Article roundup
- A PEO arrangement works through co-employment. The PEO becomes the employer of record, while the client company retains managing power.
- By engaging with a PEO, companies are able to reduce their liability through improved workers’ compensation, tax compliance, and risk management.
- PEOs allow companies to focus on their core lines of business, while they have a dedicated co-employment team handling their administrative duties and minimizing their risks.
- PEOs help with risk management by managing workers’ compensation, handling employee tax risk, reducing the risk of payroll error, and taking care of benefits administration.
Risk management is crucial to running a successful business. The problem is, as your business grows, so too does your number of employees. As your number of employees grows, the greater your legal liabilities become.
Therefore, the burden of keeping up with your legislative requirements can become a hassle that pulls you away from your key priorities. This is why many businesses have started using PEO risk management.
By engaging with a PEO (Professional Employer Organization), companies are able to reduce their liability through improved workers’ compensation, tax compliance, and risk management.
To give you a full breakdown of how it works, here is your employer’s guide to PEO and risk management.
How Does a PEO Arrangement Work?
A PEO is a third-party organization that businesses can hire to outsource parts of their human resources functions, including employee payroll, workers’ compensation, employee benefits, and more.
When a company hires a PEO, they will sign into a co-employment agreement. Meaning that both the PEO and client company have an employment relationship with the workers.
The PEO becomes the employer of record — they assume much of the responsibilities for the business of employment, such as risk management, benefits administration, payroll, and employee tax compliance.
Meanwhile, the client company retains full responsibility for managing their employees day-to-day activities in the workplace. They are also still in control of who they hire and how much they pay them.
Effectively, the difference is the client simply no longer handles the administrative responsibilities for their employees, such as payroll, workers’ compensation, and tax. Instead, these duties are outsourced to the PEO.
So, how does this help with business risk management?
How Can a PEO Help with Risk Management?
As employment laws are complex and ever-changing, PEOs allow companies to focus on their core lines of business, while they have a dedicated co-employment team handling their administrative duties and minimizing their risks.
Specifically, PEOs can help with risk management in four core ways:
1. PEOs manage workers compensation
For most businesses, workers’ compensation insurance is a requirement. Although, navigating the world of safety regulations can be complex and time-consuming. Especially with the rise of remote work.
While there are costs associated with the workers’ compensation claims, there are also significant fines for employers who aren’t compliant with the relevant laws and regulations. So, getting it right is fundamentally important.
When you hire a PEO, they will take care of your workers’ compensation needs, so you don’t have to. Specifically, they will ensure you are compliant with all workers’ compensation policies, that you have an adequate plan to cover your employees, and that the coverage is up to date.
They will also have a dedicated team to handle any workers’ compensation claims that arise. This keeps you focused on your business rather than navigating the relevant employment law.
2. PEOs handle employee tax risk
PEOs will calculate and pay your required payroll tax liabilities to the right government agency on schedule. They will ensure you best optimize your tax bill by knowing and taking advantage of any deductions that are allowed.
If you work with a certified PEO, they will be solely responsible for the federal tax liability and penalties as the employer of record. This takes a significant amount of liability away from small to medium-sized business owners.
3. PEOs reduce the risk of payroll error
According to HR Dive, payroll errors impact fifty-four percent of workers, and 49% of them start looking for a new job after just two errors occur. So, having the right systems in place to create error-free payroll is important.
When you engage with a PEO, they will help you automate your payroll processes, handle the payment for you, and withhold payroll taxes, which will ultimately help minimize errors.
4. PEOs take care of benefits administration
When you hire a PEO, they will manage employee benefit schemes on your behalf. These include annual leave, vacation leave, and sick leave, as well as health insurance, workers’ compensation, allowances, retirement contributions, and other required benefits.
By having an experienced HR team administer these benefits, you reduce the risk of lawsuits from errors or omissions.
Axis Group on PEO risk management
Conclusion
In the current era, the world of work is changing. As more companies go remote and the legislative environment continually changes, it is important to have an HR team that’s up to speed and minimizes your risk.
While it’s demanding on a small in-house team, PEO risk management services are a viable and affordable solution to help small to medium-sized businesses stay compliant and fuel company growth.
FAQ
A PEO helps manage risk by entering into a co-employment agreement. As they become the employer of record, they handle the administrative duties for the client company's employees. They manage workers’ compensation, handle employee tax risk, reduce the risk of payroll error, and take care of benefits administration.
PEO risk management is when a company outsources its HR resources functions, such as employee payroll, workers’ compensation, and employee benefits to a Professional Employer Organization. By doing this, they have a dedicated co-employment team handling their administrative duties and minimizing their risks.
