PEOs Tap into Additional HR Benefits

Human resource management involves a lot more than paying employees on time and tracking vacation days.

But lack of time often means this Pandora's box of compliance regulations and benefits-related issues gets ignored until a crisis — disgruntled employees, a workplace injury, a government fine — arises.

Using a professional employer organization (PEO) can be one way to address these issues.

These companies (also known as employee leasing firms) hire your employees, taking over the responsibility for paying them, administering benefits, and notifying you of pertinent workplace regulations.

By aggregating employees across multiple companies, PEOs can often provide benefits like health coverage or a 401k plan at a lower cost than a small company can obtain on its own.

Also, employee leasing firms take full responsibility for all payroll tax-related filings; unlike a payroll service, a PEO should cover all penalties and interest payments.

Some PEOs offer a more active HR role. These full-service firms can develop training and safety programs to more actively manage workplace risks. They can also offer HR expertise that can be useful to tap into when trying to figure out things like how to terminate an employee correctly.

Working with a PEO does not free your company from all HR-related liabilities, however.

As an off-site employer, an employee leasing firm cannot legally assume all the liabilities related to employees -- even if a contract states it. Since your business directs the work activity of the employees, your company can still be on the hook for any legal action.

Using a PEO also requires that your company offer big-company benefits and adhere to big-company regulations. Most notably, this means that you will have to comply with the Family Medical Leave Act and the American Disabilities Act, both of which can increase your operating costs.

But many companies find that offering such big company benefits is necessary to be competitive when recruiting.

It's important to thoroughly investigate a PEO before signing up. Beyond the cost, which can range from 2% to 6% of payroll, you'll want to make sure they are financially stable and offer the level of service you want.

Ask for a bank reference to learn about the company's financial strength. Several years ago, the industry suffered when unscrupulous employee leasing firms pocketed workers' compensation premium payments instead of turning the money over to the insurance company.

Companies should be able to provide proof that they pay their providers and that they can comfortably handle your payroll.

Also, get details on the providers. Find out from current clients about their satisfaction with the service. Also, it's worth asking how often they switch service providers.

Finally, if full service is what you want, make sure the expertise is there. Look for a firm that's familiar with the issues related to your industry. The PEO should be able to supply you with resumes of their HR experts and tell you how easy it is to reach them.

Oddly enough, one way to keep your employees happy may be to fire them and have them work for an employee leasing firm.

Quick tips

Read the fine print. Not all employee leasing firms protect their clients from PEO actions. Review any contract to make sure you won't be held responsible for mistakes, such as payroll tax miscalculations, made by the PEO. For one-time advice, try a consultant. If you don't relish the idea of such a binding relationship, a HR consultant can be an easier way to get your company up to speed on compliance issues. Be patient. The first few months working with a PEO can be a bit challenging as it may require your business to change its practices. Pay the piper. Find out when you need to transfer funds for payroll or insurance premiums. You'll want to work with a firm that minimizes their float.