In the late 1960s, Professional Employer Organisation (PEO) was born due to the new payroll outsourcing entity that was taking a new shape of businesses. PEO, also referred to as co-employment and employee leasing company, was before known for its ability to search for cheap healthcare and worker’s compensation insurance, as well as ways to reduce company’s total State Unemployment Tax expenses.
As of today, the Professional Employer Organisation is part of a human resource company that is commonly contracted by small- to medium-sized businesses to take over certain administrative functions, such as payroll, taxes, and employee benefits. PEO is employed by these businesses to help cut cost and support employment-related compliance needs.
CNBC reported that employee health insurance is predicted to go up in 2020. Employers are expected to shoulder about $4,500 in cost in 2020, including out-of-pocket spending which in total could go an average of $15,375 healthcare coverage. This amount is up from last year (2019) which is only $14,642. In fact, healthcare spending employers must bear is predicted to increase year-by-year that might burden small- to medium-sized businesses (SMBs).
A PEO could help a business get the lowest cost of healthcare tax and spending, thus, helping SMBs stay competitive while maintaining healthcare coverage for their employees. PEOs work and employ thousands of employees for different companies for this purpose. According to JustWorks review, this is how exactly PEO helps businesses strive and thrive in a very tight economy.
JustWorks mentioned that Professional Employer Organisations provide services to between 156,000 and 180,000 SMBs, employing between 2.7 and 3.4 million people to help businesses receive more assistance and offer more benefits. Apart from it, PEOs also help the negotiation rates for benefits like retirement plans, workers; compensation, and even gym memberships.
While PEOs can help businesses cut costs and save up time for more important business matters, there might be a stumbling block that holds employers from collaborating with a PEO. Cameron Keng at Forbes, shared an experience that PEO can sometimes be annoying to collaborate with.
Keng mentioned that his client Horizon employed an employee leasing company in 2016 to help him cut healthcare coverage costs. From $45,000 per month for 100 employees, the PEO could help cut up to $32,000 per month for Horizon to pay. This represents a savings of $156,000 in payroll expenses to the company.
However, the night before rolling-out the co-employment plan, Horizon received an email stating that they would be required to pre-fund or pre-pay the payroll period in advance by two weeks. This would require Horizon to pay 200 percent of their normal payroll expenses in a single period, causing a significant cash flow disruption to the business. Horizon learnt that his PEO changes the terms of their contract without advance notice. This left Horizon feeling coerced to accept the new terms of a contract without an opportunity to review or negotiate.
From Horizon’s story, Keng advised any employers to always count the risk of collaborating with a PEO. Using PEO service that has IRS certifications would be safer for employers. A certified PEO could help employers whenever there is an unnoticed change of contract or any legal issues that might hurt your company bottomline.