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The Pros and Cons of Outsourcing to a "PEO"

Finding out if a PEO could be right for you

Thanks to COVID-19, many small and growing companies are hesitant to add non-revenue generating headcount. However, as companies grow, they need to build out infrastructure, including human resources, to support that growth. After all, how will you recruit, retain and manage your workforce? But taking on additional headcount too early can siphon resources that could be deployed elsewhere. The solution? A relatively straightforward outsourcing alternative: the professional employer organization. 

Why a PEO makes sense

Instead of outsourcing limited functions (such as payroll) to a third party, a PEO offers a full suite of services. PEOs are third party, outsourced, HR organizations and are normally the employer of record. The paychecks come from the PEO, based on what the company (or client, if you will) tells it to pay. The company deposits money with the PEO and the PEO cuts the checks (and, naturally, keeps the interest on the money earned between those two events). And, of course, the company pays the PEO a monthly fee for these services and more.

Like what, you ask? A big draw is the ability to pool all its clients and offer a competitive benefits package to the employees, certainly better than anything a small company could get on its own. On top of that, the PEO ensures the company is compliant (HR-wise) with the various applicable federal, state, and local laws. The PEO will take care of workers comp coverage, ensure sick leave is calculated correctly based on an employee’s locale of work, and will even answer all the ad-hoc questions that the CFO or COO (who is usually responsible for HR in the absence of an HR director) may pose.

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