The Role of Professional Employer Organizations in Business

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Many businesses, specifically small businesses, find that the added responsibility of things like payroll management are better off being handled by an outsourced payroll service. Part of payroll management includes figuring each employee’s hours, calculating taxes and making sure they are deposited, figuring gross to net computations, and the preparation and filing of tax returns. By outsourcing payroll responsibilities, employers only have the obligation of approving one report and paying one invoice, leaving them free to concentrate on the other aspects of their business.

A professional employer organization is a company created specifically to take on tasks such as employee payroll, medical record services, and record management services. This type of service will also handle employee benefits, worker’s compensation issues, training and development, recruiting, and risk and safety management. Enlisting the assistance of a professional employer organization is also known as co-employment. Small business owners, especially, benefit by using this type of service because financial issues, such as payroll, can be complicated and precarious, and mistakes could be costly.

A professional employer organization will typically manage several thousand employees at the same time, and, therefore, has access to benefit and insurance plans at excellent savings. This, in turn, enables small business owners to offer a higher quality of health plan to their employees. This is a draw to skilled workers applying for positions with the company, and, once hired, helps to keep them.

The professional employer organization also handles things like HR handbooks for employees, in addition to keeping all procedures and policies up to date as they change. Access to payroll records and managing records of benefits, sick time and vacation time, all specialized reports and personnel information can all be handled by the outsourced agency. Any HR related claims will also be the responsibility of the PEO as well. Claims, such as discrimination allegations, for example, will be managed by experienced professionals who are educated regarding the laws and the rules and regulations that govern the process.

There are also organizations that are temporary help companies. Often business owners will confuse this type of company with a professional employer organization; however, they are not the same. In general what a temporary help company does is to assign temporary employees to their client companies for a special project or for a temporary workload. A professional employer organization, as explained, is contracted to assist in handling the personnel functions of the client company.

An employer or business owner who engages the services of a professional employer organization continues to maintain the structure and running of the company. The employee’s day to day routines and functions are the responsibility of the owner or manager, as the PEO simply handles its designated obligations.

Although a PEO is outsourced for all payroll tasks, that is not its only job. Comparing it to a payroll services provider, the PEO takes on a lot more of the details of the client company. Payroll services providers basically handle just that; payroll. That is what they are specifically hired for, and that is what they do. A professional employer organization is trained and equipped to accurately provide services to the client involving payroll, employee benefits, and more.

Even in the light of all the responsibilities a PEO takes on, however, it is not designed to take the place of the company’s HR department. It is brought on to align with the internal HR staff and to provide the extra support that leaves them free to focus on other HR business. A professional employer organization is not meant to gain any type of control within or over the client company. What it provides is experienced HR professionals who are there to offer advice and assistance when requested.

It is meant to be a back office kind of situation, not as an up front part of the organization. Employees will probably see its name on their paychecks because of their role in paying salaries, and workers will certainly appreciate their presence in the fact that they are able to take advantage of higher quality benefits at lower costs. Otherwise the PEO is just another department doing its job while adhering to the client company’s policies and regulations.


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