Multiple business workers reviewing a PEO presentation

PEO Definition and Detailed Walkthrough

by Andrew Sowell, on July 06, 2022
Are you curious to know what a PEO is and whether it could help your business? PEOs can be an extremely valuable asset, especially for small to medium-sized businesses. Before researching and choosing a PEO though, it’s important to understand the basics of PEOs and what they do.
A PEO helps businesses by providing HR solutions such as payroll, employee benefits, employment law compliance and risk management. They assist small to medium-sized businesses that commonly don’t have dedicated employees to handle HR-related tasks. Outsourcing HR tasks to a PEO can increase growth and give business owners more time to focus on other priorities.

If you have concerns when it comes to what a PEO is or what to look for in one, we’ve got you covered. In the article below, we answer some of the most common questions regarding PEOs to guide your decision on whether you should partner with a PEO.

What is a PEO?

PEO stands for Professional Employer Organization and is a type of company that provides HR for small and medium-sized businesses. PEOs offer an array of HR services such as payroll, employee benefits, assisting with employment law and regulatory compliance, workers’ compensation, and more. In the United States, there are hundreds of PEO companies. These organizations provide services to more than 170,000 small and medium-sized businesses.

What Services Do a PEO Offer?

The wide range of services that can be outsourced to a PEO are:
  • Human Resources
A dedicated person or team that is available to answer HR questions and help ensure your company stays in compliance with state and local employment laws.
  • Workers’ Compensation
Workers’ compensation insurance is provided to employers to cover expenses when employees experience work-related injuries or illnesses.
  • Risk Management
A dedicated person or team to assist your business with claims management services, safety inspections, and safety training.
  • Human Resources Information System (HRIS)
Software to manage and maintain employee information and HR-related policies/procedures.
  • Payroll & Tax
Payroll administrative tasks such as timekeeping, direct deposit and tax filings.
  • Employee Benefits
Benefits for your employees like health, dental, vision and life insurance, retirement savings plans, tuition reimbursement and more.

It’s important to note that not every PEO offers all the services listed above. The range of services varies from one PEO to another. Additionally, some PEOs may allow you to choose individual services while others only offer complete packages. When researching PEOs, be sure to review and ask what services are offered and how they are charged to ensure they align with what your business needs.

Would My Business Benefit from Working With a PEO?

It could be argued that any organization can benefit from partnering with a PEO. If your business has administrative tasks that take up the bulk of your time, then you can gain from working with a PEO. There are other common scenarios in which a Professional Employer Organization can benefit your business.
Situations in which a PEO can help your business include:
  • Handling administrative tasks such as payroll, onboarding paperwork, benefits enrollment and administration, workers’ compensation claims, etc.
  • Maintaining compliance with employment regulations.
  • Vendor consolidation – Providing a suite of software services for timekeeping, employee onboarding, training, and performance management to name a few.
  • Planning appropriate steps to take during business expansion.
The industry association for PEOs, NAPEO, states organizations that partner with a PEO can grow 7 to 9% faster, their employee turnover is 10 to 14% lower, and they are 50% less likely to go out of business when compared to other organizations that aren’t utilizing a PEO.

PEOs can also give you access to Fortune 500-level employee benefits, increase participation in retirement saving plans, and offer valuable HR assistance that helps you attract and retain talent.

How Does a PEO Work?

When a company needs to outsource its administrative HR tasks like payroll, employee benefits, risk management, workers’ compensation, and HR expertise, they hire a PEO. The steps for partnering with a PEO will vary for each company.

For LandrumHR, the steps for partnering with us for PEO services include:
  1. Initial contact with one of our PEO business consultants to get a basic understanding of your needs.
  2. Conduct a discovery meeting to review your current business operations, growth strategies and goals. Identify any gaps, challenges or roadblocks that could be fixed by partnering with a PEO. This is a deeper dive that allows us to get to know your business and provide the right solution.
  3. Your designated consultant will gather data and complete a cost analysis to identify if a PEO solution makes financial sense for your organization.
  4. Experience an online demo of our HRIS to see how our software platform can improve operational efficiencies for your business.
  5. Comprehensive proposal and cost analysis of partnering with a PEO, to include long-term benefits and HR strategies as well an implementation timeline.
  6. Underwriting approvals (financial approval, workers’ compensation approval and benefits approval).
  7. Review and sign the Client Service Agreement (CSA).
  8. Implementation begins.
Throughout the entire process, our PEO business consultants answer any questions and concerns you may have. We ensure that you’re fully involved and aware of what’s going on at each step of the journey.

