwanted risk and responsibility with a PEO. A PEO can provide better benefits with more options, wage and employment tax assistance, and help with depositing taxes to state and federal authorities. This is only possible with the relationship created by a coemployment contract. The biggest issue for business owners is the fear of less control. The reality is that coemployment allows business owners to retain all responsibility for staffing and business decisions. A PEO will only be in charge of certain employer responsibilities and risks. At its very core, a co-employment relationship is administrative. PEOs offer more benefit options along with improved benefits; an arrangement that many business owners couldn’t offer alone. Current employees experience minimum disturbance throughout the transition and generally welcome the positive change. A PEO is happy to work with existing HR departments to fill-in where help is needed. Co-employment leads to a stronger and more effective business.
4
How to Select a PEO The benefits of choosing a PEO are clear, but choosing the right PEO is crucial to a good working relationship. Employer Services Assurance Corporation (ESAC), an organization that provides accreditation and financial assurance for PEOs, suggests taking these steps to choose a PEO. 1. Verify a PEO’s accreditation In order to obtain accreditation, a PEO must prove that it has stable finances. Businesses can be reassured that an accredited PEO will stay in business and remain a reliable source of HR assistance. Accredited PEOs are compliant with industry best practices, licensing requirements, and state laws and regulations. Finally, accredited PEOs must pay taxes, insurance premiums and contributions to employee retirement plans. 2. Choose a PEO that offers the best overall value PEOs offer a variety of services. Businesses should make sure to choose a PEO that offers numerous services that fit well with what the business needs. A PEO should be able to provide all the benefits of a big corporation such as increased options, guaranteed issue coverage, and no individual underwriting. Not all PEOs are created equal. Beyond looking at what services a PEO offers, businesses should consider the customer service and stability they provide. It’s important to find a PEO that will immediately solve a business’ problems. 3. Ask for client and professional references What better way to find out what a PEO is like than asking someone who already uses a PEO’s services. These references can give businesses the peace of mind that they’ve chosen the right PEO. 4. Investigate the PEO’s management and staff How is the PEO’s staff qualified? An impressive PEO staffs experienced HR professionals to help you solve a business’ problems. If a business takes the time to get to know the staff of their PEO, they will be comfortable working with them. In addition to these steps, a business should consider what type of payment a PEO requests. Will a business pay for each service or are the services bundled? Business owners should think about what will work best for their business. Also, businesses should be sure to inquire about how long the transition to a new PEO will take.
5
What Makes PEOs Great Nearly 2-3 million people are covered by a PEO according to the National Association of Professional Employer Associations. Once a business knows all the benefits of a PEO, it comes clear as to why. Less Paperwork, More Time Business owners didn’t get into business to fill out hours of HR paperwork. Contracting with a PEO can make all a business’ HR woes disappear. A business owner’s time is much better spent working on their business. Business owners shouldn’t stretch themselves too thin. Businesses should focus on what they do best and let the HR professionals deal with the stacks of paperwork. Many businesses can’t afford to spend time away from their business working on HR responsibilities. The good news is, they don’t have to. Finding and negotiating the best benefits plans for an employer’s staff can be a huge time waste. A PEO will already have great benefits worked out at an incredible price. Max Chafkin, with Inc Magazine, wrote that PEOs allow businesses better benefits with almost no effect to their bottom line.iii Businesses that sign on with a PEO can forget the problem of dealing with benefits. An Instant HR Department While a business may not have an in-house HR department, a PEO will provide one. A PEO consists of high-quality HR professionals who study a business and learn how they can help that business succeed. If a business already has HR employees, a PEO will fill in where help is needed. PEOs provide great service and great professionals to help solve your problems. Better Offerings, Better Staff While a business may not be a large corporation, they’ll still be able to offer the amazing benefits that a large corporation does. A PEO can provide a business with more options for benefits enabling them to recruit awesome staff. A small business shouldn’t let great candidates go just because they can’t offer recruits what they want! Businesses can get new recruits on board with an excellent benefits package. Winning Workplaces, a non-profit consultancy, estimates that replacing an employee costs 50%-150% of that employee’s salary.iv Businesses can keep employees happy with great HR services and avoid huge costs. Minimize Risk and Responsibility As employment laws change, it’s important to be up to date on HR protocol. A PEO is committed to doing just that. When a business joins with a PEO, they can automatically shift some employer risk. Some risk can be completely transferred to the PEO and other risk simply shared. A PEO will be able to work with a business to manage risk in such a way that a business owner feels comfortable and satisfied with less responsibility.
6
A Nextep Case Study Tech Company Seeks Stability and Savings
M3 Technology Solutions is a software development company in Norman, Oklahoma. Years with a lackluster PEO had M3 searching for a better option. M3 searched for an opportunity to save money and do something different for their staff. The Problem With rising concerns about healthcare and a PEO that couldn’t offer them stability, M3 sought to make a change. M3’s previous PEO didn’t provide the company with the information they wanted and left them unsure about future healthcare costs. M3 often wondered if they were getting a good value for what they were paying for. Hours spent away from business and investigating other PEOs wasted valuable time. Without human resource personnel, M3 desperately needed help from a third party. Nextep’s Solution Nextep stepped in and compared M3’s current benefits offering to other PEOs and Nextep’s plans and premium. A study of M3’s current premium, employer contributions, and plan designs gave Nextep the insight needed to create a solution for M3. Nextep proposed a HDHP with an employer contribution to each employee’s HSA bank account with the option for traditional health plans. Nextep’s HDHP solution provided M3 with the rate stability they desired. To respond to M3’s healthcare cost concerns, Nextep negotiated with a broker partner to generate the creative benefits strategies necessary to lower M3’s cost of medical benefits. Additionally, Nextep issued the required ACA notifications on behalf of M3 and notified new employees of the benefits available to them. A Perfect PEO Match M3 found a PEO that was local and easy to work with. Nextep gave M3 employees the healthcare options they wanted and significant cost savings for their employer. M3 formed a relationship with Nextep better than any previous PEO. Excellent customer service gave M3 comfort. With direct contact from a Nextep representative on a regular basis, questions are answered and problems are resolved quickly. Impressed with Nextep technology, M3 finds Nextep easy to use. Now in a better place with healthcare and human resources, M3 can focus on their core business. M3 finds Nextep aides in recruitment with valuable PEO services like healthcare and employee benefits. M3 can move forward without concerns about their future.
7
About Nextep For 18 years, Nextep has provided excellent service to small and medium sized businesses. With all of the PEO industry’s respected accreditations and superior performance, Nextep offers their clients the best. Nextep was founded by a determined entrepreneur with a dream. “I left a publicly-traded PEO in 1996 with a dream of doing it differently. My goal was to give my clients the best of both worlds: the benefits and state-of-the-art technology that large companies have to offer, and the personal service and flexibility that smaller companies deliver. We’ve grown over the years, and we’ll continue to grow, but I’ve never lost sight of that dream. It’s still what I’m passionate about today.” Brian Fayak Founder & Chief Visionary Officer Speak to one of our HR professionals today and find out how Nextep can fit your needs. i
Worth, Joe, May 9, 2014. What's a PEO and How Can It Help My Business? Entrepreneur Magazine. Clatworthy, Georgina, January 7, 2013. Outsourcing HR: The Pros and Cons of Using a PEO Service. Business 2 Community. iii Chafkin, Max, May2006. Fed Up with HR? Inc Magazine. Vol. 28 Issue 5, p50-52 iv Sloane, J., 2007. Cure Your HR Ills. FSB: Fortune Small Business, 17(2), 64-65. ii
