What is a Professional Employer Organization?
A Professional Employer Organization or PEO, is a company that specializes in handling Human Resource and Payroll issues for its clients. The easiest way to think of it is as outsourced Human Resources and Payroll Departments for your business. And no business is to small to need expert HR and Payroll services. The problem for small businesses is that on their own the cost of having that expertise is just simply too high. A PEO allows a business no matter the size to have all of the HR and Payroll tasks handled expertly and at a cost per employee that is less than the national average for even very large employers.
The PEO relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and the client; this shared employment relationship is called co-employment. When evaluating the employer role of either the PEO or the client, the facts and circumstances of each employer obligation should be examined separately, since neither party alone is responsible for performing all of the obligations of employment. Each party will be solely responsible for certain obligations of employment, while both parties will share responsibility for other obligations. When the facts and circumstances of a PEO arrangement are examined appropriately, both the PEO and the client will be found to be an employer for some purposes, but neither party will be found to be "the" employer for all purposes.
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Why should I use a Professional Employer Organization?
The short answer is to save time, money and headaches. When you started your business you didn't do it to become an unpaid tax collector for state federal and local government or deal with ever changing government employer regulations. You started it because you wanted to do something that you were good at and make a profit while you did it. So why not turn over those required duties that don't have anything to do with your core business to a company that specializes in them?
According to the Small Business Administration the average annual cost of regulation, paperwork, and tax compliance for firms with fewer than 500 employees is $5,000 per employee, compared with $3,400 per employee for firms with more than 500 employees. We can reduce the cost for small businesses to an amount at or below that of large employers.
The SBA also has reported the average small business owner spends between 7% and 25% of his or her time handling employee-related paperwork. We should be able to reduce that figure by 85 to 90%. Leaving you more time to carry out tasks that actually make your business money.
In a recent survey1 the average PEO client saved $12,000 per year (an average of $600/ employee) and 9 hours per week because they use a PEO. The survey further shows that. The study goes on to break out the savings by number of employees.
- Clients with 1 - 9 employees saved $5,000 per year and 7 hours per week.
- Clients with 10-19 employees saved $10,000 per year and 13 hours per week.
- Clients with 20-49 employees saved $18,700 per year and 23 hours per week.
Survey of 515 current PEO clients had an average employee count of 21, but more than half of all clients surveyed had 10 or fewer employees.
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Services Provided by Johnson Employer Support Services
The first money and time savings you will notice, when you become a Johnson Employer Support Services client, is that you are writing a lot fewer checks and most of them are smaller. You will receive one invoice for each payroll. Each invoice includes all the employee costs for that pay period including gross wages, employer taxes, & workers' compensation premium. Also, if you and your employees choose our benefit plans all premiums will be included.
This means no more Workers' Compensation premium down payments, audits & audit premium payments; No more weekly, monthly, quarterly or yearly employer tax payments; no more employee garnishment payments; and no more monthly benefit premium payments.
Payroll administration is a basic function of a PEO and the one most commonly associated with an employee leasing company. This function includes the following:
- Support for hourly, salary, tipped and piece-work employees
- Support for weekly, bi-weekly, semi-monthly and monthly payrolls
- Support for multiple divisions within a company
- Payroll cost reporting down to the Job/Employee level
- A variety of payment methods, including payroll check, direct deposit or debit card arrangement
- Filing local, state and federal government paperwork (W2s, W4s, FICA, etc)
- Tax Reporting and Compliance
- Certified Payroll, Job Costing and Departmental Billing
- Employee Garnishment deduction and payment
Shopping for health insurance is a time-consuming and frustrating task. The PEO spends a great deal of resources in finding cost-effective, comprehensive medical and dental plans. By pooling its employees in one group, the PEO is able to spread its medical claims over a larger premium base. This means much lower annual rate increases, compared to those suffered by small businesses.
Workers' Compensation & Unemployment Risk Management
One of the least promoted yet extremely valuable services to the client business is the risk management provided by the PEO in the areas of workers' compensation and unemployment. PEOs aggressively manage claims in both areas. This is one of the greatest benefits of the co-employer relationship. These efforts will inevitably result in a much lower claim cost.
In today's business environment, keeping up with the pitfalls of employee-related laws requires a dedicated department. Most small businesses do not have the manpower to do so and can find themselves involved in an expensive lawsuit that, with access to an HR department, could have been avoided. The PEO acts as your offsite HR department, offering consultation in the areas of sexual harassment, discrimination, FMLA (Family Medical Leave Act), hiring and firing practices and a number of other areas. Other services included in the human resources area2:
- Unlimited Telephone HR Consultation
- Background Checks
- Pre-Employment Testing
- Resume Screening
- Customized Employee Handbooks
- Performance Appraisals
- Rewards and Recognition Programs
- Position Descriptions
- Drug-Free Workplace
- Training (Employee and Managerial)
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(1)Survey conducted with the assistance of the Society of Human Resource Management (SHRM) & the National Association of Professional Employer Organizations (NAPEO) by John McClendon, Associate Professor of human resource management in the Fox School of Business & Management at Temple University; Thomas Gainey, assistant professor in the Richards College of Business at the State University of West Georgia; Brian Klaas, Professor of Management in the Moore College of Business at the University of South Carolina.
(2) some of the additional HR are provided at an additional charge. These charges will be quoted on request.