When most companies start doing business, they have hundreds of things to think about, including product development, go-to-market strategy, finding customers, finding investors, and recruiting the very best people to join the organization who have the unique skills they need. Building HR operations is typically low on the list.
Enter the PEO, or Professional Employee Organization. PEOs exist to help small employers efficiently provide basic HR necessities like payroll & benefits in a way that streamlines administration and enables the small company to focus on growing its business. They do this by aggregating small employers into a single large group, sourcing the necessary services at larger scale, and then charging an administrative fee for access to those services.
Here are a few ways to help you think about the pros and cons of working with a PEO vs. implementing your own suite of HR systems, services, and benefits:
Cost: One of the primary benefits of a PEO is that group insurance rates are typically much lower than a small employer can get on its own. For a small company, the overall bundle of the PEO’s admin fees and insurance rates is often the most cost-effective way. However as your company grows, you’ll reach a break-even point where the savings on insurance rates no longer outweigh the additional cost of the PEO admin fees. At that point it’s time to consider bringing HR, benefits, and payroll in-house.
Administration: The PEO handles the day-to-day administration for you. If you’re used to administration and prefer to be in control of the day-to-day tasks related to it (processing payroll, managing benefit enrollment transactions, etc), then maybe you should build your own program from the start. But if you’re OK with a more hands-off approach and prefer to let someone else handle much of the day-to-day, then working with a PEO can free up your time to focus on other business-critical items that may be more pressing.
Customizability: The PEO provides you with a standard menu of pre-built options for core and ancillary benefits. This can drive significant speed & efficiency in quoting, placement, and carrier/vendor relations. However you’re looking to use your employee benefits as a differentiator to aid in recruiting and/or retention, it may be harder to do so when providing benefits through a PEO because your offering will be very similar to many other companies.
Employment Liability: Through its co-employment arrangement, a PEO takes on much of the liability associated with having and paying employees. For example, on the payroll side it cuts the paychecks and calculates and withholds/remits the taxes, taking on this liability in return for the admin fee you pay the PEO.
Additional services: A PEO often provides a company with additional needed services like worker’s compensation insurance and 401(k), and sometimes provides your employees with resources like a call center that can answer questions about their paychecks or benefits.
As mentioned above, every company has a unique situation and set of goals that determine whether it makes sense to contract with a PEO or not. Whatever your goals may be, the Bennie team can help you figure out the right solution, both now and as you grow.
Contact us for more information at hello@bennie.com.