What Are the Benefits of Working With a PEO?

PEOs help organizations save money and make money. A Professional Employer Organization gives employees access to Fortune 500-level benefits packages such as 401(k) plans, health, dental, life, ancillary insurance products, employee assistance programs and more to retain the workers you have.

Laws and workforce trends are constantly changing, so having an HR professional dedicated to keeping your organization up to date is crucial. A PEO provides this resource and allows owners to readjust their focus back to what they’re best at.

For more information regarding the benefits of a PEO, check out our blog on the value of using a PEO.

PEO Business Model

In a PEO business model, a company will partner with the PEO as a co-employer to assist in the HR administrative functions. In exchange for this service, they pay the PEO an administrative fee per employee, per month.
Most of the time, the total cost of fees is less than what they would pay internal employees to handle these tasks. If a business already has an internal HR employee, a PEO supports that person and helps them focus on more strategic organizational initiatives such as engagement and culture.
If you are looking to weigh the options, check out our guide on how to evaluate a PEO.

How Much Do PEOs Charge?

When partnering with a PEO, the cost is based on the number of full-time employees the business has. Depending on the package that the business selects, using a PEO will range from about $750 to $1,500 per employee, per year.
As an example, for a business with about 15 full-time employees, the investment will be somewhere between $11,250 and $22,500 per year, or $216 to $432 per week. Make sure to evaluate all costs involved, as some PEOs charge fees outside of just the administrative fee. Be sure to check the cost of add-on services if that’s something you plan to utilize.
If you’re not sure whether the investment in partnering with a PEO is worth the time and money, our experts can help you. We’ll walk you through the costs of a PEO partnership versus handling tasks on your own, and clearly explain your options so that you can make an informed decision.

Are There Any Disadvantages to Working With a PEO?

Let’s discuss the five most common disadvantages people think of when partnering with a PEO, and why they really aren’t disadvantages at all.
  1. I’ll lose control of my business.
This myth stems from the fact that a PEO becomes a co-employer with the partner company. Some might think that there is potential for a company to have to give up their decision-making power and the ability to operate their company as they would like. However, don’t be concerned, as a PEO is an employer for only certain aspects such as payroll, benefits, risk management, etc. The employer and PEO partnership allow business owners to retain control and decision-making power over their business.
  1. I’ll lose hiring decision power.
When it comes to the hiring process, the organization will still make all the hiring decisions. But you will have assistance from the HR business partner to ensure that the organization is avoiding potential risks and complying with certain laws during the hiring process.
  1. I’ll have to fire my HR manager and/or team.
Your business will not have to get rid of its HR manager and/or team. The PEO company will assist your HR team by taking away administrative tasks and giving the team more time to focus on the business’ goals. It gives them more time to work on strategic projects to help with the business’ culture, engagement, and other business goals.
  1. It negatively impacts my company culture, morale, and engagement.
With a PEO giving the company owner or the in-house HR team their time back, they have more time to focus on the company culture, employee engagement and more. Right now, the company owner and/or HR team may be focusing too much on HR administrative tasks rather than the company culture due to time restraints and/or lack of resources. The employee benefits packages can also improve morale and show your employees you care about their well-being.
  1. My employees will have limited access to HR.
When partnering with a PEO, an HR Business Partner is assigned to the organization and is readily available for any questions the owner or employees have. If the organization already has an HR team, the PEO’s human resource business partner can provide extra guidance and help if the HR team is unavailable for any reason.

Find Out How a PEO Can Help Your Business

Are you interested in partnering with a PEO? Businesses that do, tend to grow faster and are statistically less likely to fail.
LandrumHR is an award-winning, certified Professional Employer Organization with over 50 years of experience helping small and medium-sized businesses succeed. Our customized PEO services are designed to help your business achieve its goals. Whether you’re looking to grow your business to the next level, get back valuable time, or even launch your business, LandrumHR is here to help.
Contact our team today to find out how we can help you gain time back to help your business succeed.
Andrew Sowell

Andrew Sowell currently serves as the Director of Business Development for LandrumHR. He received his degree in Business Marketing from Florida State University and has an extensive background helping business owners solve problems that impact the bottom line. His passion is consulting with business owners and highlighting areas where the company can save money, increase profits, improve employee engagement, and protect the business from compliance issues.

View more blogs by Andrew Sowell