Trish Barnes on December 8, 2014
The concept of co-employment where an employer outsources tasks to a professional employer organization (PEO) has gained some serious ground in recent years. According to a survey by the National Association of Professional Employer Organizations (NAPEO), “it is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. The average PEO has grown more than 20 percent per year for each of the last six years.”
Due to the results that many companies have experienced, co-employment is attracting the attention of more and more business owners. Let’s now discuss the basics of this type of arrangement to help you get a better idea if it could work for your business.
What is Co-employment?
The proper definition is “a contractual allocation and sharing of employer responsibilities between a professional employer organization (PEO) and client.” Simply put, you outsource various tasks to a third-party and they help you run your business more effectively and efficiently. There is a high degree of customization with this arrangement, so you can determine how much or how little you want to outsource to a PEO. Some companies only outsource a handful of tasks, while others opt for a large percentage.
Co-employment is a Partnership
With this type of relationship, you transfer many responsibilities to a third-party. You’re collaborating with a professional firm that will handle the duties that you either don’t have the time for or don’t feel comfortable with doing on your own. You also minimize some of your risks because and don’t have the sole burden of ensuring compliance with laws and regulations. A PEO maintains a certain level of control over the direction and culture of your company because they have the right to hire, reassign and terminate employees.
Common Services of PEOs
Although PEOs can run the gamut in terms of the specific services they provide, some common ones include:
- Hiring, training and terminating employees
- Benefits management
- Assessing performance
- Payroll processing
- Tax compliance
- Risk management
These firms understand that each business is unique and there isn’t a one size fits all formula. Consequently, they are usually willing to work with you and determine the best approach for your company.
Benefits of this Work Arrangement
By outsourcing a portion of responsibilities, it gives you more time to focus on the overarching vision of your company. You won’t be bogged down with as many redundant or time-consuming tasks, so you can concentrate on your natural strengths to grow your business. This should lead to increased productivity and less stress.
You can also minimize your amount of risk dramatically. Because a PEO will have an in depth knowledge of laws and regulations, as well as the inner workings of the EEOC and OSHA, this can greatly reduce your odds of getting hit with fines or lawsuits.
Finally, you can expect to see higher profitability over time. With many tasks that were formerly arduous becoming streamlined, you can improve performance across the board. Better quality goods or services combined with talented employees and regulatory compliance is a realistic way to increase your profits.
Although making the transition to co-employment takes time, it’s usually well worth the effort when you look at the big picture. While it’s not for everybody, you should definitely take it into consideration if your business isn’t currently operating with the level of efficiency you’re looking for.