Business leaders will certainly agree there is no shortage of challenges when it comes to HR compliance issues. These include various diverse subjects such as:
- compliance with conflicting state minimum wage laws
- compliance with the constantly changing Affordable Care Act
- Even the many things to be aware of and watch out for when planning your company’s holiday party.
It just seems to never stop.
In today’s economy, many leaders of small and mid-size businesses have found answers by partnering with a professional employer organization. These are typically referred to as a PEO. Every business has an area of expertise (core business function), ranging from accounting, building homes, to hospitality services, to manufacturing electronic parts. Regardless of the business focus, they all have one thing in common – they have employees.
It is very rare to find a small or mid-size business that has expertise in both its core business function and employee administration and relations. It is the business of the PEO to be an expert in all aspects of employment.
Managing Employment Issues
The apparent value of an experienced PEO is to allow a company to focus on what they excel at. This allows them to grow, thrive, and succeed, and to let the PEO handle the business of employment. PEOs come in different forms as well, depending on the services they offer. Full-service PEOs provide services in four core areas:
- Payroll and tax administration
- Employee benefits and benefits administration
- Risk management and safety – Workers’ Compensation
- Human resources and compliance
When the PEO becomes your co-employer or administrative employer, it allows them to bring best practices and efficiency. This results in considerable savings through employer aggregation. The PEO can also provide needed guidance. This keeps the client’s business in compliance with the employment regulatory requirements that all business organizations must deal with.
Growth of the Industry
Today, there are more than 900 Professional Employer Organizations operating in the U.S. and about 15% of small businesses (10 to 99 employees) take advantage of a PEO relationship.
The growth of the PEO market is driven by the value that PEOs create for their clients. Studies have shown that this delivery of valued services greatly assists the client businesses.
- PEO client businesses grow at a faster rate, they enjoy a lower rate of employee turnover, and exhibit a higher rate of business survival than non-PEO businesses.
- PEOs provide access to a broader range of HR services than typical small businesses have, but at a lower administrative cost per client.
- Businesses that partner with a PEO are more likely to offer an employer sponsored retirement plan and other employee benefits, which translates to a higher employee rate of retention.
Factors Motivating Employers to Partner with PEOs
Without question, HR compliance issues are motivating employers to seek what are considered valued services offered by the Professional Employer Organizations. Most businesses are unequipped to deal with the vast array of regulatory requirements that have been placed on employers over the last eight years.
- A growing complexity of state-level HR mandates, the mandates of the Affordable Care Act, and the Small Business Efficiency Act.
- The HR environment has become significantly complex in most states with more complex changes likely on the horizon
- Risk management regulatory issues and compliance are greater now than ever before, leading to increased workers’ compensation rates when risk management assistance is not present.
In this post ACA environment, there is an overabundance of burdens facing employers who provide and administer employee benefits. PEOs offer affordable solutions to compliance challenges in every category of employee administration and allow businesses to focus on what they were created to do.