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Is There a Typical Business Type That Uses a PEO?

Is There a Typical Business Type That Uses a PEO?

Article roundup

  • From 1-100+ employees, any size of business can experience benefits from working with a PEO.
  • PEOs work alongside all different types of business, from startups to international enterprises. At any stage of their journey, companies can find benefits in working with a PEO.
  • PEOs provide startups an effective scalability solution. As their employee administration is outsourced, the business owners are free to focus on growing their business.
  • This article is for business owners, directors and managers wanting to know if hiring a PEO is right for their type of business.

A PEO, or ‘Professional Employer Organization’ is a specialist firm that supports businesses with their human resource, and payroll functions, and relieves them of many of the administrative duties associated with employment. The financial benefits of engaging a PEO can be massive — 2019 research demonstrates that engaging a PEO gives businesses a 27.2 percent return on investment (ROI).

But does this benefit apply equally to every business? Here we ask just that question: Is there a typical type of business that uses a PEO?

Which Size of Business Uses a PEO?

Micro-enterprises (1-5 employees)

For a business with less than five employees, you typically find the business owner-operator is wearing many hats. They are often strapped for time and struggle to find the leverage to truly move their business forward. 

By engaging with a PEO, they are able to hand over all of their HR responsibilities so they can focus more on the growth of their business.

The PEO will handle all of the employee paperwork, legal compliance and benefits management. They will also take over the payroll functions and manage tax withholdings and processing.

This saves the business owner from compliance issues, tax risks and payroll errors. Hence, the PEO also helps with risk management. 

Small businesses (5-20 employees)

For a business with 5-20 employees, the cost of health insurance is a major burden. As the rate per employee is generally lower when you have more employees to insure, small businesses can get stuck paying hefty prices for limited offerings.

When you engage with a PEO, however, they become the employer of record — meaning they can negotiate health insurance rates on behalf of all of the employees and clients they serve. 

This pools together a larger number of employees. Thus PEOs can offer small businesses rates and offerings typically only available to larger companies. It is reported that businesses that use a PEO save on average $450 per employee in administrative costs each year.

Medium-sized businesses (20-100 employees)

For a business with 20-100 employees, the benefit of engaging a PEO is in streamlining their HR function by outsourcing their payroll, employee benefits and tax.

The PEO is able to help with everything from employee handbooks, to unemployment claims, and other employment-related matters. Therefore, this leaves the internal HR team to focus on bigger picture tasks.

In relation to employee benefits — like with health coverage, the PEO is able to offer more affordable employee benefits and thus enabling businesses to better attract top talent.

Large companies (100+ employees)

For a business with 100+ employees, the benefits of using a PEO are much the same as with a medium-sized business. However, there are also additional HR benefits, such as helping with new hires to avoid profits lost during the initial learning curve.

Video — Are small businesses the typical PEO client? 

What Kind of Business Uses a PEO?

Startups

For startups, PEOs provide an effective scalability solution. They offer high-quality HR services and employee benefits while minimizing costs and streamlining processes. As your employee administration is outsourced, you’re free to focus on growing your business. 

Professional practices

For professional services like doctors, optometrists, architects or lawyers, PEOs are effective solution outsourcing for firms with limited HR and payroll capacity. Rather than taking on more internal staff, the PEO becomes an arm of your business and helps with payroll, employee benefits and HR compliance.

However, Lawyers must be aware of the ethics rules associated with working with a PEO.

International businesses

For international businesses, a global or international PEO can help hire employees anywhere in the world. As you expand into new markets, the PEO can save you time in navigating payroll, employment laws, tax, insurance and risk management in your new territories. 

Is there a typical business that uses a PEO company? — a final word 

There is not necessarily a typical business type that uses a PEO. Rather, any type of business can use a PEO: They serve as viable outsourcing for option businesses wanting to ease their HR duties but not looking to add to their internal team. 

FAQ

PEOs work with businesses of all sizes and at any stage of growth. As they save business owners time and money, PEOs often work with growing businesses, such as: startups, retail stores, health care, lawyers and more. 

For startups, PEOs are an effective scalability solution. As their employee administration is outsourced, the business owners are free to focus on growing their business. While the PEO will also share the legal liability of employment-related issues and help with the expansion into new markets.

Reece is RemotePad’s finance and accounting specialist. Reece is the go-to contributor when RemotePad advises on the financial implications of remote work and hiring employees, locally and internationally. Based in the southern New Zealand city of Dunedin, Reece has a Bachelor of Commerce degree, majoring in Accounting, from the University of Otago.

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