PEO stands for Professional Employer Organization. A PEO service is a firm that acts as your workers’ “employer” and handles all employment and HR matters for your work force. They leverage this arrangement to provide dramatically lower healthcare and insurance costs, as well as streamlined costs on HR services. Typically, a PEO charges either a percentage of your payroll or a flat fee per employee, giving you controlled costs while delivering substantial savings.
How do PEO services work?
PEOs work by operating under an arrangement called “co-employment,” or sometimes referred to as employee leasing. This is an arrangement that has existed since at least the 1960s. It means that the PEO becomes the employer of record for your workers, handing all tax obligations (such as W-2s) for them. However, your organization retains full control over the employees and their work as normal.
While this is an arrangement that exists mainly “on paper,” co-employment has dramatic advantages over simply employing your workers. For example:
- Insurance savings.Many insurance costs, such as health insurance and unemployment insurance, are determined based on the total number of employees and organization have. If you have (for example) 50 employees, your organization may have very high costs per workers. However, the PEO may have thousands of “employees.” By co-employing with them you pay a much lower rate for insurance—as if you were a company many times larger.
- Professional HR and payroll services. Depending on your organization, a PEO can supplement, replace, or offset the need for HR staff. You get all-in-one HR and payroll services that can include dispute resolution and claim management. In some cases, the price of the PEO is justified by HR savings alone, even without considering the insurance savings.
- Risk management. PEOs help you plan HR strategy, identify and reduce risks, and ultimately save money on reduced liability. This can include additional services such as safety training for employees and more.
How much does a PEO cost?
PEO cost will vary depending on the size of your organization. Additionally, some types of workers cost less under a PEO than others—hourly wage earners may carry a higher price than salaried workers, for example. There are two models of PEO pricing:
- Percentage of payroll
- Flat fee per workers, charged annually or monthly
Both have their advantages depending on your organization and how you expect to grow. To learn more, you can read our complete guide to PEO pricing.
At NetPEO, we offer industry-leading rates to organizations of all sizes, and can customize our PEO services to your specific needs. Is your organization looking for a PEO that will lower your costs and deliver excellent service? Let NetPEO give you a free consultation to discuss your needs. Fill out the form to your right or contact us and get your free consultation today.