Key Pros and Cons of Professional Employer Organization

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peo pros and cons

When you are looking for the right solution to manage your organization’s HR process and payroll, a PEO service is the best option to opt for. It is important to understand its benefits the right way so you can make the right decision for your organization. In today’s age, the demand for PEO services has extensively increased, and as a result of this, many small and mid-size businesses have taken advantage of the option called PEO service. In this content, you will come to know about PEO pros and cons  so you can make the right decision for your organization. 

What is a PEO service?

A PEO is basically a third-party HR outsourcing service provider that acts as a co-employer with their clients’ organizations. As a business owner, you will manage the operations of your business as well as its day-to-day operations, but to your employees, there will be two employers – one is you and the other is the PEO service provider. The PEO service provider acts as an administrative employer and manages employee payroll and other HR activities of the organisation to ensure its smooth operations. A third-party PEO service provider offers several services, such as payroll processing, employee benefits, workers’ compensation and insurance, etc. 

Why should you consider hiring a PEO service provider? 

Well, there are many reasons for hiring a PEO service provider. But this often depends on the size of the organization. Many small and mid-size businesses consider hiring a PEO service provider because they feel over-stressed, and they don’t have enough staff to manage HR activities. Hiring a PEO service proves cost-effective for them. 

In today’s age, like PEO service, EOR service is also gaining popularity. EOR stands for Employer of Record Services. If you have a business that operates in multiple countries, choosing an EOR service is the best decision. EOR service providers handle all HR-related activities of an organization, manage payroll for both national and international employees, work on employee benefits, and so on.

Here, in this section of the content, we will discuss PEO’s pros and cons. So, without wasting much time, let’s check out the points below-

Co-employment Pro’s and Con’s

Pros

When you are partnered with a PEO service provider, your company’s employees come under the PEO’s tax ID. This third-party service provider shares both the risk and liabilities of an organisation as well as helps in managing all HR-related activities like worker’s compensation, employee benefits, payroll management, and so on.

Cons

You may lose some control of your organisation since the PEO service provider will become a co-employer of your organization. It means you need to contact them if any issues arise. Besides this, your relationship with the PEO service provider will also have an impact on the work culture of your organization.

Employee benefits pros and cons

Pros

Since PEO companies have the skills to manage multiple small businesses, they have a larger pool of talent as well as many more benefit options than an individual organisation that goes to shop for employee insurance on its own. PEO service providers can obtain insurance at a lower cost.

Cons 

As lower benefit rates may seem lucrative, you will lose the control to customize your organization’s healthcare plan. Besides this, PEOs can switch insurance service providers at any moment which may lead to fluctuating prices along with unsatisfied employees.

Taxes and payroll Pros and Cons

Pros

Most PEO service providers offer payroll services that can help in eliminating manual administrative operations and make HR professionals more productive. This is an important activity that helps an organisation and relieves the burden of the employer.

Cons 

Basically, when you hire a PEO service provider, they file taxes on behalf of your company. But if the PEO service provider fails to file taxes on behalf of the company, it may put you in a difficult situation. You may have to face fines and penalties for not filing taxes within a specific time frame. Most of the workforce management or PEO service providers calculate, file, and pay taxes on behalf of the companies.

Operational cost Pros and Cons

Pros

When you hire a PEO service provider, it eliminates the need to hire more in-house staff to handle tasks like payroll management, employee benefits management, workers’ compensation, and so on. This proves a cost-effective step for the organization. Besides hiring a full-time employee, you can accomplish all these tasks with the help of a PEO service provider.

Cons 

Well, hiring a PEO service is always considered a cost-effective step for the organization, but when the organisation starts to grow, the PEO service proves more expensive. A PEO service provider charges fees in three ways—

  • Based  on the percentage of payroll
  • A flat fee per employee
  • A flat fee for a minimum number of periods.

These fees range from 2% to 11% depending on the types of services they are offering. 

Conclusion

There are many factors that need to be considered while hiring a PEO service provider. It is important to consider PEO’s pros and cons to make the right decision for the organization. You must understand the requirements of your company before availing services from a PEO service provider.  

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