Why You Should Consider A PEO For Payroll

For new and existing small or mid-sized businesses managing payroll can be a bit of a challenge. While many have opted to either handle payroll themselves or by hiring a payroll processor, more businesses are beginning to turn to the services that a professional employer organization or PEO offers in handling payroll and taxes for them.

According to an article appearing on the Business.com website, when a business chooses a PEO to handle these tasks, the PEO firm becomes a co-employer and takes over some of the responsibilities for the collection of taxes and fees that are taken out of workers’ paychecks each pay period.

Unlike most standard payroll services, a PEO firm can also provide other HR services such as recruiting, interviewing, onboarding, training, and benefits management. If you think that having a PEO firm take over the management of the payroll and HR functions for your business, you need to have a few things for them to begin the process.

  • A Federal Employer Identification Number or EIN for your business
  • A State Tax ID if your state requires one
  • W-4’s for each employee on your payroll

You will need to decide on how frequently your employees are paid. A PEO firm can set up payroll frequency on a weekly, bi-weekly, or monthly basis. Some states do have legal requirements for employee compensation that businesses within the state must follow.

A PEO firm can also help you calculate the proper amount of withholding taxes for each pay period and help you to pay the appropriate amount of taxes that are relevant to your business.  If you decide to use a PEO firm, ask them about their policies and procedures for handling these taxes and what guarantees they have to protect against liabilities if there is a mistake or any discrepancy.   Most standard payroll service companies do not offer such services or guarantees and your business could wind up in legal trouble or stuck paying penalties as a result.

While there might be a slightly higher cost of using a PEO firm rather than doing everything yourself or hiring a payroll service, most PEO firms are happy to work with small and medium-sized companies to help determine what services are right for them and ultimately lower some of the cost of managing payroll and benefits services to workers.