What is a PEO? 

Businesses grow through people—people who create, sell and deliver products and services for profit. But the systems that support your people, such as payroll, benefits, HR policies, compliance and tax administration, can quickly become burdensome and complex. 

A Professional Employer Organization (PEO) helps businesses organize and manage those systems so leaders can focus on running the company and supporting their teams. 

Below are some of the most common questions about how PEOs work. 

What is a Professional Employer Organization (PEO)? 

A Professional Employer Organization (PEO) helps businesses manage important employment-related responsibilities including payroll processing, time tracking, up-to-date policies, benefits administration, HR support, and employment tax compliance. 

PEOs operate through a model known as co-employment, where the PEO manages certain administrative and regulatory responsibilities, while the business maintains full control of day-to-day operations, management decisions, employee hiring and firing, and workplace culture. 

In the co-employment arrangement, the goal is simple: build accessible and reliable systems for businesses that support both employees and leadership. 

How common are PEOs in the United States? 

PEOs are widely used across the U.S. business landscape. 

According to the National Association of Professional Employer Organizations (NAPEO): 

  • More than 200,000 businesses work with a PEO; and 
  • These companies employ approximately 4.5 million workers. 

Most PEO clients are small and mid-sized businesses, with 50% of them employing between 10 – 49 people.  Approximately 35% of PEO clients employ fewer than 10 people. All of these clients report wanting strong HR systems and compliance assurance, without having to build and house internal departments for HR and benefits administration.  

Athough organizations across many industries use PEO services, more than half of all client companies operate in these five industry sectors combined: 

  • Professional/Technical/Scientific Services;  
  • Construction;  
  • Healthcare;  
  • Hospitality; and  
  • Manufacturing.  

How does a PEO help businesses operate more effectively? 

A PEO helps bring value-added structure and consistency to the systems that support employees and distinguish employers from their competitors. 

Typical services include: 

  • assistance in recruiting personnel; 
  • payroll processing and payroll tax administration; 
  • employee benefits, including health insurance and retirement programs; 
  • HR policies and employee documentation; 
  • guidance in addressing wage and unemployment claims; 
  • workers’ compensation and insurance claims management; 
  • regulatory compliance support, including responding to EEOC charges; and 
  • HR technology, time tracking and reporting tools. 

By organizing these systems in one place, businesses often spend less time troubleshooting administrative issues and more time focusing on productivity, innovation, client and employee retention, and expansion. 

Do PEOs help businesses grow? 

Research suggests the co-employer relationship has additional advantages for companies that partner with PEOs. 

Recent NAPEO studies have found that companies working with a PEO: 

  • grow twice as fast; 
  • experience 12% lower employee turnover; and 
  • are 50% less likely to go out of business. 

These findings highlight the fact that when operational systems run smoothly, companies and leadership are free to pursue strategic goals and revenue growth; instead of treading water. 

Can a PEO reduce employment-related costs? 

PEOs not only help businesses manage employment costs more effectively, they often reduce employee-related costs. 

Because PEOs serve many companies, they have greater buying power—power they can leverage to provide more competitive pricing. As a result, client companies may have access to: 

  • broader employee benefit options; 
  • turn-key HR technology platforms; and 
  • experienced HR and payroll professionals. 

In fact, research from NAPEO indicates businesses working with a PEO experience an average 27% return on investment from administrative and benefits efficiencies. 

Do businesses lose “control” of their employees when working with a PEO? 

No. 

Businesses always retain control over: 

  • hiring and firing decisions; 
  • employee management; 
  • job responsibilities; 
  • workplace culture; 
  • compensation; and 
  •  discipline and performance management. 

The PEO provides administrative support and HR infrastructure to support employing people, while the business continues to lead and manage the people that make up its workforce. 

Does a PEO replace internal HR staff? 

Not necessarily. 

Although some employers chose to replace internal HR staff with a PEO, many companies choose to work with a PEO alongside their internal HR team. 

In those situations, the PEO often supports the administrative infrastructure—such as payroll, compliance monitoring, benefits administration, and HR systems—allowing internal HR professionals to focus more on staff development, workplace culture, performance improvement and employee recognition. 

Why do businesses partner with a PEO? 

Businesses often turn to a PEO when the systems supporting employees begin to feel: 

  • confusing; 
  • cumbersome; 
  • time-consuming; and 
  • difficult to manage internally. 

A PEO helps replace that friction with organized, reliable systems that support both employees and leadership, as well as marketplace competitiveness.   

What does Back Office Risk have to offer? 

You owe it to yourself, your employees, and the business you have built to find out how we can help you with all of these things and more.  

Call or email, today, to learn more about Back Office Risk, based in Texas and operating throughout the United States, can help work work better.  

We’re here to help!