Pros and Cons of Partnering With a PEO for Your Small Business

Partnering with a professional employer organization has many benefits for the small business owner. The outsourced HR and payroll departments will be more efficient, and you can even gain access to better benefits packages and rates on healthcare and other services. With all the benefits of PEOs, there are some drawbacks as well. Here’s everything you need to know about the pros and cons of partnering your small business with a PEO.

Pros

Better Rates

PEOs partner with many small businesses to create one giant pool of employees, which essentially becomes akin to a large corporation. This means that your employees will get access to better rates on healthcare packages, retirement options, and more.

By partnering with a PEO, you’re essentially making your employees a part of the business, pooling them together with thousands of other employees from all over the country. A larger pool offers greater opportunities for savings, making a PEO advantageous to your business.

You’ll be able to attract better candidates for employment to your organization, offer better benefits to your current employees, and save money on your company’s portion of those benefits.

For those readers on the east coast, you can find the best New Jersey PEO companies on Careful Cents.

Fewer Payroll Errors

With payroll under the management of your PEO partner, you’ll effectively reduce the number of payroll errors your small business makes. These errors can be costly and frustrating for both employees and yourself, and you certainly don’t want your business to gain a reputation for making too many of them.

PEOs are experts at payroll deductions, tax compliance, and more. You can eliminate the worry of remaining in compliance with the IRS and making costly errors when you partner with a certified PEO.

Risk Management

Managing risk is essential to reducing the cost and liability of running your business. With a PEO, risk management will become a simple process managed by experts. Risk is a component with any business, but if you work in an especially dangerous industry, your risk can be increased tenfold.

It’s important to manage risk before it becomes a liability, by training employees and analyzing risk factors ahead of time. By doing so, you’ll help reduce the costs associated with those risks, increasing your business’s efficiency.

More Efficient Onboarding

Hiring new employees can be a lengthy, paperwork-intensive process. With a PEO, this process becomes much quicker and more efficient, helping to get qualified candidates in the door and working at a faster rate.

Minimizing paperwork is also cost-effective, as much of the paperwork associated with the hiring process ends up filed away or even in the trash. Paper waste is a huge expense for businesses, so reducing it can help put some of that hard-earned money back in your wallet.

You’re Always Up To Date on Regulations

Whether it’s tax regulations, HR standards, or other business regulations, partnering with a PEO will ensure that your business is always up to date with the most current regulations. This can help keep you in compliance, reduce fees, and keep your business running smoothly and safely.

Cons

Lack of Health Plan Flexibility

While you’ll likely get access to much better premiums through a PEO, the constraints of one or two health providers can cause some frustration in the area of healthcare. These limitations can affect the doctors you see, hospitals you visit, etc. If you prefer more flexibility for your company’s healthcare options, a PEO may not be the right choice.

You’re Entrusting Payroll to a Third-Party

This is a debatable aspect of partnering with a PEO, but after much thought, we’ve decided to list it as a con. Entrusting your payroll to a third-party company can actually be a risky move since all of your employee’s benefits and paychecks will be managed by a single entity that’s not your business.

While PEOs have accreditations and can be checked for reviews, complaints, and the validity of their services, there is still some risk with trusting something like payroll to a separate company. There’s always the chance that mistakes can be made that you may have to pay for.

Pricing Transparency

If you’re looking for transparency on pricing, a PEO is likely not going to have it. Pricing structures are usually specific to the business they serve. Many PEOs operate on a per-employee price structure, meaning you’ll pay a flat fee for the services per employee. Since many businesses have different numbers of employees, these prices will change base on the number of employees covered.

You’ll probably need to contact a PEO to get a quote, as the organization will need details on the business, its employees, and the types of services you’re looking to purchase. Be aware of the PEO’s pricing structure and how it may change as your business grows, so you can account for any changes in your budget later on.

Should I Get a PEO?

Now that you understand the advantages and disadvantages of partnering with a PEO, you can make a more informed choice regarding whether or not you should take advantage of this type of service. A PEO has some great advantages for the small business, but the drawbacks may be enough to dissuade you from forming a partnership with one of these organizations.

Always do your research on any company you plan to partner with and be sure to shop around to ensure you’re getting the best rate. Analyze the cost of your HR department to make a better-informed decision; you may not even need a PEO after all.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.