The pros and cons of using a PEO company

As a young startup or a small company, you might find dealing with health benefits and retirement benefits is a time-consuming task that isn't easy for you or your staff.

This is why small companies often choose to work with Professional Employer Organizations (PEOs). This gives your employees access to better benefits and more human resources services than you might otherwise be able to provide.

What is a PEO company?

A professional employer organization (PEO) is a firm you can hire to provide a service through which you can outsource employee management tasks, such as employee benefits, payroll and workers' compensation, recruiting, risk/safety management, and even hiring, training and development.

As an outside business, a PEO may be able to save you and your staff money on insurance because they find themselves in a bigger pool of employees from several other companies. This may give you added leverage to gain less expensive coverage. 

How does a PEO work?

First, it's important to understand that when you work with a PEO, they are co-employers of your staff and share your responsibilities. So, while your team belongs to you, they are also employees of the PEO.

This is why they can offer you better rates on things like health insurance and other benefits such as workers' compensation.

Your PEO may even help you recruit, hire and train employees.

Now let's look at the pros and cons of using a PEO company. 

The Pros

The obvious pro is that by signing a contract with a PEO, you can offer your employees less expensive health insurance and better benefits.

Many small businesses don't have the resources to take on the heavy task of offering health insurance to their employees. Oftentimes, even if they could, the coverage is too expensive.

A PEO can offer a more cost-efficient option because they are pooling together employees from all of their clients, enabling them to offer more plan options.

Another advantage comes with handling your legal and compliance issues. A PEO may have expertise in areas like these and be able to help you determine how your startup can best comply with local, state and federal regulations. 

The Cons

 You might find that outsourcing your HR through a PEO presents some challenges.

It may be hard for a third-party provider to understand your company culture and know how you want to take care of your employees. So, if you use a PEO for your human resources, make sure they're on board with your management style.

In addition, the costs can mount up if you aren't completely sure what the PEO will take care of. Add-ons that you don't plan for can become costly. You want to be sure you understand the pricing structure so there aren't any unforeseen surprises.

Furthermore, you can also create various negative outcomes for your startup if you don't oversee the PEO's handling your employees' affairs. You want to stay "in-the-know," so the human connection isn't lost, and you're up to date on what's going on.

Another issue can arise if your team loves their health insurance, but the PEO chooses to move to a different carrier or plan. There's nothing you or your team can do, and you'll be stuck with what they choose.

Finally, be sure you thoroughly understand who is responsible for what – you or the PEO. For example, it would be a definite problem if your taxes don't get filed, and you find out that the PEO thought you were doing it.

Final thoughts

You'll find there is a middle ground when working with a PEO company.

You can maintain the best of both worlds by identifying what you do well in-house and what is advantageous for your PEO to handle.

Oftentimes, startups find that the best answer is a combination of in-house and outsourced management.

Do what's best for your company and your team. That may be using a PEO for benefits and insurance. Then, undertake the task of nurturing your staff and taking care of the finer points of human resources in-house.

Bottom line – there's no one size fits all solution. All startups are unique, so weigh the pros and cons considering your business, your needs, and the cost-savings. 

 Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.

Image: rawpixel on Unsplash

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