Operating a small business is often expensive and requires time away from the core competencies of the business. For these reasons, many small and mid-sized businesses outsource administrative functions, such as human resources and payroll services. A Professional Employer Organization (PEO) can handle these functions so that business owners and existing staff can focus on growing their business.
We have prepared this comprehensive guide on choosing the right PEO and how to evaluate PEO companies.
What Is a PEO?
A PEO uses a co-employment model in which an organization hires workers on behalf of a company. The PEO is the employer of record and is responsible for all legal aspects of the employment relationship and compliance matters. Meanwhile the business maintains day-to-day control over the employee and uses the employee’s services for their business.
The best PEO companies offer comprehensive business solutions and services, such as:
- Manage payroll – PEO companies are the employer of record and are responsible for managing payroll functions. For example, PEO’s payroll services include setting up and running employee payroll calculations, making appropriate deductions for social charges, paying third parties and coordinating final payments at termination.
- Take over HR functions – The best PEO companies can handle virtually any human resources functions. They offer comprehensive human resources services, including managing leave and holiday benefits, administering benefits, setting up insurance, managing annual leave, An effective PEO will also help with risk management tasks and minimize the business’ potential liability.
- Handle tax administration – PEOS are familiar with the unique tax structure in other countries and regions. They can advise on compliance matters and handle all tax administration.
- Provide immigration consulting – A reloiable PEO can provide consulting on immigration matters and visa processing.
- Draft compliant employment contracts – A well established PEO has relationships with local and regional government bureaucracies. We create customized employment contracts that comply with local and regional laws and that have been approved by these entities, saving you time, money and frustration.
- Recruit top talent – The best PEOs can recruit top talent from around the world.
- Onboard employees – A PEO can also assist with the onboarding process of employees to create a seamless transition into the workplace.
- Provide legal services – More sophisticated PEOs also provide local legal services. These services may involve protecting intellectual property, setting up a corporation in China, meeting all compliance measures, advising on foreign investments, assisting with mergers and acquisitions, and offering legal advice when making banking and finance decisions.
It is important to consider the actual services provided by the PEO companies that you are considering for a fair comparison.
Benefits of Using PEOs
Using a PEO can help a business improve its internal efficiencies, increase profitability and make the company a better place to work. PEOs allow businesses to spend more time making sales and improving their productivity as they focus on the business’ core mission.
The best PEOs help a business grower faster, improve retention rates and help the business succeed. The National Association of Professional Employer Organizations has found that companies working with a PEO have 10 to 14 percent lower employee turnover, are 50 percent less likely to go out of business and grow 7 to 9 percent faster than companies that do not have the help of PEOs.
Some of the impressive benefits of using PEO companies include the following:
- Access to better benefits – As a larger employer, PEO companies can often offer better benefits to employees than the smaller-sized business might be able to, including health insurance, retirement plans and other benefits.
- Access to talented employees – PEO companies may have connections to talent pools around the world and may be able to offer immigration consulting services. This allows the business to have access to the top talent around the world.
- Shorter entry period – Using a PEO allows you to launch in a new market in a matter of days.
- Compliance – The best PEO companies have established relationships with local and regional governmental entities. They can use tested contract provisions to ensure labor contracts meet the country’s specific labor laws and employ best practices.
- Local human resources department – Having a local human resources department can ensure that you are aware of the local laws and requirements.
- Single point of contact – With a dedicated PEO, you can have a single point of contact to handle your payroll operations around the globe.
- Less frustration – Having to deal with multiple foreign bureaucracies often serves as a barrier to entry in a new market. PEO companies can provide a more convenient option.
- Streamlined process – PEO companies can provide a streamlined process to help manage your administrative tasks.
Contact New Horizons Global Partners to learn more about how we can help your business successfully expand.
Steps to Evaluate the Best PEOs
There are a number of PEO companies to select from, but they are not all equal. To make the best choice for your business, complete the following steps:
Assess the Needs of Your Business
In order to find the best PEO, you must consider what your business actually needs. Consider the challenges that your business is facing and how a PEO can alleviate these concerns. Assess your risk management needs. Consider potential needs such as:
- Payroll – Consider whether you need partial or full payroll assistance. The best PEOs offer streamlined processes that can save you money on back-end functions. Your PEO should also be knowledgeable about local tax requirements.
- Human resources – PEO companies can help administer benefits, recruit employees and assist with onboarding processes.
- Risk management – The best PEOs will help you minimize your liability in every facet possible.
Determine if the PEO is capable of meeting your needs in each of these areas.
Determine How Employee Benefits Are Tailored
Consider how the PEO tailors employee benefits and if this approach matches the needs of your workforce. Having better benefits will help you attract top talent and retain it.
Consider the insurance that different PEO companies provide, including the amount of coverage, costs, copays and deductibles. By working with a PEO, businesses can often take advantage of having access to mass policies at lower premiums. You may have additional benefits available through PEOs, such as wellness programs and retirement benefits.
Be sure the PEO offers the benefits that matter most to you and your workforce.
Evaluate the PEO’s Technology
The core purpose of a PEO is to make administrative tasks easier. The technology available to these larger firms is often able to help level the playing field with larger businesses. PEOs may be able to use web-based payroll portals that make it easier to manage payroll, track employee time, track deductions, simplify workers’ compensation payments and access payroll information.
Additionally, the PEO may have other tools in place to help keep track of other employment documentation and benefits. Ask about the technology and tools that your PEO will use.
Meet Key Staff People
When you have narrowed down your list of PEO companies to a few contenders, be sure that you personally meet with the key staff members who you and your staff will work with. Interview the PEOs and meet with the PEO representatives at their offices if possible.
During this meeting, ask about relevant expertise and experience with questions such as:
- What is your experience as a PEO?
- What industries have you worked with?
- What certifications does your PEO have?
- Are you compliant with all relevant guidelines and governmental entities?
- How many people are in your staff?
- What is the background of your staff members?
- How many years have you been in business?
- How can you help with my business?
Ask for References
The best PEOs will be willing to provide you with a thorough list of client and professional references who can confirm their history and the quality of their services. Once you receive this list, start contacting them to learn more about the PEO.
Complete a Due Diligence Analysis on the PEO
It is important to conduct due diligence on a PEO to examine its history, experience and qualifications. Perform a background check on the PEO and look into its certifications and qualifications to ensure it is compliant with all governmental entities and certifying agencies.
Investigate whether the PEO has a demonstrated history of adhering to the industry’s professional performance practices. Determine how many companies the PEO partners with, whether it has experience working in your specific industry, its client retention rate and the number of employees it represents.
Review the Contract
Before agreeing to work with a PEO, be sure that you carefully review the service agreement. Ensure that it contains all of the agreements that you have made with the PEO. Read carefully over your responsibilities and those of the PEO.
A PEO can be a tremendous addition to your business, allowing you to outsource tedious and time-consuming tasks so that you can focus on your growth and operations. However, it is not always easy to select the right PEO for you. It is important to focus on the needs of your business and complete a point-by-point comparison of the different PEO companies that you are considering. Ensure that the PEO provides risk management, human resources, payroll and other necessary services for your business. The right PEO can help you avoid pitfalls and increase your profitability.
New Horizons Global Partners is a leading PEO in the Asian market and is prepared to help your business expand to new markets. Contact us to learn how we can partner with you to help your business successfully expand.