Will I have to give up some control over my business if I engage a PEO? This is a common, and valid, question for anyone considering using a PEO. After all, the client service agreement often specifies a level of control that the PEO will have over the shared employees, and the PEO becomes the “employer of record” for tax purposes.
The short answer is that the owners of more than 180,000 businesses would not be using a PEO if they felt that they were losing control of their business. You will find many who would say they have actually gained more control over their business by using a PEO. How is that possible?
Administration = Time and Money
Before engaging a PEO, the administrative duties of being an employer were a constant distraction from the productive tasks of running and growing the business. Time that could be spent on the core business was being diverted to dealing with health insurance billing and renewals, unemployment claims, payroll issues, and other tasks that contribute nothing to the bottom line.
When the employee administration and compliance tasks are being handled by a trusted PEO partner, the owner has regained time to focus on the business. This renewed focus gives the owner a better sense of control over the business operations, which should translate into increased profitability.
In some businesses, these duties were occupying the time of an office manager, operations manager, practice administrator, or other levels of management. When these transactional tasks are outsourced, the same regained focus applies for these managers. In addition, if they are now able to take on roles that the owner was formerly unable to delegate because of the lack of the manager’s time, the owner’s control of the business is further enhanced.
The Service Agreement
But what about the typical provisions in the PEO’s client service agreement that give the PEO a “right of direction and control” over the employees? In Florida, the state statutes regulating the PEO industry require that this language be included in the agreement, and it relates to the “co-employment” relationship that is created.
In this arrangement, the PEO becomes the “employer of record” for tax purposes, enabling the PEO to take responsibility for payroll taxes by filing under its own accounts. That is also the mechanism by which the PEO is able to offer large-group benefits to the employees.
However, the client is still viewed as the “common-law employer,” meaning the client retains the actual control of the employees. The PEO just has the necessary ability to release the employee from its relationship when the termination process is initiated by the client or employee.
As a company grows, the hassles of being an employer also grow, and soon owners and managers are spending their time on nonproductive administrative tasks instead of activities that produce revenue. That is why so many owners have made the decision to use a PEO in order to take back control of their business.
If there are still concerns about this issue, most PEOs will include in the client service agreement a provision that the client can terminate the relationship at any time with reasonable notice, such as 30 days. However, most who enter into a PEO relationship might switch PEO providers at some point, but would not go back to the old way of doing things. These owners have found that engaging the PEO has helped them control the business, instead of the business controlling them.
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